Sphere Entertainment Q3 2026 Earnings Call Transcript

Sphere Entertainment (NYSE:SPHR) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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View the webcast at https://events.q4inc.com/attendee/556087132

Summary

Sphere Entertainment reported increased direct operating expenses due to more performances and higher per-show costs, with SG&A expenses rising to $98.3 million, primarily driven by higher employee compensation.

MSG Networks experienced a decline in revenues and AOI, attributed to a 15.5% decrease in subscribers, and reported a non-cash goodwill impairment charge due to reassessment of its fair market value.

As of September 30, Sphere Entertainment had $501 million in unrestricted cash and cash equivalents and was managing convertible debt and term loans for its Las Vegas Sphere project.

The company is on track to announce new Sphere location expansions by the end of this quarter, with no impact from the current interest rate environment on these discussions.

Content strategy includes maintaining popular shows like ‘The Wizard of Oz’ while introducing new offerings like ‘Rocky Horror,’ emphasizing the importance of content that maximizes venue utilization and audience engagement.

Plans to expand internationally are being cautiously approached, considering market potential and governmental regulations, with continued focus on regions like Tokyo.

The Exosphere and sponsorship business show strong momentum, with brands like Google and Lyft participating, and the company anticipates growth in this area through 2027.

Full Transcript

OPERATOR

We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you’re muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Karnofsky with J.P. Morgan.

Your line is open. Please go ahead.

David Karnofsky (Analyst)

Hey, thank you, Jim. On the prior earnings call, you’d spoke to an expectation for an announcement on Sphere expansion, if not by the end of ’26 then by Q1 of next year. So just wanted to check in on that and see if that timeline is how you’re still thinking about new location announcements.

Lawrence James Dolan (Chief Executive Officer)

Yes. No, we’re, you know—I think likely is still this quarter rather than next quarter. And, you know, we’re still on track. So stay tuned.

David Karnofsky (Analyst)

Okay. And then, you know, in the last few months we’ve obviously seen a jump in interest rates, today notwithstanding. But can you just discuss how that impacts any discussion around National Harbor financing or even just Sphere expansion conversations generally?

Lawrence James Dolan (Chief Executive Officer)

Well, look, I’d answer that, but Digger’s signaling me across the table that he really wants to answer.

David F Byrnes (Executive Vice President)

Sure. Yeah, David, so the interest rate environment has not affected any of our expansion conversations. As we look at all of our discussions, nothing’s been slowed down or paused due to interest rates. Our potential partners, they recognize the attractive ROI of a Sphere venue based on the proof in the business model in Las Vegas, and that really is the conversations we have with them. With respect to National Harbor, as Jim mentioned, we’re working through a number of open items before we turn back to the financing, and we’ll keep you posted on that.

OPERATOR

Your next question comes from the line of Brandon Ross with LightShed Partners. Your line is open. Please go ahead.

Brandon Ross (Analyst)

Hey, thanks for taking the questions. Jim, Wizard of Oz has been really successful, but the results you’re showing is clearly maturing. Do you need a faster cadence, a bigger studio IP, to ensure that the Sphere Experience stays fresh and exciting? And you said in the prepared, you were having discussions. What are the puts and takes to getting those discussions finalized?

Lawrence James Dolan (Chief Executive Officer)

Well, first off, I mean, is Wizard of Oz maturing? I guess a little bit. It’s maturing, but I expect that 10 years from now we’ll still be showing Wizard of Oz somewhere in one of our Spheres. So there’s still a great deal of value left in that content. And then, you know, for instance, we have Rocky Horror that we’re working on now, which is going great. I’m very excited. You all need to learn the Time Warp. But, you know, when we go to Rocky Horror, it doesn’t mean that we’re going to stop showing Wizard of Oz, right? Rocky Horror is kind of a little more adult programming, right. So likely we’ll run Rocky Horror more towards the later part of the day and have showings of Wizard of Oz the earlier part of the day for more family-oriented product.

As far as negotiating for the IP from studios for that kind of product, I mean, it’s just what you think it would be. It’s a give and take and it’s the usual thing, which is that, you know, they either want a check or they want to participate. We generally don’t do both. So if you want to take a risk with us, sure, right, but you take the risk with us. I mean, but if you want, you know, guaranteed money, then that’s what you do. And, you know, I think that you’ll see the overall cost, you know, kind of stay where it is.

That seems appropriate for what we’re doing.

Brandon Ross (Analyst)

Great. And you mentioned quickly that From the Edge was having some issues. Can you tell us more about why that original concept didn’t work and if it means anything for the non-studio concepts as opposed to what we just discussed?

Lawrence James Dolan (Chief Executive Officer)

Yeah, well, look, From the Edge—we went to the edge and unfortunately we went over the edge. And, you know, we learned a lot from it. We got some great content over it. But overall the concept wasn’t strong enough and wasn’t, you know, honestly executed well enough to warrant it taking up the space in Sphere. And I think you’re going to see this dynamic go on and become stronger and stronger as the business grows, which is that the most valuable thing is the slots, right—the airing slots in the Sphere itself. So it has to be content that’s worthy of that. And we already have content like Wizard of Oz. We didn’t actually think that what we were going to produce with From the Edge was going to outperform a Wizard of Oz or Rocky, or a concert, etc., and so therefore we didn’t move forward with it.

