MSG Networks faces financial turmoil despite Knicks’ promising season

James Dolan’s New York Knicks are in the middle of a promising and exciting season. It’s a different story for the Dolan-owned TV channels that air New York-area teams’ games.

MSG Networks, a subsidiary of Sphere Entertainment, is navigating financial turmoil. Executives have been in discussions with lenders to refinance $829 million in debt, per public filings. Meanwhile, the channels have been dark on Altice USA since Jan. 1 due to a carriage dispute. A spokesperson for Altice said about one million Optimum cable TV customers had access to MSG Networks as part of their cable package.

While the struggles of regional sports networks have been widespread, MSG Networks’ issues come at an inconvenient time for New York Knicks fans.

MSG Networks airs the local games of the National Hockey League’s New York Rangers, New York Islanders, Buffalo Sabres and New Jersey Devils. It’s also home to the Knicks, a National Basketball Association team close to fans’ hearts despite frequent periods of instability and losses. The Knicks are currently in the middle of one of their most promising seasons in recent memory.

Under Coach Tom Thibodeau, the Knicks are heading into the NBA All-Star weekend on the heels of back-to-back wins. Two of its hottest players, Jalen Brunson and Karl-Anthony Towns, will be All-Star starters. Before them, the last New York Knick to be named as an All-Star starter was Carmelo Anthony in 2016.

But New York fans may be affected by the financial woes of MSG Networks, too.

MSG Networks helps to “drive and grow our engagement with our local fan base,” said Jamaal Lesane, chief operating officer of Madison Square Garden Sports Corp., parent company of the Knicks and Rangers, in a February earnings call with investors.

“The longer this goes on, the longer you run the risk of the fan base shrinking,” said sports media consultant Lee Berke, who previously worked at MSG Networks, of the blackout on Altice’s Optimum. “If you’re on a path of being mostly cable-focused and seen by a smaller set of audiences, over time, where does your next generation of fans come from?”

The Optimum blackout comes at a particularly bad time for MSG Networks, which has been in discussions with its lenders since last year when $829 million of its debt was set to mature in October. Its lenders have issued multiple forbearance extensions, the latest of which set a March 26 deadline for MSG Networks to pay back its debt. Still, refinancing discussions continue, and depending on how that goes, the company could be forced to file for bankruptcy protection, according to U.S. Securities and Exchange Commission filings.

A representative of MSG Networks, an indirect wholly owned subsidiary of Sphere, declined to comment.

In an earnings call earlier this month, executives at Knicks and Rangers parent company MSG Sports said the networks “approached us to renegotiate our local media rights agreements, including a potential reduction in our rights fees.”

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

Similar scenarios played out as part of the Diamond Sports bankruptcy process, which culminated earlier this year with the networks having fewer teams and renegotiated fee structures to lessen the burden.

The high fees that regional sports networks have traditionally reaped from pay-TV distributors have helped prop up the teams and leagues that get paid for the rights to air the games.

The Knicks also reap much of their revenue from ticket, food and beverage, as well as merchandise sales at the Garden, in addition to sponsorships.

MSG Networks in 2015 signed a 20-year deal with the Knicks and Rangers to air local games. In fiscal 2024, MSG Networks paid $175.3 million to the teams’ owner MSG Sports, which represented 17% of the company’s consolidated revenue, according to SEC filings. That is expected to reach nearly $187 million in fiscal 2025.

Industry analysts estimate the bulk of those fees goes to the Knicks.

S&P Global Market Intelligence estimates the Knicks take in $149 million in local rights fees, just behind the Los Angeles Lakers, which are said to have the highest deal at an estimated $150 million annually. The teams to immediately follow are the Houston Rockets and Philadelphia 76ers, which each receive an estimated $60 million per year.

The new NBA media rights deals, which begin with the 2025-26 season, will soften the blow for MSG Sports if the Altice blackout continues. More games will be aired nationally — although Dolan has criticized the deal — meaning regional sports networks will have smaller packages, but teams will reap those fees and fans will have broader access to games.

The Knicks are expected to see an increase of $30 million in national rights fees next year due to the new NBA rights deals, although analysts say that will be offset by losses related to MSG Networks.

MSG Sports did not respond to CNBC’s request for comment.

Similar to its peers, the state of the Knicks’ regional sports network does not reflect the team.

What’s a bit different is both the channel and the team are part of publicly traded entities — both owned by Dolan, who has created some controversy among New York fans — giving better insight into the financial situation.

A greater spotlight was shone on the difficulties of the Knicks’ local TV home when channels part of MSG Networks were dropped from Altice’s Optimum cable packages on Jan. 1. On that day, the Knicks had been in the middle of an eight-game win streak.

The dispute has come down to a disagreement over fees. Altice, similar to other cable distributors, is looking to alter the long-standing regional sports network model as cable TV bundles bleed customers.

Since Altice’s customers are estimated to make up about a third of MSG Networks’ distribution, the blackout — or even a renegotiated contract that would see the channels take lower fees from Altice — is a blow to its revenue.

New York politicians have called for the end of the dispute since it affects New Yorkers.

Gov. Kathy Hochul in a letter earlier this week called for Altice and MSG to return to the negotiating table to find a resolution.

“New Yorkers are proud sports fanatics, and blocking Knicks, Rangers and Islanders fans from watching programming they’ve paid to watch is simply unconscionable,” Hochul said in the letter. “Denying fans access to live sports because of a ridiculous dispute between Optimum and MSG is unfair to New Yorkers and our patience has expired,” Hochul added.

Since Jan. 1, there has been little movement back to the negotiating table, according to people familiar with the matter. As part of the dispute, MSG Networks has called on Altice to issue refunds to customers who have not switched bundles and are still paying for the channels. Hochul, in her letter, also called on Altice to offer an alternative way to watch games or issue refunds.

Altice has been offering its customers other options, such as help signing up for internet TV bundle provider Fubo, which carries MSG Networks, and the channel’s own streaming service, Gotham Sports.

Altice CEO Dennis Mathew said the company has received positive customer reactions when it comes to offloading some to cheaper bundles, or helping to find other options to watch the Knicks and Rangers.

Streaming continues to further complicate the traditional carriage negotiations with distributors. The high price point of the streaming services showcases the cost of airing these teams, which was initially meant to stave off issues like this with pay-TV providers.

MSG Networks introduced a streaming option for fans in 2023, and last year combined with the New York Yankees’ YES Network for a beefed-up offering. Fans have various subscription options, but if they just want access to MSG, they can sign up for $29.99 a month.

“If you’re an avid fan and want to watch the Knicks and Rangers, it’s just a couple of key strokes and you can get the Gotham app. But if I’m not an avid fan, then I won’t do that and I just won’t watch it. It’s the avid fans willing to spend extra,” said media consultant Berke. “Fans get used to not having games.”