Ari Danes - Vice President of Investor Relations Hank J. Ratner - Chief Executive Officer and President Robert M. Pollichino - Chief Financial Officer and Executive Vice President Ryan O'Hara - President of Content, Distribution & Sales Melissa Miller Ormond - President and Chief Operating Officer Dave Howard - President of MSG Sports.

Benjamin Swinburne - Morgan Stanley, Research Division Michael Senno - Crédit Suisse AG, Research Division Vasily Karasyov - Sterne Agee & Leach Inc., Research Division Bryan Goldberg - BofA Merrill Lynch, Research Division Martin Pyykkonen - Wedge Partners Corporation Michael C.

Morris - Guggenheim Securities, LLC David Carl Joyce - ISI Group Inc., Research Division Amy Yong - Macquarie Research Laura A. Martin - Needham & Company, LLC, Research Division Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division.

Good morning. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to The Madison Square Garden Company Fiscal 2014 First Quarter Earnings Conference Call.

[Operator Instructions] I would now like to turn the call over to Ari Danes, Vice President of Investor Relations for The Madison Square Garden Company. Please go ahead, sir..

Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties.

That actual results or developments may differ materially from those in the forward-looking statements as a result of various factors, including financial community perceptions of the company and its business, operations, financial condition and the industry in which it operates and the factors described in the company's filings with the Securities and Exchange Commission, including the sections entitled Risk Factors and Management's Discussion and Analysis of Financial Condition and the Results of Operations contained therein.

The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. Let me point out that on Page 4 of today's earnings release, we provide consolidated operations data and a reconciliation of adjusted operating cash flow, or AOCF, to operating income.

I would now like to introduce Hank Ratner, President and CEO of The Madison Square Garden Company..

Thank you, Ari. Fiscal 2014 is an important year for our company as we near the successful conclusion of a significant capital investment cycle and position our company for its next chapter.

In this regard, the first of 2 important milestones was achieved last week as years of planning and execution culminated for the October 25th debut of a fully transformed Madison Square Garden Arena. The completion of The Garden's 3-year top-to-bottom transformation, represents one of the most pivotal events in our company's history.

Reviews of this unprecedented project have been universally positive, with our customers now experiencing the new amenities provided as part of the third and final phase of the project.

These include the 2 spectacular Chase Bridges, which provide a one-of-a-kind view of the action in Chase Square that completely transformed main entrance to the arena.

In addition, we have debuted the Eighteen76 Balcony on the bridge level, which offers unique lounge seating with direct views into the arena bowl; the new Signature Suite Level with 18 transformed signature suites; 10 additional moments for our top 20 Defining Moments of the Garden Concourse; a new state-of-the-art high definition GardenVision, our center-hung multimedia display; and the restoration of The Garden's world-famous ceiling.

This final phase followed 2 previous phases, which delivered for our customers more comfortable seating with significantly improved sightlines, wider concourses with city views, brand-new food offerings from some of the New York's best chefs and an expanded lineup of exclusive clubs and suites.

The Transformation, which was designed to benefit everyone who walks through our doors, has exceeded all of our expectations as the world's most famous arena has now become the world's most state-of-the-art arena, ensuring that The Garden continues its legacy of bringing world-class events to New York City.

We are pleased that this already includes the NCAA Eastern Regional finals in April of 2014, followed by the 64th NBA All-Star game in the February 2015, events that we know will deliver the kind of historic, unforgettable experiences that people have come to expect when they attend an event at Madison Square Garden.

A second significant milestone is just around the corner, the planned reopening of the reinvented Forum in Inglewood, California in January of 2014. Our plans for this venue have been met with great enthusiasm, and we remain confident that a thriving Forum will fill a significant need in the greater Los Angeles market for music fans and artists.

Turning to our MSG Media segment.

With respect to MSG Networks, which serves as the local broadcast home to the New York Knicks and Rangers, as well as the New York Islanders, New Jersey Devils and Buffalo Sabres, we are pleased that for the first time in 3 years, they are able to, once again, bring local sports fans full seasons for both the NBA and NHL.

Meanwhile at Fuse, we've been executing against our strategy for the network by rolling out a new lineup of original programming and building the network's digital presence. Fuse's value has not gone unnoticed with various parties expressing strategic interest in the network.

We have engaged JPMorgan Chase to assist us in exploring strategic alternatives for Fuse. We will have no further comment on this process during this call and remain focused on executing against our strategy for the network.

