MSG Networks Struggles Financially Despite Knicks’ Bright Season

James Dolan’s New York Knicks are experiencing a thrilling season. However, the situation is quite different for the Dolan-owned television channels that broadcast games for New York-area teams.

MSG Networks, a branch of Sphere Entertainment, is currently facing significant financial challenges. Executives are negotiating with lenders to refinance $829 million in outstanding debt, as indicated by public filings. Additionally, the channels have been unavailable on Altice USA since January 1 due to a dispute over carriage fees. Altice stated that approximately one million Optimum cable TV subscribers had MSG Networks accessible through their cable packages.

While many regional sports networks are facing difficulties, MSG Networks’ struggles pose a particular challenge for Knicks fans.

MSG Networks covers local games for the NHL’s New York Rangers, New York Islanders, Buffalo Sabres, and New Jersey Devils, in addition to the beloved Knicks, an NBA team that holds a special place in the hearts of fans despite enduring frequent turmoil and losses. The Knicks are currently enjoying one of their most promising seasons in years.

Under Coach Tom Thibodeau, the team is entering NBA All-Star weekend with back-to-back victories. Two of their standout players, Jalen Brunson and Karl-Anthony Towns, are set to start in the All-Star game—marking the first time a Knick has been named an All-Star starter since Carmelo Anthony in 2016.

However, due to MSG Networks’ financial troubles, New York fans might also feel the impact.

According to Jamaal Lesane, chief operating officer of Madison Square Garden Sports Corp, the networks are essential for “driving and growing our engagement with our local fan base,” as he stated during a February earnings call with investors.

Lee Berke, a sports media consultant and former MSG Networks employee, warned, “The longer this situation persists, the greater the risk of losing the fan base.” He added, “If you’re primarily reliant on cable and are reaching a dwindling audience, where is the next generation of fans going to come from?”

The blackout affecting Optimum cable subscribers comes at a particularly challenging time for MSG Networks, which has been in discussions with lenders regarding $829 million worth of debt maturing in October of last year. The lenders have granted multiple forbearance extensions, with a March 26 deadline for repayment. Nevertheless, refinancing discussions are ongoing, and depending on the outcomes, the company might be compelled to file for bankruptcy protection, as indicated in filings with the U.S. Securities and Exchange Commission.

A spokesperson for MSG Networks, which is a wholly owned subsidiary of Sphere, opted not to provide a comment.

During a recent earnings call, executives at MSG Sports, the parent company of the Knicks and Rangers, stated that they are “in talks with the networks regarding a potential adjustment to our local media rights agreements, including possible reductions in our rights fees.”

In a recent SEC filing, MSG Sports outlined that if MSG Networks were to “terminate its media rights agreements with us as part of a bankruptcy proceedings, we would lose a significant recurring revenue stream.”

This situation resembles the recent bankruptcy process faced by Diamond Sports, which led to a reduction in the number of teams they covered and a restructuring of fee agreements to alleviate financial strain.

Traditionally, regional sports networks have benefited from lucrative fees paid by pay-TV distributors, which in turn have supported the teams and leagues for broadcasting rights.

Revenue for the Knicks also largely stems from ticket sales, food and beverage sales, merchandise, and sponsorship agreements at Madison Square Garden.

In 2015, MSG Networks signed a 20-year agreement with the Knicks and Rangers to broadcast local games. In the fiscal year 2024, MSG Networks is expected to pay $175.3 million to MSG Sports, constituting 17% of the company’s consolidated revenue, which is projected to rise to nearly $187 million in fiscal 2025.

Industry analysts believe a significant portion of these fees will benefit the Knicks.

S&P Global Market Intelligence estimates that the Knicks receive $149 million in local rights fees, ranking just behind the Los Angeles Lakers, who reportedly have the highest deal at around $150 million annually. Following them are the Houston Rockets and Philadelphia 76ers, who each average an estimated $60 million per year.

The new NBA media rights agreements set to take effect in the 2025-26 season will provide some relief for MSG Sports if the Altice blackout persists. More games will be nationally televised—though Dolan has expressed criticism regarding the deal—resulting in reduced packages for regional sports networks, but teams will benefit from those fees while fans will have broader access to games.

Next year, the Knicks are estimated to gain an increase of $30 million from national rights fees due to the upcoming NBA rights deals, but analysts warn that this might be offset by losses associated with MSG Networks.

MSG Sports has not responded to CNBC’s request for comment.

As is the case with its counterparts, the status of the Knicks’ regional sports network does not mirror the team’s success.

What is unique here is that both the channel and the team are part of publicly traded entities—both owned by Dolan, who has been a controversial figure among New York fans—providing increased visibility into their financial conditions.

The difficulties faced by the Knicks’ local television network became more apparent when MSG Networks’ channels were removed from Altice’s Optimum cable packages on January 1, coinciding with the Knicks’ eight-game winning streak.

The dispute stems from disagreements over broadcasting fees. Altice, like many other cable distributors, is attempting to revive the long-standing model of regional sports networks as traditional cable TV subscriptions decline.

Since Altice’s customers are estimated to account for roughly one-third of MSG Networks’ distribution, the blackout—or even a renegotiated contract with reduced fees for Altice—poses a significant threat to MSG Networks’ revenue.

Politicians in New York have urged an end to the standoff as it impacts the fans. Governor Kathy Hochul sent a letter earlier this week urging Altice and MSG to re-engage in negotiations for a resolution.

“New Yorkers are passionate sports fans, and depriving Knicks, Rangers, and Islanders supporters of access to programming they have paid for is simply unacceptable,” Hochul stated in her letter. “Denying fans access to live sports due to an unreasonable dispute between Optimum and MSG is unjust to New Yorkers, and our patience has run out,” she added.

Since January 1, little progress has been reported toward resuming negotiations, according to knowledgeable sources. As part of the dispute, MSG Networks has requested that Altice offer refunds to customers who have not transitioned their packages but are still paying for the channels. Hochul’s letter also called for Altice to provide an alternative solution to watching games or offer refunds.

Altice has been providing its customers with various alternatives, such as assistance in signing up for the internet TV bundle service Fubo, that carries MSG Networks, and the channel’s dedicated streaming service, Gotham Sports.

Altice’s CEO, Dennis Mathew, noted that the company has received positive feedback from customers regarding the transition to lower-cost packages or help in finding alternative ways to watch the Knicks and Rangers.

The rise of streaming services is complicating conventional carriage negotiations with distributors. The high costs associated with streaming these teams were initially intended to prevent issues like this with pay-TV providers.

MSG Networks launched a streaming option for fans in 2023 and collaborated with the New York Yankees’ YES Network for an enhanced offering. Fans have different subscription plans available, but for those solely interested in MSG, they can subscribe for $29.99 per month.

“If you’re a dedicated fan and want to watch the Knicks and Rangers, it’s a few clicks away to get the Gotham app. However, for casual fans, they may not bother, resulting in missed viewership. It’s the committed fans who are willing to invest more,” said media consultant Berke. “Fans can become accustomed to missing games.”