Question of the Day - 14 March 2025

[Editor's Note: This answer is penned by our business blogger, David McKee.]

It’s not entirely easy to say. Although a publicly traded company, Sphere Entertainment is very selective about the numbers it releases. For instance, its most recent quarterly earnings statement, which came out on March 3, omits net income. Which means that Sphere Entertainment is deducting operating expenses, but not all expenses, which by definition makes the numbers look better.

Also, Sphere’s cash-flow number (or EBITDA) wasn't disclosed. This is important, because it measures the return on the $2.3 billion investment. For context, $4.3 billion Resorts World Las Vegas recently reported a fourth-quarter return on investment of $1 million, an ROI so small as to be barely measurable. If the Sphere were doing well in that regard, surely they would want us to know.

Anyway, to bring us all up to speed, Sphere made local headlines at the end of June 2024 with some fairly alarming digits. It reported an operating loss of $104.5 million on revenue of $151.2 million. Most of that loss was consumed by runaway spending at the top: “selling, general, and administrative expenses of $102.1 million.”

Part of the problem was that Sphere wasn’t penciling out in its function as a giant billboard. In the second quarter of 2024, it yielded $15 million in advertising revenue, putting it well short of its $25 million-per-quarter goal. 

Another issue is the division of box-office revenue. For instance, U2 generated a great deal of publicity for Sphere when it debuted — in return for 90 percent of the gate. Trying to make your nut on 10 percent of revenue is rarely a recipe for profitability.

CEO James L. Dolan remained upbeat, saying, “We believe we're on a path toward realizing our vision for this next-generation medium and generating long-term shareholder value.” Substitute “profit” for “our vision” and “cash flow” for “long-term shareholder value” and you get the gist of it. The bottom line was that Sphere shareholders lost $3.49 per share.

One obvious issue is that expenses for running and selling the Sphere to the general public went up, by tens of millions, year over year. And some of the novelty value appears to be on the wane. Revenue from the signature attraction, the movie Postcard from Earth, went from $92.9 million in late 2023 to $86.5 million a year later. A half-dozen fewer concert events also meant that revenues from that source stayed relatively flat at an underwhelming $54.4 million.

Also, Sphere executives seem to be rather generous with themselves. We point you to this boilerplate: “selling, general and administrative expenses of $119.0 million increased $21.2 million, or 22%, as compared to the prior year quarter, primarily due to (i) higher employee compensation and related benefits, primarily due to the impact of executive management transition costs of $8.3 million recorded in the current year quarter as compared to executive management transition costs of $1.2 million recorded in the prior year quarter …”

While we greatly doubt Sphere is going out of business anytime soon, these are not the hallmarks of a business hellbent toward profitability. One possible course, in our opinion, is that the arena passes through bankruptcy court, entailing Sphere Entertainment to jettison most of its debt burden and restructure its finances.

Nor do we put it past the corporation to approach the State of Nevada for a public bailout. Both the state and Clark County have proven eager to subsidize Formula One, the Oakland Athletics and the Oakland Raiders to come to Sin City. At least the Raiders move has worked out well at the box office. 

Taxpayers may be recalcitrant but public officials have shown themselves very tractable to anyone with a dreamy business plan and vaguely defined “economic impact.” Sphere Entertainment surely has Jeremy Aguero on speed dial even as we speak.