With respect to MSG Entertainment, we remain confident that we have the right strategy and mix of assets its place to return this segment to AOCF profitability.

We are looking forward to the remainder of this fiscal year, which we expect to include improved results for the Radio City Christmas Spectacular franchise, the reopening of the Forum in January and the spring debut of Heart and Lights, our new large scale theatrical production at Radio City Music Hall. Turning to MSG Sports.

As you know, the NBA and NHL 2013, '14 regular seasons are now under way. This week, the Knicks, led by reigning NBA scoring champion, Carmelo Anthony, and the Rangers led by new head coach, Alain Vigneault, and goaltender, Henrik Lundqvist will play their home openers at Madison -- the fully transformed Madison Square Garden.

We look forward to an exciting season of basketball and hockey. We believe both the Knicks and Rangers are positioned for success. We also continue to explore investment opportunities that make financial sense for our company.

In September, we completed our previously disclosed transaction with Azoff Music Management to create a new music, media and entertainment company called Azoff MSG Entertainment.

This joint venture provides a unique opportunity for MSG to strengthen its position within the music, entertainment and media landscape in conjunction with Irving Azoff, one of the most influential executives in the entertainment industry.

Given Irving's expertise and deep relationships, we believe this new venture offers us a compelling platform for which to capitalize on opportunities inherent in today's dynamic entertainment environment. The new company is managed by Irving Azoff and will not be consolidated in our financial statements.

Accordingly, we do not plan to provide additional details with respect to this business as any announcements are expected to be communicated directly by Azoff MSG Entertainment. As you've heard me discuss, we've had a substantial level of business development activity in recent months in our company.

This activity has included the third and final phase of the Transformation, preparing for the reopening of the Forum and the debut of Heart and Lights, our investment in Azoff MSG Entertainment and Brooklyn Bowl Las Vegas and our ongoing evaluation of strategic alternatives for Fuse.

At the same time, we continue to explore potential growth opportunities. We remain focused on growing our business and maintain the financial flexibility to pursue attractive opportunities. And whether or not plans include a return of capital has not yet been determined.

We are excited about our company's future prospects and believe MSG is well-positioned to drive long-term growth and continue value creation for our shareholders. I'll now turn the call over to Bob Pollichino to take you through our financial results..

Thank you, Hank. We are pleased with our first quarter results, which include total company revenues of approximately $215.6 million, up 6%, and consolidated AOCF of $65.5 million, up 3%, both versus the prior year first quarter.

In terms of our business segment results as compared to the prior year first quarter, MSG Media generated $166.6 million in revenues, an increase of $7.1 million or 4%. Affiliation fee revenue increased $8.7 million, primarily due to higher affiliation rates and to a lesser extent, a favorable affiliate adjustment that is not expected to recur.

Advertising revenue increased approximately $2.5 million due to higher advertising sales at Fuse and, to a lesser extent, at MSG Networks. Other revenues decreased approximately $4.2 million, primarily due to the expiration of a short-term programming licensing agreement this past April.

MSG Media AOCF of $81.5 million was up 6%, primarily due to higher revenues, partially offset by an increase in direct operating expenses and SG&A expenses.

Our MSG Entertainment segment generated $28.6 million in revenues, down 7%, primarily due to lower event-related revenues at Radio City Music Hall and to a lesser extent, at the Beacon Theatre, partially offset by an increase in venue-related sponsorship and signage and suite rental fee revenues, as well as other net increases.

The decrease in event-related revenues at Radio City was primarily due to the impact of the absence of Cirque du Soleil's Zarkana and to a lesser extent, fewer other events, largely offset by the impact of NBC's highly-rated television show, America's Got Talent, which was broadcast live from the venue from July into September.

MSG Entertainment's AOCF loss of $15 million increased $2.5 million due to the decrease in revenues and to a lesser extent, higher SG&A expenses, partially offset by lower direct operating expenses. Turning to our MSG Sports segment.

MSG Sports generated $38.2 million in revenues in the first quarter, a 21% increase, primarily due to higher rental fee revenue, lead distributions and other net increases.

Sports AOCF increased by $1.5 million to $2.9 million, primarily due to the increase in revenues and to a lesser extent, lower SG&A expenses largely offset by higher direct operating expenses.

With respect to the Transformation, construction costs incurred during our first quarter were approximately $72 million, while project-to-date costs incurred through September 30 were approximately $988 million.

