Sphere Entertainment Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 11, 2025

Key Takeaways

  • Positive Sentiment: Our Wizard of Oz at Sphere presales have surpassed 120,000 tickets with 200,000 expected by opening, and we’re preparing a next AI-driven “From the Edge” experience for early 2026.
  • Positive Sentiment: Q2 2025 total revenues reached $282.7M, Sphere segment revenues climbed to $175.6M (from $151.2M), adjusted operating income grew by $30.4M year-over-year, and net debt was reduced to approximately $388M.
  • Positive Sentiment: Event programming is expanding with over 100 concerts planned in 2025 (up from 70 in 2024), recurring corporate events like the Hewlett Packard keynote, and a growing slate of Exosphere advertising and sponsorship deals.
  • Positive Sentiment: Our global footprint is growing as Sphere Abu Dhabi enters preconstruction and a franchise model for lower-cost, faster-build small-scale spheres is ready for partner engagement in multiple markets.
  • Negative Sentiment: MSG Networks revenues fell to $107.1M (from $122.2M) due to a 13% subscriber decline, though a debt restructuring improved adjusted operating income and amended media rights fees.
AI Generated. May Contain Errors.
Earnings Conference Call
Sphere Entertainment Q2 2025
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good morning, and thank you for standing by. Welcome to the Sphere Entertainment Company Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' remarks, there will be a question and answer session. I would now like to turn the call over to Ari Danes, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you. Good morning, and welcome to Sphere Entertainment's second quarter twenty twenty five earnings conference call. Today's call will begin with our Executive Chairman and CEO, Jim Dolan, who will provide an update on the business. Robert Langer, our Executive Vice President, Chief Financial Officer and Treasurer, will then review our financial results for the period. After our prepared remarks, we will open up the call for questions.

Speaker 1

If you do not have a copy of today's earnings release, it is available in the Investors section of our corporate website. Please take note of the following. Today's discussion may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties.

Speaker 1

The company disclaims any obligation to update any forward looking statements that may be discussed during this call. On Pages five and six of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income or AOI, a non GAAP financial measure. And with that, I'll now turn the call over to Jim.

Speaker 2

Thank you, Ari, and good morning, everyone. As we said from the start, our goal was to design and operate a venue that's busy three sixty five days a year with multiple events on most days. And while we started in Las Vegas, our strategy has always included a global network of sphere venues. This year, our priorities have been to continue enhancing our operating model in Las Vegas, drive long term profitability for the business, and advance our plans to bring SPEAR to Abu Dhabi and additional markets around the world. Our original content category, the SPEAR experience, has been one of the key profit drivers of the business, and we remain focused on developing a diverse slate.

Speaker 2

Our next experience, the Wizard of Oz at Sphere, will be the best example to date of experiential content in this new media. We will be utilizing innovative technologies like AI, and that innovation will continue with the production of our next Sphere experience from the edge, which we expect to debut in 02/1926. In terms of early demand for The Wizard of Oz at Sphere, we have sold over a 120,000 tickets to date and expect to reach 200,000 by the opening later this month. We're also seeing increasing demand from artists across a variety of genres, which are driving renewed interest in their music by playing Sphere in Las Vegas. We have continued to add shows to our calendar and now expect to host more than 100 concerts this year, up from 70 in 02/2024.

Speaker 2

We are also making progress building a recurring base of revenues. In terms of corporate events, this past June, Hewlett Packard held a keynote at Spear for the second consecutive year, and we're now in discussion with a number of companies that have held events at Spear and are looking to return. We're also expanding our roster of advertisers on the exosphere. This includes securing advertising commitments as part of a new multiyear sponsorship. With regards to our expansion plans, we recently entered into agreements related to the construction, development, and operation of Sphere Abu Dhabi and are now finalizing the preconstruction phase with the Department of Culture and Tourism.

Speaker 2

At the same time, discussions are ongoing with a number of other international markets regarding large scale spheres. In addition, we have now completed our design and business model for small scale spheres, which could be built faster and at lower cost and are already in the market having discussions with potential partners. I will now turn the call over to Robert, who will take you through our financial results and MSG Networks debt restructuring.

Speaker 3

Thank you, Jim, and good morning, everyone. For the June, we generated total company revenues of $282,700,000 and adjusted operating income of $61,500,000 Our Sphere segment generated revenues of $175,600,000 as compared to $151,200,000 in the prior year period. This growth was mainly driven by an increase in event related revenues with additional corporate events and nine additional residency shows held in the current year quarter, partially offset by the absence of a marquee sporting event. It also reflects the impact of revenues related to bringing the world's second sphere to Abu Dhabi. These revenue increases were offset by lower revenues from the Sphere experience, which was primarily due to lower average perpetual revenues offset by an increase in the number of total performances.

