Good morning. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the MSG Entertainment and MSG Networks conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. To ask a question during this time, please press star, then the number one on your telephone keypad. To withdraw your question, press the pound key. It is now my pleasure to turn today's program over to Ari Danes, Investor Relations. Please go ahead, sir.
Thank you. Good morning, and thank you all for joining us. On today's call, we have Andy Lustgarten, President of MSG Entertainment, and Andrea Greenberg, President and CEO of MSG Networks, who will discuss the transaction announced this morning, including its various benefits. We will then open up the call for questions. For Q&A, we will also be joined by Mark Fitzpatrick, EVP and CFO of MSG Entertainment, and Bret Richter, EVP, Chief Financial Officer, and Treasurer of MSG Networks. During Q&A, we ask that you keep your questions related to the proposed transaction. As you know, this is not an earnings call, and we will not be providing business updates on either company, but we are happy to provide our thoughts on what we think is an exciting transaction for both companies' shareholders.
In the event you do not have a copy, you can find today's release in the investor section of each company's corporate website. Please take note of the following for both companies. 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, and that actual results, developments, and events may differ materially from those in the forward-looking statements as a result of various factors.
These include financial community perceptions of each company and its business, operations, financial condition, and the industry in which it operates, as well as the factors described in their filings with the Securities and Exchange Commission, including the sections entitled Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations contained therein. And please note that we will make some forward-looking statements about the proposed business combination between MSG Entertainment and MSG Networks.
A description of the risks associated with forward-looking statements and other important information about the proposed transaction can be found in the joint press release. All of these are incorporated by reference for purposes of this call. Both companies disclaim any obligation to update any forward-looking statements that may be discussed during this call. And with that, I'll now turn the call over to Andy.
Thank you, Ari, and good morning, everyone. Today, we announced a merger agreement with MSG Networks that we believe would create a stronger, more diversified entertainment and media company that would be well-positioned to deliver innovative experiences across all of its assets. We're very excited about the prospects for the combined company and believe that this merger would set the stage for long-term value creation.
For MSG Entertainment shareholders, we've previously talked about how our number one priority is to protect and grow our core live entertainment business, which includes our portfolio of assets led by Madison Square Garden and the Radio City Christmas Spectacular production. While MSG Entertainment ended its last quarter with approximately $1.45 billion in cash on hand, the combined company would have an even stronger liquidity position to support its live entertainment business. And with the ongoing vaccine rollout in the U.S.
And the continued reopening efforts in New York, we believe that the business is now on a path back to normal operations. The combined company's enhanced financial flexibility, along with significant tax advantages, would also fund current growth initiatives, which include MSG Sphere, our state-of-the-art venue in Las Vegas, as well as future opportunities across both entertainment and media. MSG Networks has a long history of innovation in content development and technology, and we look forward to exploring ways to marry our two companies' assets to drive growth for both businesses. One area of opportunity for the combined company is in sports gaming, as New York pursues plans to legalize mobile sports gaming in the state.
While the opportunity will, of course, be dictated by what happens with the legislation, we are excited by what we have seen in New Jersey, which last year was reported to have the largest sports betting handle in the country at approximately $6 billion. New York is believed to have the potential to become the largest sports wagering state in the U.S., which would create significant partnership opportunities for MSG Entertainment.
There are already many examples around the country of how sports gaming operators are creating innovative partnerships with venues and media companies for everything from in-venue sports books and digital applications to network integrations. The addition of MSG Networks to our portfolio would create a powerful platform, enabling us to capture substantially more of this emerging revenue opportunity, which we expect will generate significant incremental revenue in the years ahead.
In addition to creating a diversified entertainment and media company, this transaction would also result in meaningful tax efficiencies for the benefit of all shareholders. As of December 31st, MSG Entertainment had a federal net operating loss of approximately $250 million due to the impact of COVID-19 on our business. In addition, we expect to accelerate the depreciation of significant components of the capital expenditures for MSG Sphere in Las Vegas in calendar 2023, which is when the venue is expected to open. This transaction will enable the combined company to more efficiently utilize this NOL and bonus depreciation to offset the taxable income of all of its businesses, including MSG Networks, which today is a full cash taxpayer. I'd like to now spend some time walking you through the terms of the transaction.