As we close out this unprecedented project, we continue to expect total Transformation-related construction costs not to exceed $1,050,000,000 inclusive of various reserves for contingencies.

As of September 30, total net cash and cash equivalents was approximately $119 million, which is net of our recent investment in Azoff MSG Entertainment and Brooklyn Bowl Las Vegas. Please note that these investments will be accounted for under the equity method of accounting, and results will be recorded on a lagged basis.

And lastly, our $375 million revolver remained undrawn with our borrowing availability unchanged at approximately $368 million, as there remains approximately $7 million in letters of credit outstanding. I will now turn the call over to Ryan O'Hara to provide highlights from our MSG Media segment..

Delta, Coca-Cola, Anheuser-Busch, Kia Motors America and Lexus. We also recently announced a new multi-year marketing partnership, designating Lenox Hill Hospital as the exclusive official hospital of the New York Rangers and an official partner of Madison Square Garden.

This deal will provide Lenox Hill with unique brand exposure across multiple platforms, including branding inside the transformed Garden. It's yet another example of how this type of customized marketing platform can only be provided by MSG. I will now turn the call over to Melissa Ormond to provide highlights from our MSG Entertainment segment..

Atlanta, Tampa and West Palm Beach. We look forward to a successful holiday season run in and outside of New York. At the same time, we continue to prepare for the debut of Heart and Lights, our new theatrical production at Radio City Music Hall.

The production showcases the legendary Rockettes in brand-new modernized dance styles and features elaborate production numbers, dazzling costumes and innovative technology.

New York City, past and present, is brought to life through the Rockettes' production numbers, woven together by a heart-warming journey through New York City as conceived by Pulitzer Prize and Tony Award winner, Doug Wright. For its first year, the production will run for a limited 5-week engagement, with preview performances starting March 27.

We look forward to the show's debut and expect Heart and Lights to serve as an anchor production at Radio City for years to come. Turning to our bookings business. The fully transformed Garden, which was recently named the Coolest Arena in the Country by Rolling Stone magazine, will open on October 25.

We have an impressive lineup of artists playing the venue this quarter, including Rod Stewart, Z100's Jingle Ball, as well multi-night runs with Ed Sheeran, The Eagles, Kanye West, Elton John, who will perform his 63rd and 64th shows at The Garden in December, and our annual engagement with Phish for 4 nights to close out the year.

We also have a wide variety of artists and events playing our other venues in New York, Boston and Chicago this quarter, including 3 shows of Macklemore & Ryan Lewis, an evening with Van Morisson, a Stand Up For Heroes event, featuring Bruce Springsteen, Jerry Seinfeld, John Stewart, Roger Waters and many others, as well as a multi-week lineup of the Tony Award-nominated A Christmas Story, The Musical, all at The Theater at Madison Square Garden.

A Christmas Story will also run at the Wang Theatre, while other notable multi-market shows includes Cyndi Lauper and John Legend, both at the Beacon, Chicago and Wang Theatres.

The lineup at the Chicago Theatre also includes Jerry Seinfeld and Bill Cosby, while at the Beacon notable multi-show engagements include Steely Dan, John Fogerty, The New York Comedy Festival and Gov't Mule.

With respect to the Forum, the reinvention of this iconic venue remains on schedule, with The Forum set to reopen on January 15, 2014, with the performance by The Eagles, who will play a total of 6 shows in January.

As expected, the response by artists to the return of the fabulous Forum has been enthusiastic, and we are very pleased with the bookings to date. We have confirmed many exciting acts, which we look forward to announcing in the coming weeks.

These performers will join the shows we have already announced, including The Eagles, Justin Timberlake, Imagine Dragons and Armin van Buuren. I will now turn the call over to Dave Howard to provide highlights from our MSG Sports segment..

Thank you, Melissa. We continue to see strong ticket demand for the Knicks and Rangers 2013, '14 regular seasons, a testament to our passionate and loyal fans. As previously discussed, renewal rates for season tickets were very strong, with an over 97% renewal rate for the Knicks season tickets and over 92% for the Rangers.

Further, we are pleased to report that Knicks season tickets are now sold out for the fourth consecutive year, and we expect the Rangers to be sold out for the seventh consecutive year shortly.

Garden seating capacity for Knicks' and Rangers' games has increased by approximately 800 seats this year, largely due to the addition of the Chase Bridges and the Eighteen76 Balcony, bringing the seat count back to pre-Transformation levels.