Speaker 3

Adjusted operating income for our Sphere segment was $24,900,000 and increased $30,400,000 year over year. This reflected the increase in revenues as well as lower SG and A expenses partially offset by higher direct operating expenses. The increase in direct operating expenses includes higher event related expenses and higher expenses associated with the Sphere experience, both driven by an increase in the number of events year over year. SG and A expenses for the June were $96,400,000 a decrease of $5,700,000 year over year. This includes the impact of the company's focus on driving cost efficiencies this year.

Speaker 3

As Jim discussed, we are making progress on executing on our core priorities to drive profitable growth at our Sphere segment. While we are still a nascent business where results can fluctuate quarter to quarter, we remain pleased with our overall trajectory and continue to see significant long term growth potential at Sphere. Turning to MSG Networks, the segment generated $107,100,000 in revenues and $36,500,000 in AOI in the June. This compares to $122,200,000 in revenues and $31,100,000 in AOI in the prior year period. The decrease in revenues stems from lower distribution revenue driven by an approximately 13% decrease in subscribers, partially offset by the impact of higher affiliation rates.

Speaker 3

The increase in AOI reflects lower direct operating expenses, partially offset by the decrease in revenues and higher SG and A expenses. On June 27, MSG Networks completed a restructuring of its credit facilities. In connection with our restructuring, MSG Networks also completed amendments to its media rights agreements with NSG Sports and certain other professional sports teams. Direct operating expenses include the impact of reduction in media rights fees as a result of these amendments, including retroactive adjustments for the twenty twenty four-twenty twenty five season recorded in the second quarter. Turning to our balance sheet under MSG Networks debt restructuring in June, its prior $8.00 $4,000,000 term loan was replaced with a new $210,000,000 term loan facility, which will mature in December 2029.

Speaker 3

This debt remains non recourse to the parent company. Upon closing, MSG Networks also made a cash payment of $80,000,000 to the lenders, which was comprised of $65,000,000 from MSG Networks and a $15,000,000 capital contribution from the company. After MSG Networks debt restructuring, our net debt at the end of the quarter was down to approximately $388,000,000 which reflects $356,000,000 of unrestricted cash and $744,000,000 in principal debt outstanding. In addition to MSG Networks' new term loan, our debt balance at quarter end included $259,000,000 in convertible debt and a $275,000,000 credit facility related to Sphere in Las Vegas. And with that, we'll now open the call for questions.

Operator

Your first question comes from Brandon Ross with LightShed Partners.

Speaker 4

Hey guys, thanks for taking the questions. Jim, you finished your prepared remarks by saying you'd completed your plans for the smaller spheres. I was hoping you could tell us more about them. Anything you want to share, including the business model, the cost, potential markets and thoughts on who might be the right partners for that.

Speaker 2

Okay. Well, elongated question. The the the smaller spheres are, the important thing was the design. Right? The the and at least I thought it was.

Speaker 2

And the design of of these spheres is quite similar to to our large sphere in Vegas with a couple of of improvements of the but the business model is is quite similar, right, which is to keep the venue busy, you know, three hundred sixty five days a year. All the content that's created for Sphere in the in Vegas and, eventually, Abu Dhabi will also play in any of these small Spheres. We've completed the design of it. We've also completed the business model, and the the the business model is designed along a franchise kind of approach. The the so the the we are out in the marketplace now, right, beginning to expose potential investors to the business model and looking at different locations for for small spheres.

Speaker 2

These things these spheres will be less expensive, much less expensive than than than Las Vegas was. They'll also be faster. They they they can get built faster. The the my hope would be in that we could build a small sphere in a little over two years from when we break crack. And so so we're starting.

Speaker 2

The the and it all does follow the the same model. The the content was created out of sphere studios will be, as I said, playable in all in all spheres. So at some point, you will, as we build these, you will see postcards from Earth. You will see Wizard of Oz. You will see from the Edge and other products that we that we create for for large sphere will play in the small spheres too.

Speaker 4

Okay. And just to clarify, you said that they would be on the franchise model. So that means Capital Light, are you guys gonna contribute capital to the mini spheres?