But we’ll repurpose the content until we get something that comes up to that level.

Brandon Ross (Analyst)

Perfect. Thank you.

OPERATOR

Your next question comes from the line of Matt Condon with Citizens Bank. Your line is open. Please go ahead.

Matt Condon (Analyst)

Great. Thanks for taking the questions, Jim. I just wanted to follow up on your comments from last quarter that you expect three to four Sphere Experiences playing by the end of 2027. Is that still the—

Lawrence James Dolan (Chief Executive Officer)

Yes. And you already know some of them, right. But we are still working on more content. And just to give you an update on that, what we are seeing, for instance with Rocky Horror, is we’re seeing that we’re able to produce it a little less expensively, a little more efficiently. So it’s going to be—like Rocky Horror will cost less money and will be faster to market from concept inception. And I expect that that trajectory will continue, you know, for quite a while.

Matt Condon (Analyst)

Great, that’s helpful. And then maybe just given the recent weakness in Las Vegas visitation, just how are you thinking about the underlying trends for The Wizard of Oz? You know, are you still seeing evidence that Sphere is maintaining a relatively consistent visitors, or is there some more natural moderation in demand as the production matures?

Lawrence James Dolan (Chief Executive Officer)

Not sure—I’m not sure what you’re asking there. I mean, I’ll just talk about the Las Vegas market, which, you know, it had a less-than-stellar summer. Of course, if you were in Las Vegas this summer, you would understand why, because it was about 110 degrees. But we’re continuing to learn more about the Las Vegas market and we also—that learning is transferring into other markets that we’re looking at for Spheres: the seasonality of it, things like conventions coming in, coming out—I mean, did this convention hit, did it not hit—those kinds of things.

And we’re continuing to build algorithms that tell us and predict what the market’s going to do. Given that, I don’t think anybody expected as much of a fall-off this summer. But I will tell you that the algorithms say that it’s going to be a very strong fourth and first quarter, and so we’ll continue to refine them, refine the model. The Wizard of Oz, as well as I’m sure Rocky Horror, etc., will be market sensitive. I mean, it’s not like—you know, we’ve had 4 million people, I think it is, see The Wizard of Oz. There’s, you know, over 40 million people that visit Vegas every year.

So we’ve still got another 36 million to burn through, and then we have new content for them, etc. But the overall performance of Sphere and that content is definitely market sensitive.

OPERATOR

Your next question comes from the line of Peter Supino with Wolfe Research. Your line is open. Please go ahead.

Logan Angris (Analyst)

Hi, this is Logan Angris on for Peter. Jim, on your film strategy: so far your licensed IP has been older library content like Wizard of Oz and Rocky Horror. Are you also open to licensing newer, splashier IP, or do you think licensed IP will primarily remain older library content that studios aren’t actively monetizing elsewhere?

Lawrence James Dolan (Chief Executive Officer)

Yeah, it’s a good question, right? I mean, there’s a couple of factors involved with it. But I will tell you that we don’t rely on the popularity of IP to drive ticket sales. It’s much more about how much of an experience we can create for the customer, and that’s what sells. And of course then there’s the Sphere itself. I mean, people just want to come. I mean, I think we could show The Three Little Pigs in there and we’ll still get people coming because they want to go to the Sphere, they want to see what it is, they want to experience it, etc. But the selection of IP is—what we look for is what we can create with an experience. The older content is kind of interesting because it’s the ability to take something like The Wizard of Oz from the ’30s and turn it into something that’s present day, with all the bells and whistles that come with it, that make it really interesting. The newer content—it’s still going to be, no matter what content it is, if it’s been film or TV related, it’s going to require something called upres, right?

Because of the nature of the screen—it’s a four-acre screen—and even if you take a 4K product, of which there isn’t really a lot out there, and you stretch it onto that screen, it becomes quite fuzzy, etc. So we need to use the AI and the tools that we’ve developed in order to upres those. So, you know, the new product could be interesting if we can create enough experience. If it’s an outer space product, we really want you to feel like you’re in outer space. So if we can achieve that, then we’ll consider the product.

Logan Angris (Analyst)

Great, thank you.

OPERATOR

Your next question comes from the line of Stephen Lashek with Goldman Sachs. Your line is open. Please go ahead.

Stephen Lashek (Analyst)

Great, thank you, Jim. Thinking longer term, could you give us an update on the conversations you’re having around new Sphere franchises around the world? What markets are top of mind, what regions are top of mind, and what the timeline could potentially look like as you look out to expand the Sphere network outside the U.S.? Thank you.

Lawrence James Dolan (Chief Executive Officer)

Yeah. You know, we continue to develop and refine the model that we look at to go into other marketplaces. I will say that one of the big factors is environment, right. In other words, you know, when we were looking to build in London, we loved the London market. We thought the London market was going to do great, etc. But what we didn’t take into account enough was the environment, which in this case was the governmental environment. So as we look at each one of the marketplaces, we’re assessing how much market there is.