The Chase Bridges offer a total of over 400 seats, that deliver a unique experience combined with a one-of-a-kind view of the action. Bridge seats went on sale a few months back, and we are very pleased with the level of demand.

Anheuser-Busch's Eighteen76 Balcony, which is on the bridge level, represents yet another unique viewing experience for our customers.

For individual ticket buyers, we now offer access to club seats on the balcony, which include more comfortable seating, with in-seat beverage service, that are just steps away from new food options, including items from the MSG Signature Collection.

Also available on the Eighteen76 Balcony are the 6 new lounges, each of which offers up to 700 square feet of an exclusive hospitality space with the direct views into the seating bowl, plus food and beverage. Each lounge has fixed seating for 28 people and up to an additional 14 bar stool seats.

Up to 3 lounges can be combined to create an even larger guest hospitality space. The lounges enable us to target the important group sales customer, better maximizing the revenue opportunity in the transformed Garden.

With the reopening of The Garden, we now have debuted the new Signature Suite Level, which features 18 transformed suites with access to the very best in sports and entertainment. These suites deliver a center-stage view for concerts, along with state-of-the-art amenities, including food offerings from some of New York's best chefs.

The Signature Suite Level also features a new lobby, with a special collection of memorabilia that pays homage to the many legendary athletes and entertainers who have left their signature on The Garden's rich history.

As Hank mentioned, the Transformation has exceeded our expectations across-the-board, attracting new marketing partners, helping to drive ticket sales and delivering an extensive portfolio of new premium products that has resonated with our customers, including the 1879 Club presented by JPMorgan, the Delta Sky360 Club, the Nespresso Event Level Suites, the Lexus Madison Level Suites, Madison Club presented by Foxwoods and The Signature Suite level.

Meanwhile, MSG Sports is set to host a variety of memorable sporting events. College basketball tips off with a full lineup of top national teams this season, including Duke, Arizona, Syracuse, Florida, Memphis and UCLA, along with the Big East Conference Tournament and the NCAA East Regional finals.

This quarter, The Garden will also welcome back Red Hot Hockey, featuring long-time rivals Cornell and Boston University, along with the WWE.

While tomorrow, The Theater at Madison Square Garden will host a night of championship boxing as Gennady Golovkin defends his WBA and IBO middleweight world titles against world-ranked contender, Curtis Stevens. I will now turn the call back over to Ari..

Thanks, Dave. Christy, we're ready to open the call for questions..

[Operator Instructions] Your first question comes from Ben Swinburne of Morgan Stanley.

Congratulations to the team and to Joel Fisher on the completion of the Transformation. I had 2 questions, Hank, for you. I wanted to ask on Azoff, how should MSG shareholders expect to see the benefit of that investment over time? Do you expect that to be an earnings contributor? I realize it's below the line.

Payout dividends or how does the asset value get reflected over time at the MSG level? And then on the NBA side, the new CVA was intended to give greater sort of cost certainty for the league, and one of the competitors to the Knicks has gone to a place, I think, where they're, at least according to press, spending $80 million in luxury tax.

Can you comment on how, as a public company, you're thinking about that long term? I think in the '15, '16 season, you're at the place where, in theory, a repeater tax could be a risk.

Is there anything you'd say to us today on how you're thinking about managing that down the road?.

As it relates to Azoff, I mean, we did that deal because we think it's going to create shareholder value, and it’s going to create value for the company and for the shareholders. We have a long history with Irving dating back to our investment in Front Line, which ultimately became our investment in Live Nation.

And the partnership with Irving dates back, and he one of the most significant players in the music and entertainment space, and through that relationship, many opportunities come to the company, one being the creation of this new business.

So we look at it, Irving is going to run the new business and we look that we're going to enure strategic value, as well as have an asset that we think is going to grow very nicely and deliver value to our shareholders.

As it relates to the NBA, there is this progressive tax that is an absolute part of the calculation when you're going and putting your roster together and signing players. That's something that you need to be -- remain cognizant of when you're building your team and you need to factor it into your financial model when you're making decisions.

And it's something that we do, and we look at the effects that our team and our roster has on the overall business, and we make what we consider to be the best and smart business decision, taking everything into account. So that's what we've done to date, and that's what we'll continue to do going forward..

Your next question comes from Michael Senno of Credit Suisse..