Speaker 2

Yeah. The we we think Capital Light that they you know, I won't I won't completely eliminate the notion that we'll have some, you know, stub investment, etcetera, in order to to help it. But, you know, we're our strategy really is to is to get this thing moving and to open a lot of the the so, no, we won't be investing. But and we shouldn't. We we we're we've proven out the model with with with Vegas.

Speaker 2

We'll prove it out again that the in the in the other ones and should become the the, you know, easy to invest in because you'll have a a a pretty solid path going forward.

Speaker 4

Thanks for taking the question.

Speaker 2

Sure.

Operator

Your next question comes from David Kornoski with JPMorgan.

Speaker 5

Thank you. Jim, you noted a ticket sold to date for Wizard of Oz, but can you help provide some context around that? Maybe how the presales compared to postcard and and, you know, maybe stepping back, what just kind of underlies your confidence generally about, you know, transitioning the, the audiences to the new content?

Speaker 2

Sure. Look at the you know, up until this point, we've sold about, actually, today, I think we're at a 127,000. Let the, and we're entering that period that we're quite familiar with from the Christmas Spectacular show, which is that in the three weeks prior to the event, right, the better than 50% of the tickets get sold. Now if you apply the same ratios to to to Wizard of Oz, that the you know, we should start to actually see ticket sales ramp up from here. The the yes.

Speaker 2

And, you know, and that's how our marketing is set up, etcetera. But, I mean, look, you've got we gotta open the show and and, like like a little bit like Postcards from Earth, nobody quite knows what they're going to see until, you know, until we open it. We're we you know, we're very proud of the product. We think it's it's groundbreaking. We think it's that it's going to to draw a lot of attention and that people who come to Vegas are are gonna wanna go.

Speaker 2

Right now, the the the SPEAR sees 7% of the total visitors to Las Vegas see the SPEAR. My I think that we should look to get well over 10% that with the Wizard of Oz and the and, you know, that just turns into more success for the product.

Speaker 5

You know, once Woz is live, I'm just curious how you're thinking about the library content. You referenced it a little bit before in the context of smaller spheres. But how would you think about the amount of view to or or postcard shows, from here?

Speaker 2

Say again, please.

Speaker 5

Just wondering how you're thinking about utilizing your your existing shows to postcard Sure.

Speaker 2

Okay. So look, all of the shows that we've created so far, right, are created with the notion of them being evergreen. So it would not surprise me if ten years from now in Abu Dhabi, you go and you could, you know, see a showing of postcard from Earth. That's entirely that's well, actually, quite likely. As there is you know, as really we're the only ones who are creating experiential immersive content like like we are.

Speaker 2

The you know, it's you know, the the you know, I I think those those products will get used again and again as long as they're not dated, and they're not. They they they and as we get better at them, I will have more of a of a slate for each one of the spheres. Likely, you'll see certain days, right, in in a small sphere like Friday's Wizard of Oz day. Saturday is is from the edge day, and interspersed with corporates and some probably some concerts.

Speaker 4

Thank you.

Operator

Your next question comes from Steven Lasik with Goldman Sachs.

Speaker 6

Good morning. This is Antares on for Steven. Thanks for taking the questions. A couple on concert residencies. First, as you're looking into 2026, you've had some good diversification this year of the genre types that we've seen with Backstreet and Zach Brown.

Speaker 6

Do you expect more new genres to come next year? And then maybe longer term, if you could touch on what the upper limit might be for these residencies? You mentioned over 100 this year. Just wondering what that might look like over the next year or two. Thank you.

Speaker 2

Well, there there are look. There are some key things to that that they they probably most important to us is that the the way the residencies are constructed, the way that the performances are constructed, that we're able to run things like Wizard of Oz two or three times during the day and then then shift into the concert in the evening, the and variations off of that theme that they so as long as we can do that, we can we can keep on taking, you know, more cons more concerts. But you should understand that the the the the way the business was designed was to create contention between the different acts that appear at at at the sphere between, you know, Wizard of Oz and the Backstreet Boys and the Eagles and and even the corporates, etcetera, they're all vying for days, right, and and screen time. Let the and we will most likely, you know, decide that based on what gets us the best grosses. So the the, you know, The Wizard of Oz is gonna be interesting to watch because, you know, it it could very well be that The Wizard of Oz is is doing so well that it nudges out one or two concerts, the or corporate because, you know, I wouldn't I wouldn't rent the venue to somebody for a million and a half dollars or $2,000,000 if I can do $4,000,000 with with the product that I already have and is already paid for.