I mean, you take a look at a market like Tokyo with 90 million people, right? That’s a pretty good marketplace. But then you also have to take a look at the governmental aspects and how long it will take to build and do they really want a project like ours? And those all go into factoring whether we’re going to go forward or not. But I will say that we have the financing available, so financing really isn’t an issue. So then the next question is which market, how good of a market it will be, how long it will take to build, and how expensive it will be to build. Those are all factors that go into it. We’re getting better at being able to analyze markets and determine what we think will be good and what might be problematic. And I think you’ll see by our next announcement that we’re doing pretty well with it.

And I think we’re only going to pick markets where we think we can be very successful.

Stephen Lashek (Analyst)

Thank you.

OPERATOR

Your next question comes from the line of Cameron Mansone Perrone with Morgan Stanley. Your line is open. Please go ahead.

Cameron Mansone Perrone (Analyst)

Thank you. Morning, Jim. I wanted to follow up on something you said about Rocky Horror earlier, which is just about kind of dayparting and the outlook for that to be to fulfill kind of later in the night or evening slot. Do you see potential for that to be screened more frequently than just the late-night part? And how do you think about weighing the balance between Wizard of Oz and moving Rocky into earlier dayparts?

Lawrence James Dolan (Chief Executive Officer)

Well, look, it’s really all an algorithm, right? It’s knowing who’s in the market at that particular time and which one will appeal to them more. And the more data we can get on that will help us continue to schedule. With some products like Wizard of Oz, the mornings are really possible. Sundays might be better because it’s a more family-oriented product. You know, showing Rocky Horror Picture Show at 11 a.m. on a Sunday morning—the people who we really want to have go to Rocky Horror Picture Shows, particularly in Vegas, they’re not awake yet.

You couldn’t get them to do anything at 11 o’clock in the morning. So we’re just going to continue to work on the algorithm and attempt to maximize ticket sales.

Cameron Mansone Perrone (Analyst)

Understood, that’s helpful. And then separately, any update on the outlook for Exosphere and your broader sponsorship business as we look forward to the fourth quarter and into ’27?

Lawrence James Dolan (Chief Executive Officer)

I’m going to give that one to Jennifer Koester.

Jennifer Koester (President)

So we continue to see great momentum in this area of our business—significant growth in this category this quarter—and typically this is probably our slowest quarter from a seasonal perspective. We watched major brands like Google bringing forth their viral campaign featuring global K-pop band BTS to bring these high-impact moments that are often built in the zeitgeist of what’s happening, and I think that’s really attractive to brands, and we continue to see a strong pipeline there.

As we think about the next quarter, which is probably seasonally our strongest quarter, we continue to make progress expanding those roster of official partners. We recently announced Lyft to our growing list of sponsors, and we’ve got a strong pipeline of deals behind them, so we expect to share more in the coming months. But again, we see this area of our business with substantial growth opportunity for 2027 and beyond.

Lawrence James Dolan (Chief Executive Officer)

You know, just to add to that, there’s two aspects of the Exosphere that are continuing to show improvement, one of which is that we’re seeing more and more companies, products, etc., want to debut their products and their announcements on the Sphere because, you know, it’s not just the Vegas market—it’s a viral market—and when you take your product, whether it’s a new movie or a new hard product, etc., and you put it on Sphere, you get a lot of coverage really worldwide.

The other thing that I’m really kind of happy about is that our sponsors themselves have really embraced the medium. So if you take a look at their content—what they’re putting up on the Sphere—it’s interesting, it’s exciting, and that’s what we want for the Exosphere. We want people to keep looking at the Exosphere and see, well, what’s on it now, and who did this, and what does it look like. And we’re really seeing, like I said, the sponsors embrace that.

They’re investing in the content and putting some pretty amazing stuff up on the Sphere. Thanks for the questions, Cam.

OPERATOR

Operator: We have time for one last follow-up. Your final question comes from the line of Peter Henderson with Bank of America. Your line is open. Please go ahead.

Peter Henderson (Analyst at Bank of America)

Good morning and thank you for taking the question. So just wondering, as you look ahead to calendar ’27 and as Wizard of Oz matures a bit further and you face tougher comparisons, do you expect the Las Vegas Sphere business to grow year over year? And just how should we think about contributions from concert residency, sponsorship, and new content to driving growth in ’27?

Lawrence James Dolan (Chief Executive Officer)

Well, we definitely expect growth, but where it comes from—we’re learning still about how to maximize revenue at Sphere, both from Exosphere to what content’s inside, from residencies, etc. So I expect most of the growth to come from that. When we built this Sphere, the model was for a venue that was busy 365 days a year. And we’ve achieved that. Literally every day of the year is busy. So the capital you invested in the project—there’s a much quicker, better payoff to it. But we’ll continue to work on utilization, because it’s utilization and then, of course, how many tickets you sell per event, etc., that is going to drive the growth at Sphere. Thank you.

OPERATOR

We have reached the end of the Q&A session. I will now turn the call back to Ari for closing remarks.

Ari

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 call. Thank you for attending. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.