Just 2 questions. One on, in terms of capital allocation, I know you guys are -- renovation is past, The Forum is highly visible.

I'm just interested in what other factors you're currently waiting on to determine what direction and what type of magnitude of any other investments that you may be looking at? And then second, in terms of Media, there's been some more discussion around TV Everywhere rights and live streaming, I think, more in terms of the NBA at this point.

Just curious if you have granted any of those rights in your current affiliate deals or if that could be something that would generate incremental revenue over the next couple of years?.

I'll take the first one, and then Ryan will take the second one. As I said earlier, we have been engaged in a substantial level of business development activity in recent months. We've talked about the Transformation and we've talked about, for 3 years, the capital associated with the Transformation and our eye on liquidity through that period.

So the Transformation again, big, big focus and we're happy to say, we successfully opened the building last week. Also, as you mentioned, we have The Forum on our plate. We're working on Heart and Lights. You heard Melissa talk about how in March we will be launching that show in Radio City Music Hall.

Again, we talked about the Azoff MSG Entertainment joint venture. We previously mentioned our investment in Brooklyn Bowl. We've talked about our evaluation of the Fuse alternatives, as well as our Nassau Coliseum attempt there. At the same time, we're continuing to explore other potential growth opportunities.

We have put more focus on this as the Transformation was coming towards an end, and we are seeing more deals come our way. People, I think, understand the strategic value and benefit that Madison Square Garden can bring to many, many opportunities.

And since we have been out saying that, at some point, we're going to be in a different liquidity position, I think we have sort of transitioned the company a bit so that people are coming to us. We're finding opportunities and we're evaluating them.

So as we said many times before, we're very focused on growing our business and maintaining the financial flexibility to be able to grow our business. But at this point, whether or not our plans include return of capital, we have not yet determined.

Ryan, you want to?.

Sure. And your streaming question, we're deep in the content business, obviously. We own the Knicks and Rangers rights and we're very cognizant of how to deploy those rights. We see online as an opportunity.

We're very prudent about evaluating business models that make sense for our company, including streaming products through our affiliates and those relationships on an authenticated basis.

So we're in good discussions with our telco, cable and satellite partners, and since we own our brand and our content and our original programming and library, we feel well-positioned to navigate that landscape and make the decisions when they come to us at the right time..

So it's safe to say that, that it's not included in contracts as they stand today?.

We don't get into the specifics of our contracts. We feel good about where we sit with the content that we own..

Your next question comes from Vasily Karasyov of Sterne Agee..

My question is about the affiliate adjustment that's highlighted in the press release. Can you please give us an idea of the magnitude of it and what it was? And then I have a follow-up on the Media..

Right, the main driver of $8.7 million in affiliate fee revenue for the quarter was higher affiliate rates. There was a one-time catch-up payment due from an affiliate. This adjustment also contributed to affiliate revenue, but it was to a lesser extent than the higher affiliate rates, and it wasn't related to an affiliate renewal..

And that's not coming back?.

No, that was a one-time adjustment. It's not a recurring episode..

Okay. And then my question is -- the second question is on the costs at the networks. It looks like the costs were flat year-on-year, while at least I expected growth.

Can it be that because you are considering alternative -- strategic alternatives with Fuse, maybe you're pulling back on investing and programming there? And if yes, should we be expecting this in the remaining quarters of the year?.

No, we remain focused on executing our strategy for programming on the network. So you should expect to see increased Fuse programming investments for fiscal year 2014. There hasn't been a change there..

So it's just the timing of expenses, possibly?.

That's right..

Your next question comes from Bryan Goldberg of Bank of America Merrill Lynch..

Two quick ones. First, on Fuse. In the past, I feel like it's been described as a valuable and scarce national platform that could drive meaningful growth for the company.

And just given the process you highlighted that you've entered into with JPMorgan Chase, how has your thinking changed, if at all, with respect to the channel's ability to complement your focus on building long-term growth for shareholders? And then, secondly, just on the Forum, thanks for the color on some of the upcoming bookings.

Could you give us any granularity on just sort of the number of nights, actually, you're already booked in on the calendar for fiscal '14? And are you targeting the non-concert opportunity with respect to that venue and have you made any inroads towards attracting other types of bookings?.

I will take your first question, then Melissa will take your second one. We consider Fuse to be a very valuable asset. As we've talked, that has not changed. We have built what we consider to be beachfront real estate that can't be replicated in today's dynamic that exists in the cable and satellite universe.