Speaker 2

So that's the contention. And that's that was, you know, by design. So, I mean, I will say that that the big name concerts, right, they do bring in, you know, people who haven't been to the sphere before or interested in the act. And and so there's, you know, a little bit of loss leader thinking on that, although I wouldn't call it a loss. Right?

Speaker 2

Maybe a less lead thing on it. The the but that's what we manage. That's what what Jen manages.

Speaker 6

Great. Thank you.

Operator

Your next question comes from Peter Cipino with Wolfe Research.

Speaker 7

Hi. Good morning. I'll try to work through three questions with you, if you don't mind. The first is whether you foresee future sphere experiences being based on owned IP, or should we look at the Wizard of Oz as a template? Will you possibly or or do you intend to have many movies that are recreated for the sphere?

Speaker 2

That's a very good question because I'm not sure what the answer is yet. I know it's on the slate for the next year, and, you know, we're I mean, for one thing, it's Wizard of Oz was not an inexpensive project. And on top of which, we think it's gonna have a a high demand. So how long do I run the Wizard of Oz? Right?

Speaker 2

I mean, ultimately, we'll run Wizard of Oz forever, but who gets the screen time? Right? Follow-up on Wizard of Oz is a a feature called from the edge, which is very, very different than The Wizard of Oz. The it has little or no AI in it, right, but has the but utilizes heavily live capture, which will create even more of an experience inside of the sphere itself. So what comes after that, we're actually talking to several different, you know, IP holders and coming up with some of our own IP.

Speaker 2

I don't think we're really very stuck on who owns the IP. It it's more of a question of what the cost of the IP is. Right? The the and, you know, The Wizard of Oz model is is pretty good. We're we like our deal with Warner Brothers, and we think it's one of the interesting things about it is pretty much everybody who has come to the sphere, like all of the acts and now I think even Wizard of Oz, that you find a a renewed public interest in the IP.

Speaker 2

So there's a benefit to the IP holder to licensing the licensing to the Spear because they see other revenue streams increase, etcetera. Like, you know, for instance, like the Backstreet Boys appearing at Spear and then their record sales going up and and and their bookings going up, etcetera. And, you know, Grateful Dead, all this is the same kind of thing that they so, you know, it's so I think we're basically somewhat indifferent to who owns the the IP. What we're more focused on is that we put together a great show.

Speaker 7

Following up on that subject of of content. I actually, first, a digression. I have a Jimmy Chin coffee table book in my house, and I think you could sell some of those in the lobby of the sphere after the movie. But, the question is, has AI made the production of The Wizard of Oz easier, and and how much cheaper and efficiently do you think you can recreate films in the future?

Speaker 2

Well, first off, without AI, I don't think we would have done The Wizard of Oz. The the the we couldn't have gotten it to the resolutions. We couldn't have gotten it to the emerging levels with the etcetera that we did without Google and and their AI. While we're we're but in doing that, that they you know, we broke a lot of new ground in in AI. And I do think that that the technology is going to be used again and again.

Speaker 2

I don't know that it will always be by us. I rather doubt it, although we do have first dibs for a while. The the, and then the question is, you know, what's the IP? Right? I mean, is it, you know, is it gone with the wind?

Speaker 2

Right? Does that have enough appeal to to bring in the kind of audiences? I mean, they yeah. It's hard for me to imagine a better product than Wizard of Oz right now, but you never know. And we are we are in active discussions with lots of IP holders who are interested in seeing their IP turned into this.

Speaker 2

I will say that the the, you know, the AI for for Wizard of Oz was difficult, difficult for everybody at all. Right? Because we did a lot of things for the first time, out painting resolutions, all the things that go along with with with using the AI were all done for the first time. So they should be definitely a lot easier the second time. But I I don't have any specific plans to tell you about with that.

Speaker 7

Alright. Thanks. And my last question relates to the price of a ticket to the Wizard of Oz. It's a lot higher than a ticket to postcard from Earth when that went on sale. Could you unpack what gave you the confidence to take prices up?

Speaker 2

Well, look, we're still, I think, either at or below the the average of of ticket in Las Vegas for the major shows like O and The Stare, etcetera. So the you know, I think, initially, with Postcards from Earth, we wanted to make entry really easy, right, just to get people, you know, familiar with the product, to get it thought being talked about, etcetera. But I think since the product has prove proven itself, I think it's certainly worth the the price the the ticket price. And so that's why we went forward with the pricing.