MSG Entertainment is acquiring MSG Networks in an all-stock fixed exchange ratio transaction that is expected to be tax-free for both companies and their shareholders. Upon closing, MSG Networks shareholders would receive 0.172 MSG Entertainment shares for each share of MSG Networks they own. This exchange ratio was 4% above the ratio of the unaffected closing stock prices of both companies on March 10th, 2021, which was the last trading day before a press report was published that speculated on a potential transaction. Due to common control, the negotiation of the merger was handled exclusively by independent special committees of both companies' boards, each with its own independent financial and legal advisors. We currently anticipate completing this transaction during the third quarter of calendar 2021, which, of course, is still subject to various closing conditions.
I will end by saying that we are confident that this transaction would benefit both companies, as together our businesses are stronger and better positioned to support our long-term plans, setting the stage for continued growth and value creation for shareholders of both companies. I'd like to now turn the call over to Andrea.
Thank you, Andy, and good morning, everyone. This merger announcement is exciting as it recombines two companies with a long history of innovation and a deep understanding of the value of live. MSG Entertainment and MSG Networks have a shared history of delivering compelling live content and exceptional experiences to passionate and engaged audiences, and I am confident that as a merged company, we will continue to build on our extraordinary legacies.
MSG Networks is a unique asset comprised of two premier award-winning regional sports networks with hundreds of live local professional sporting events each year in the nation's number one television market, and while we continue to operate in an evolving media landscape, we are firm believers that our merger will drive new innovative opportunities for our collective audiences.
For our media businesses, this could include specialized alternative broadcasts, new licensing opportunities for our live content, enhanced interactivity, and data collection to drive new product offerings and engagement, as well as sports gaming, all of which we believe has the potential to transform the viewing experience for fans. MSG Networks has already begun to explore ways to expand our participation in these areas.
For example, we've incorporated interactive games on MSG GO and earlier this month launched a dedicated free-to-play gaming app. We expect these efforts will deepen our connection with viewers and provide us with information and insights, as well as with additional sponsorship and other revenue opportunities. Also, as Andy noted, we believe that together our media and entertainment companies create a powerful platform for potential partners, including sports betting partners looking for a foothold in our country's largest market.
As a business that generates substantial free cash flow, we will be a meaningful contributor to the new company, helping to enhance its overall financial flexibility and, in turn, paving the way to pursue new growth opportunities across entertainment and media, benefiting both companies and their shareholders. Thank you, and with that, I'll turn the call back over to Ari.
Thank you, Andrea. Before we turn it over to the operator for questions, just a reminder that your question should relate to the proposed transaction, as we will not be providing business updates on either company. With that, we would now like to open the call for questions.
As a reminder to ask a question, press star one on your telephone keypad. Again, that is star one to ask a question. Our first question comes from the line of Brandon Ross with LightShed Partners. Please go ahead.
Hi, good morning, guys. Wanted to try and unpack the liquidity profile at MSG Entertainment as a standalone in a little more detail, trying to basically understand the need for funding at entertainment that MSG Networks would provide. So first of all, have cash flow expectations for the Las Vegas Sphere changed, and when do you expect that to be cash flow generative?
Thanks, Brandon. So let me start by saying we are thrilled about this deal, but more so we're also extremely thrilled and extremely bullish on the recovery of the Las Vegas market and more so the prospects for MSG Sphere in that market. We feel even more bullish based on what other people are doing, such as Apollo, which is making a major investment in both Las Vegas and in Las Vegas Sands, and we look forward to them being a partner as we think this is a great market and a great opportunity.
Okay, and then moving to London, I know things have been delayed with the planning board and stuff for a little while. Where does London stand, and what's your level of optimism that you're going to be able to ultimately build a venue there?
So as you noted, Brandon, London's been slightly delayed, but as we've mentioned in the outset of this call, we're really here to discuss the merits of this transaction and not to give updates on other business operations.
Okay, and then just finally, I think you mentioned the opportunity to expand your broader media presence, other opportunities. How do you envision investing in new assets at this company? What opportunities are there? Is it other venues, other ways you can use some of the content created in your spheres?
Brandon, we really look to put capital the best way to drive shareholder value, and so M&A, organic growth, and any other means to drive value is what we always will look at.
Great, thanks, Andy.
Your next question comes from John Janedis with Wolfe Research.
