Madison Square Garden Sports' (MSGS) fiscal Q3 revenue and adjusted operating income were negatively affected by the reduction in local media rights under its revised agreement with Sphere Entertainment's (SPHR) MSG Networks, Morgan Stanley said.

The firm said in a research note late Sunday that while the rights reduction was less severe than previously expected, it did not anticipate the agreement's shorter six-season term. As a result, the Knicks and Rangers may again face a reset in local media rights in 2029.

The 28% and 18% media rights cuts accepted by the Knicks and Rangers were necessary concessions that likely helped avoid a restructuring at MSG Networks, which could have created even greater downside risk for the teams' local rights revenues and disrupted their New York market distribution, according to the note.

The firm previously expected a 50% haircut to the annual average value but with the contract extending through the 2034-35 seasons.

Still, Morgan Stanley noted encouraging growth in average per-game revenues across ticketing, sponsorship, and premium hospitality, with no signs of slowing consumer spending. Food and beverage per capita spending also increased year over year.

"We still believe that pro sports franchises will continue to compound in value over time," the brokerage said.

Morgan Stanley reduced its price target on the company to $215 from $235. The rating remains equal-weight.

Price: 186.26, Change: -1.10, Percent Change: -0.59