Operator

Your next question comes from Peter Henderson with Bank of America.

Speaker 8

Yes. Good morning and thank you for taking the questions. I want to start with one on Sphere and then have a follow-up on MSGN. So just want to touch upon your opening comments around international expansion. Can you provide any additional color on those conversations?

Speaker 8

And whether or not they're in sort of early or advanced stages? And I believe that you mentioned that for the international expansion that you're focused on full size spheres and just wanna confirm that.

Speaker 2

They they we'll do both. Let's say, I don't think we're particularly you know, you know, it has to match the market size. Right? And and market is is judged by, you know, you know, what the population is in the market to start off with and then things like tourism, etcetera. So they you know, you don't wanna build a smaller facility that will get overrun.

Speaker 2

You don't wanna be build a bigger facility that will get underused. So you kinda gotta match it up. As far as, the individual markets, we are in discussions with a bunch of different marketplaces. I don't really have a lot more color to add to you today. Maybe at the next quarter's review, we'll have something more to say.

Speaker 8

Okay. Thank you. And then on on MSG Networks, just wondering with, know, with the restructuring now complete, you do have any updated thoughts on the possibility for for strategic transaction there?

Speaker 2

Well, I, you know, I think that we're, considering it, looking at it, trying to figure out the the marketplace. I I will say that, you know, I think we're big believers in in a consolidated marketplace with sports. Other words, one place for you to go to to see all of your teams in in your marketplace that that that that product has a lot of power with the with the consumer. Right? So, you know, we're, you know, we have with between us and the and the YES network, we have most of the teams, right, that they I wouldn't mind getting the rest.

Speaker 2

Uh-uh. It's really only one. The the but, you know, in terms of, you know, what a transaction like that would look like and and what the ownership structures would look like, you know, we don't have enough meat on the bone yet to say.

Speaker 5

Thank you.

Speaker 1

Operator, we have time for one last caller.

Operator

Your final question comes from David Joyce with Seaport Research Partners.

Speaker 9

Thank you. A couple, please. Could you please update us on the sponsorship and advertising trajectory? Any thoughts on the forward demand and the progress on the exosphere granted it was down 3% in the quarter. What were the puts and takes on that?

Speaker 9

And then maybe you could tie that into a second question on the Las Vegas overall market visitation being down. What are you seeing in terms of the impacts on that for the September? Thank you.

Speaker 2

I think I'm gonna give both of those to Jack.

Operator

Okay.

Speaker 10

Let me take your first one, the forward demand on Exosphere and sponsorship. So we're continuing to make progress on our evolving go to market approach and establishing this recurring book of business when we think about sponsors and advertisers on the Exosphere. We've seen some early successes with our new packages, including sixty second spots that gives our advertisers even more exposure. We've also been rolling out some more comprehensive in venue packages that includes IPTVs, Atrium surfaces. And, again, this is a complimentary to our exosphere advertising and gives just even more value to our partners.

Speaker 10

During this quarter, we also secured a deal with a media agency to drive, upfront advice. Again, it's directly going against, you know, the priority to build more recurring revenue base. To that point as well, we've expanded our roster of ad sponsors, and have announced several multiyear sponsorships agreements. So, I mean, I think we're making progress here, and we, you know, continue to see significant demand in growth in that area of the business.

Speaker 2

I will I will say that, if you remember, we changed our representation, right, at the beginning of this year. So the the it almost felt like we were starting from ground zero in some way. We're we have not fully, you know, adapt that group, although we're we're well on our way to doing it. So I think, you know, building a Salesforce, having been a salesman for a long time, is not an easy thing to do, and getting it rolling again, etcetera. And I think we're making really good progress.

Speaker 10

Then your second question on impact of Las Vegas visitation. You know? So we're mindful of the Vegas visitation trends, but, you know, as Jim said before, we are focused on positioning the business for long term growth. And a lot of the priorities that we've been focused on the past two quarters, you know, building original experience slate, diversifying artists in the venue, and establishing the recurring book of business is really where our focus is. And as a nascent business, you're gonna see fluctuations quarter to quarter, and that's gonna vary based on a number of factors whether in market or not.

Speaker 10

So that being said, we remain pleased with the overall trajectory of the business, and we're gonna continue to see significant long term growth.

Speaker 9

All right. Thank you very much.

Operator

That concludes our Q and A session. I'll now turn the conference back over to Ari Danes for closing remarks.

Speaker 1

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

Operator

This concludes today's conference call. You may now disconnect.

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