Sphere Entertainment Co.SPHR
Sphere Entertainment Co. Income Taxes Disclosure
Income Taxes
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Income tax paid after and prior to the adoption of ASU 2023-09, attributable to continuing operations, is comprised of the following components:
| Year Ended December 31, | Six Months Ended December 31, | Years Ended June 30, | ||||||||||||||||||||||||
| 2025 | 2024 | 2024 | 2023 | |||||||||||||||||||||||
| Federal | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
State and local: | ||||||||||||||||||||||||||
| New Jersey | 636 | — | — | — | ||||||||||||||||||||||
| New York City | 1,910 | — | — | — | ||||||||||||||||||||||
| Other | 3 | — | — | — | ||||||||||||||||||||||
| 2,549 | — | — | — | |||||||||||||||||||||||
| Total cash paid for income taxes (net of refunds) | $ | 2,549 | $ | — | $ | — | $ | — | ||||||||||||||||||
Total cash paid for income taxes (prior to ASU 2023-09) | $ | — | $ | (15,599) | $ | 18,649 | $ | 7,288 | ||||||||||||||||||
Income (or loss) from continuing operations before Income tax (expense) benefit is comprised of the following components:
| Year Ended December 31, | Six Months Ended December 31, | Years Ended June 30, | ||||||||||||||||||||||||
| 2025 | 2024 | 2024 | 2023 | |||||||||||||||||||||||
Domestic | $ | 70,065 | $ | (299,422) | $ | (244,488) | $ | 269,817 | ||||||||||||||||||
Foreign | (12,850) | (7,157) | (115,737) | 5,613 | ||||||||||||||||||||||
Income tax (expense) benefit attributable to continuing operations is comprised of the following components:
| Year Ended December 31, | Six Months Ended December 31, | Years Ended June 30, | ||||||||||||||||||||||||
| 2025 | 2024 | 2024 | 2023 | |||||||||||||||||||||||
Current (expense) benefit: | ||||||||||||||||||||||||||
| Federal | $ | — | $ | — | $ | 8,200 | $ | 1,389 | ||||||||||||||||||
| State and local | (2,890) | (746) | (4,103) | (4,672) | ||||||||||||||||||||||
| Foreign | — | 134 | (1,045) | — | ||||||||||||||||||||||
| (2,890) | (612) | 3,052 | (3,283) | |||||||||||||||||||||||
Deferred (expense) benefit: | ||||||||||||||||||||||||||
| Federal | (17,384) | 54,234 | 93,322 | (59,253) | ||||||||||||||||||||||
| State and local | (5,599) | 19,257 | 39,382 | (41,517) | ||||||||||||||||||||||
| Foreign | 2,063 | 2,467 | (164) | 650 | ||||||||||||||||||||||
| (20,920) | 75,958 | 132,540 | (100,120) | |||||||||||||||||||||||
Income tax (expense) benefit | $ | (23,810) | $ | 75,346 | $ | 135,592 | $ | (103,403) | ||||||||||||||||||
As previously disclosed for the six months ended December 31, 2024 and the years ended June 30, 2024 and 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory federal income tax rate as follows:
| Six Months Ended December 31, | Years Ended June 30, | |||||||||||||||||||
| 2024 | 2024 | 2023 | ||||||||||||||||||
| Federal tax benefit (expense) at statutory federal rate | $ | 64,382 | $ | 75,648 | $ | (57,840) | ||||||||||||||
| State income taxes, net of federal benefit | 14,403 | 13,337 | (35,656) | |||||||||||||||||
| Change in the estimated applicable tax rate used to determine deferred taxes | — | 60,877 | (1,286) | |||||||||||||||||
| Change in valuation allowance | 267 | (29,189) | 2,053 | |||||||||||||||||
| Nondeductible officers’ compensation | (4,706) | (5,554) | (4,814) | |||||||||||||||||
| Nondeductible expenses | (82) | (1,564) | (291) | |||||||||||||||||
| Nontaxable gain on repayment of Term Loan | — | 13,757 | — | |||||||||||||||||
| Return to provision | — | 4,881 | (672) | |||||||||||||||||
| Excess tax (expense) benefit related to share-based payment awards | (248) | 974 | (4,678) | |||||||||||||||||
| Other | 1,330 | 2,425 | (219) | |||||||||||||||||
Income tax (expense) benefit | $ | 75,346 | $ | 135,592 | $ | (103,403) | ||||||||||||||
The income tax benefit (expense) attributable to continuing operations differs from the amount derived by applying the statutory federal rate to pre-tax income (loss) principally due to the effect of the following items:
| Year Ended December 31, | ||||||||||||||
| 2025 | Percentage | |||||||||||||
Income from continuing operations before income taxes | 57,215 | |||||||||||||
Federal tax (expense) benefit at statutory federal rate | (12,015) | (21) | % | |||||||||||
State and local income taxes, net of federal benefit (a) | (2,110) | (4) | % | |||||||||||
Foreign Tax Effects: | ||||||||||||||
United Kingdom: | ||||||||||||||
| Statutory rate difference between United Kingdom and United States | 108 | — | % | |||||||||||