We have a fully distributed cable network with 64 million subscribers that we have built today, and we've said that our job was going to improve the programming, and that's why we invested in the programming area. I think as you've heard Ryan talk before, we're making headway and we have some shows that are actually resonating and breaking through.

So we're very pleased with that. And as a result, it's not gone unnoticed by others.

Given the value and the growth potential of this asset, we have got inquiries from other people, and that's why we started the process by JPMorgan to go view what strategic alternatives are available to us in the name of making sure we're maximizing shareholder value as it relates to that asset. So we continue to invest in Fuse.

We continue to program Fuse and we are in that process and we'll see where that goes.

Melissa?.

With respect to the Forum, we're very pleased with the reaction that we've received from the fans of music in Southern California, as well as artists and artist representatives for the imminent reopening of the building in January. The Eagles went on sale with 3 shows and, by popular demand, added 3 more.

And as you know, we have other shows announced with Justin Timberlake, Armin van Buuren and Imagine Dragons. There are quite a few other shows that have been confirmed that are not yet announced because there are -- because there are national tour announcements coming. So I'm not able to comment specifically on that.

But we feel good about the level of activity-related to the Forum in the calendar 2014 period.

As far as non-concert events, we have been contacted, as well as reached out to many producers of family shows, award shows, TV shows and sporting events that we view to be appropriate to the Forum, and have a strong interest there and expect to see those event coming in 2014 as well..

Your next question comes from Martin Pyykkonen of Wedge Partners..

Two questions. Hank, back to the Azoff part, everything about, below the line, he is the controlling holder and so forth kind of suggests that, from your view with obviously creating shareholder value as a goal here, but a pretty passive investment.

Should we think of it that way? Is there any more active management role of the company with him? Or is it pretty much letting him run the show based on his expertise and so forth? Just to kind of put that in perspective. And then second, back to Melissa on the Forum, when you made this deal, it looked attractive, still looks very attractive.

Obviously, bookings are looking to be good.

I'm just -- to give us some framework for modeling, is there any sort of minimum number of days, nights per year that you would expect to have this booked for concerts and other events? I'm assuming you must have some threshold, I mean, even if it is a broad range, if there's anything you can scope out on that? More on a full-year basis as you get rolling, it's obviously kind of a stub year here for fiscal 2014 for you.

So more of 2015, 2016, is there kind of a minimum floor that you would expect it to be booked as you go forward?.

The first question, Irving is running that business. We have certain contractual rights, which are set forth in our agreement. But Irving is running that business. Irving is going to drive the value and the relationship and association.

With Irving, we expect to drive additional value in other things with the company outside of that joint venture itself.

Melissa?.

When we began to look at the opportunity in Inglewood for the Forum, we put together a business plan based on appropriate returns, and we were able to build that business model with a reasonable number of shows to play throughout the year, shows and family shows, sporting events, et cetera. And we expect to meet that business model.

Of course, there's always an ebb and flow of content, whether it be family shows or concerts, et cetera. But the view on 2014 and beyond is that there's an appropriate number of events to come to the Forum. We have an unencumbered calendar and a great deal of interest, and we feel very good about the investments that we've made.

And we feel the investment level to enter the Los Angeles market is turning out to be a very good deal..

Next question comes from Michael Morris of Guggenheim Securities..

A couple of topics. First, can you talk about the performance of the sports teams and the importance on their performance level to your financial results? And, I guess, specifically, what I'm thinking is we know you've quantified playoff impact for us in the past, which is helpful.

But if the teams are performing at a sub-playoff level, how does that impact your financial performance either on a near basis in a current year or perhaps on the longer term basis, is there a threshold for performance that you want to see from a business perspective that would drive maybe additional investment on player comp or other things in that regard? And then second, and I apologize if I'm asking you to repeat yourself.

But can you share with us where we are in terms of cash out in the total expenditure on both the Transformation and maybe on the investment in the Forum as well at this point?.

I'll do the first one. I think Bob will do the second one. Well, as far as the performance of the sports team, the sports teams are really 1 of the 3 divisions of the company. So obviously, the sports teams don't impact results in Entertainment.

And our sports teams somewhat impact in Media, but not greatly because the lion's share is coming through affiliate revenue, and that affiliate revenue is partially MSG network and MSG Plus and Fuse. So it might affect the advertising around the edges, but very little effect in those 2 divisions at all.