Thank you. Maybe one bit of a follow-up to Brandon's question and the one on the sports gaming side. The first, Andy, just you talked about the liquidity benefit of the deal, and so going back to the London Sphere, does this actually impact the timing at all, meaning does this accelerate it? And then separately on the sports gaming side, can you talk us through the revenue opportunity as you see it evolving over time, and can you talk to the current political landscape potentially limiting some of the direct benefits to MSG Entertainment?
As we started the beginning of the call, again, this call is focused on this transaction and on other business opportunities, but what I would say is this just enhances the overall financial flexibility of the company for both our growth initiatives as well as in terms of our balance sheet, and we remain very bullish on the future of this organization. Can you just repeat the second question? I was a little confused.
Yeah, just given on the sports gaming side, I think politically speaking, at least, there's been talk that New York State may want to limit the benefits to, say, operators and have that accrue to the state. And so curious if that impacts the financials or maybe the revenue opportunity to the company over time if that's the case?
So right now it's not legal in New York at all, so where we've been monetizing is outside New York State. Currently, the legislature, the state, and the governor are in the middle of a discussion over a budget. There's been just recently reports that there's been a lot of forward movement, and obviously whatever the way the legislation is drafted will have tremendous impact as to what we're able to achieve here. But I will say that there is a wide opportunity across media side, fixed asset applications, and we feel very good about where we believe this legislation will go and what the opportunity is for us.
Thank you.
Your next question is from David Karnovsky with JPMorgan.
Andrea, in light of the transaction, I would be interested to get your long-term views on the RSNs business and what assumptions you're making as far as the basic cord cutting and pressure to the cable bundle.
Hi, David. Well, as we mentioned at the outset of the call, we're here today to discuss the merits of this transaction. We're not going to update on our business operations today.
Okay, and then maybe just to follow up on the sports betting question, some other RSNs have managed to leverage their sponsor inventory to gain equity in sports betting companies. Just kind of given the presence you would have in the New York area, just interested to know if that would be a path you'd be interested in.
All options are on the table, including naming rights, integration opportunities, new programming, sites and apps, and we will explore all of them. I think it's a tremendous opportunity for us as a combined media and entertainment company, particularly as New York and Connecticut come online.
Okay, and then Andrew, maybe just one more for you. Can you discuss what strategic alternatives, if any, MSG Networks considered or whether you drew any other interest from parties for a transaction?
Right, well, we're here today to discuss the merits of this particular transaction, which, as we've said, we believe is a very attractive deal for MSG Network and its shareholders. As Andy has said, the transaction creates a more diversified company with enhanced financial flexibility, and that allows us, from an entertainment and a media side, to continue to build on our legacy of delivering what I think we'll all agree is exceptional live content.
That obviously sets the stage for long-term value creation for our shareholders. And just one thing to note, and importantly, that this merger would not foreclose us from pursuing any other strategic opportunities that may arise in the future. And we believe, actually, that this combined company creates an even stronger platform to pursue those opportunities and maximize their value.
Good, thank you.
Thank you.
Operator, we'll take one last question.
Our final question is from the line of David Joyce with Berenberg Capital Markets.
Hey, thanks so much for the questions. The first one for me is, can you help quantify a little bit what the accelerated pace of depreciation means, financially speaking? What specific rate of depreciation do you expect once the Sphere opens, and how much faster or sooner is that depreciation taking place relative to a no-deal scenario?
Hi, it's Mark Fitzpatrick. Just in terms of the bonus depreciation, you look at it, we're planning to open the Sphere in 2023, and we think we'll be able to depreciate in excess of 30% based on the current law.
Great, and just as a follow-up, we talked a lot about potential new opportunities, but I'm curious if there's you talked about innovative experiences that may or may not have been available in the absence of the deal. Is there anything in particular that you think you have the opportunity to do now that you wouldn't have as separate companies?
Thank you. So, Andy, so I think the way we look at it is this transaction is bringing together two of the leaders in live with different but similar complementary skill sets, which we believe will create just a stronger, more diversified entertainment media company. With that, I believe we've already talked about incredible, a much more enhanced financial flexibility that will let us go and pursue other new opportunities. And so we look forward to what we can do together as we go towards the future.
Great, thanks so much.
I think we have no other questions at this time.
Thanks, operator, and thank you all for joining us. Have a good day.
Thank you again for joining us today. This does conclude today's presentation. You may now disconnect.