| Change in Valuation Allowance | (672) | (1) | % | |||||||||||
Germany: | ||||||||||||||
Statutory rate difference between Germany and United States | 914 | 2 | % | |||||||||||
| Change in Valuation Allowance | (985) | (2) | % | |||||||||||
Effect of Cross Border Tax Laws | ||||||||||||||
Recognize foreign outside basis difference | 18,227 | 32 | % | |||||||||||
Nontaxable or Nondeductible Items: | ||||||||||||||
| Nondeductible officers’ compensation | (7,600) | (13) | % | |||||||||||
| Nondeductible expenses | (256) | — | % | |||||||||||
Permanent difference related to cancellation of debt income | (20,701) | (36) | % | |||||||||||
Tax Credits: | ||||||||||||||
FICA Credit | 688 | 1 | % | |||||||||||
| Excess tax (expense) benefit related to share-based payment awards | 531 | 1 | % | |||||||||||
Other Adjustments | 61 | — | % | |||||||||||
Income tax (expense) benefit | $ | (23,810) | (42) | % | ||||||||||
(a) State and local taxes in New York and New York City made up the majority (greater than 50 percent) of the tax effect in this category.
The tax effects of temporary differences which give rise to significant portions of the deferred tax assets and liabilities at December 31, 2025 and 2024 were as follows:
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Deferred tax assets: | |||||||||||
| Net operating loss (“NOL”) carryforwards | $ | 106,075 | $ | 279,813 | |||||||
Capital loss carryback | 23,378 | — | |||||||||
| Tax credit carryforwards | 1,645 | 934 | |||||||||
| Accrued employee benefits | 23,167 | 15,817 | |||||||||
| Restricted stock units and stock options | 2,864 | 4,684 | |||||||||
| Right-of-use lease assets and lease liabilities, net | 10,167 | 11,204 | |||||||||
| Investments | 5,024 | 8,211 | |||||||||
| Accrued litigation | 4,566 | 4,712 | |||||||||
Deferred debt restructuring costs | 37,133 | — | |||||||||
| Other | 8,770 | 13,184 | |||||||||
| Total deferred tax assets | $ | 222,789 | $ | 338,559 | |||||||
| Less valuation allowance | (1,657) | (28,952) | |||||||||
Deferred tax assets, net | $ | 221,132 | $ | 309,607 | |||||||
| Deferred tax liabilities: | |||||||||||
| Intangible and other assets | $ | (191,168) | $ | (215,820) | |||||||
| Property and equipment | (183,263) | (222,703) | |||||||||
| Prepaid expenses | (6,300) | (6,142) | |||||||||
| Deferred interest | (12,512) | (13,812) | |||||||||
| Total deferred tax liabilities | $ | (393,243) | $ | (458,477) | |||||||
| Deferred tax liabilities, net | $ | (172,111) | $ | (148,870) | |||||||
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company’s ability to realize its deferred tax assets depends upon the generation of sufficient future taxable income to allow for the utilization of its federal net operating loss carryforward and its future deductible temporary differences. As of December 31, 2025, based on current facts and circumstances, management believes that it is more likely than not that the Company will not realize its deferred tax assets related to foreign NOLs. The Company will continue to assess the realizability of its deferred tax assets on a quarterly basis.
The federal NOL carryforward as of December 31, 2025 was approximately $440,000 and is carried forward indefinitely.
Prior to the MSGE Distribution, the Company and MSG Entertainment entered into a Tax Disaffiliation Agreement (“TDA”) that governs the parties’ respective rights, responsibilities and obligations with respect to taxes and tax benefits. Under the TDA, the Company will generally be responsible for all U.S. federal, state, local and other applicable income taxes of the Company for any taxable period or portion of such period ending on or before the MSGE Distribution Date.
The Company has not recorded any tax expense for uncertain tax positions as of December 31, 2025 and 2024.
For US income tax purposes, the Company is required to recognize cancellation of debt income (“CODI”) on the difference between the face value of debt exchanged and the fair market value of new debt issued. On June 27, 2025, in connection with the execution of the A&R MSGN Credit Agreement, the Company recognized CODI of approximately $613,000, all of which was excluded from taxable income under the insolvency provisions of Internal Revenue Code Section 108.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Aug 14, 2024 | |
| 2023 | Aug 22, 2023 | |
| 2022 | Aug 19, 2022 | |
| 2021 | Aug 23, 2021 | |
| 2020 | Aug 31, 2020 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.