Then you get into that Sports division itself, and a lot of our business there is done on multi-year arrangements. So you're not make or break on the sports scene whatsoever. And we've had years in the past where our performance has been less than optimal and we pretty much packed the house, regardless.

So performance is obviously a good thing and there are benefits to gain from performance. But our business is not really made by that performance, and a lot of what we did in the Transformation really was to minimize performance because you come into our building and you see an event, but it's the whole experience of going to Madison Square Garden.

It's 134 years of history displayed throughout the building in different areas. People could come in this building and stay here for 5 hours and not run out of things to do and never even enter an event. It's the food that we brought in through all the signature chefs and all. So your dining experience is unlike you'd find anywhere else.

It's the quality of the in-game entertainment. It's the new GardenVision board and the other LED, high definition monitors we have throughout the building.

So performance is good, and we look for a good performance, and we factor that into our decisions in how we set our teams up, but we look to build our business to be a far more wholesome business and to be able to thrive regardless of the team performance.

Bob?.

Sure. With respect to the Transformation, the construction costs that were incurred this quarter were approximately $72 million. The total project incurred to date through September is $988 million. But with respect to cash, there's about $77 million of that $988 million that has not yet been paid, so that's the difference between incurred and cash.

So $988 million in total, $77 million still needs to be paid for. The only thing to think about with respect to the Forum, as you know we've told you what that total project is going to cost, approximately $100 million. And we're going to be open in January, so we don't have much time to incur the costs associated with opening the Forum.

So that's sort of a rough idea of the investments in the Forum..

Your next question comes from David Joyce of ISI Group..

Just have a couple of questions, one small follow-up on the Forum.

I was just wondering if you have any sense of the seasonality that you might experience when you get to a run rate level of events there or is it going to be fairly smoothed out throughout the course of the year? And if you could give us any sense of kind of AOCF margins we might expect from that or some form of breakdown on fixed versus variable expense? And then secondly, if you could please explain the ad lift and the puts and takes with the NHL rights in this upcoming quarter, since you're comping against the stoppage from last year?.

With regard to the Forum and seasonality of events, it's dependent upon touring cycles of artists and not really within our control. We do endeavor to fill the calendar when there aren't a lot of shows out with other types of events.

Having said that, I would imagine when you speak of seasonality, you're thinking about the summertime, which in some venues can be challenged. But I can tell you that fiscal 2014 -- I'm sorry, calendar 2014, the summer season in both Madison Square Garden and the Forum, look to be very good at this point. So there's no real seasonality at this point.

Of course, it's too soon to really determine what a trend might be as far as the Forum is concerned in Southern California..

So this is Bob. With respect to the work stoppage, we're thrilled this year that we finally have a full season. If you've been with us and remember over the last 2 years, we've talked about an NBA work stoppage and then an NHL work stoppage, so we're getting back to business as usual.

So when you think about it, when we looked at the NBA -- the NHL work stoppage last year, what you saw was that, from a total company perspective, total company revenues and total company AOCF was negatively impacted in fiscal 2013.

But if you think about the segments independently, work stoppage negatively impacted media segment revenues but actually contributed to media segment AOCF. And the impact of the NHL work stoppage, if you think about timing of it, was primarily in the second and third quarters.

Now when we go to fiscal 2014, our Media segment revenues will be positively impacted by the return of the full hockey season. But you also have to remember that the cost side of the business will be negatively impacted.

We're going to have higher expenses related to rights fees, and some of those rights fees get paid directly to our Sports segment, as well as production costs. So it's going to create a little difficult year-over-year comparison on the Media side.

And then when you switch to the Sports side, when you think about hockey, we'll have both a positive impact on both the revenue and AOCF of our Sports segment in fiscal 2014. So it's kind of framing from the perspective of what you've seen happen in the past..

Your next question comes from Amy Yong of Macquarie..

I think in your earlier comments, you mentioned that some parties are coming to you for opportunities and partnerships. Can you just clarify what these opportunities are? Are they entertainment opportunities? Music? Are they structured as JVs? Just any color around that..

It's hard to characterize them. Everything is different. Every conversation is different. Every opportunity is different, and it's us to cull through them and see the ones that are smart and strategic and are going to create shareholder value. And that's the process we go through. I mean, the Forum was an opportunity that was out there.

Heart and Lights is something that we went and developed. Brooklyn Bowl was an opportunity that we sort of jointly found with somebody. Nassau Coliseum was out there.

Fuse process, as we discussed -- so it's hard to say, with any specificity, exactly what we're looking for, but we're looking for to use the expertise that we have here and see how it can be joined with something else to create more and make 1 plus 1 equal 3 and create that shareholder value, which is what our focus is on..

Your next question comes from Laura Martin of Needham Capital..

So, Rob, a housekeeping one, first. You guys have spent $988 million to date and the total Transformation, including reserves, is going to be $1.50 billion. Remind us how those flow through the income statement if those reserves aren't needed.

What quarter will we see that reverse in or is it over a period of time? And then these margins were spectacular. So I guess, Hank, for you is sports rights fees and viewing have been through the roof.

As you think about your P&L and this fabulous margin outperformance, could you talk about how much of that you think is kind of the structural increases from the growing popularity of sports, both on the advertising side and viewership, but also on the affiliate fee increase that we saw here? How much of that is structural versus this onetime adjustment that you mentioned -- you quantified for Vasily?.

Bob, you want to take the first one?.

Sure. So, Laura, when we're talking about the $988 million and the $1.50 billion, we're talking about just the balance sheet, just pure capital expenses. So if we're able to close out this project over the next few months at less than $1.50 billion, it just won't appear on the balance sheet as capital expenditures.

So it's CapEx, and the way you're going to see it reflected in the P&L is depreciation as we continue to add amenities and open the building. So that's the only P&L impact, depreciation..

On your second question, I think as we all have learned [ph] Over the last few years, every rights deal that gets renewed seems to go up to a new level. I think we've seen this across sports professionally. I think we've seen it across colleges. I think we've seen it on the national, international level. I think we have seen it on the regional level.

So the value of sports products, the value of live rights continues to go up and up in a market in which there's such fragmentation and there's DVRs and other things. But the thing that's not only retaining value but growing in value is live sports because there's no substitute. It can't be replicated.

So being primarily in that business is a very good thing. Being in the distribution business, like we are when it comes to our networks, we know what happens is you usually have long-term contracts with affiliates. Those contracts usually have rate increases built in.

You usually have a factor of the subscriber growth that happens and then you have the value of advertisers and how you're delivering ratings. And as sports continues to deliver ratings against, again, more fragmented audiences, it becomes that much more valuable.

So we do think this live sports and distribution of live sports is a very good business to be in, and we look forward to seeing it grow as time goes on..

Operator, we have time for one last caller..

Today's final question comes from Ben Mogil of Stifel..

In the quarter, it looks like from a maintenance side, D&A was a little bit lower, stock-based comp a little bit lower, tax rate a little bit lower.

Anything, sort of, for the rest of the year that you could sort of guide us towards? Are these good run rates or are these -- anything sort of good or bad in these numbers?.

Well, let's start backwards with the tax rate..

Sure..

What you're really seeing here is it's a little complicated, but we are a calendar-year taxpayer. We are a fiscal-year reporter. There was one item that affected why you saw the 38% tax rate and that's -- there's a deduction. It's called the 199 deduction. It's for domestic production.

And really, all you're seeing in the quarter is the timing of when we're able to take that deduction. So I think, as you think about the business going forward, you should think about it on a more normalized basis, and that will be in the low 40s. And that's how you should think about the tax side of it..

Okay.

And what about D&A and stock-based comp?.

D&A will continue to increase, right, because we put the Transformation in place, so you'll see the impact of that. And as we just said, in the third quarter, when we launch and open the Forum, we put the Forum in service, you will see depreciation grow from the Forum as well.

So these are long-lived assets and you know what we've invested in them, and so that's kind of the impact you're going to see on depreciation..

And then maybe even going back to Fuse, just one quick question. And I don't expect you to give specifics.

But in general, how restrictive are the programming flexibilities, sort of if someone else were to buy it, how easy is it for them to switch programming around? And how many sort of change of control provisions do you see around a potential sale? And I don't expect you to be highly granular.

But in general, would you say this is one of the more restrictive sort of cable channels in terms of what you can show and how easy it is to sell it? Or is it one of the more liberal sort of open-ended ones?.

Your expectations are correct and we're not going to -- we're going to make you right. We can't get into the contractual provisions on an earnings call, really, or anywhere else relating to the affiliate arrangements we have in place..

Thank you. I would now like to turn the call over to Ari Danes for any closing remarks..

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

Thank you. This does conclude today's conference call. You may now disconnect..