Madison Square Garden (Nasdaq: MSG) reported a 39% drop in its second-quarter earnings, hurt by expenses associated with the renovation of its arena and theater business. So what can we expect from MSG in the coming months? Let's take a look.

Into the numbers
Revenues for the quarter rose a modest 3% to $234 million from a year ago. That's significantly worse than peer Live Nation Entertainment (NYSE: LYV), which reported a 23% jump to $1.5 billion. But MSG deserves credit for improving revenues despite disruptions caused by renovations at its prime venues.

However, in spite of the slight rise in revenues, the company's net income dropped significantly, from $14.0 million in the year-ago quarter to just $8.5 million this quarter. But I wouldn't worry too much about this, since much of the drop came from higher depreciation costs that can be linked to the arena's ongoing renovation. As I see it, stronger revenues once the project is completed should make up for the short-term pain here.

The transformation
The transformation of the Garden would include a larger entrance with interactive kiosks, climate-controlled spaces, a broadcast studio, new lighting systems, and LED video equipment, among other things.

MSG's renovation work is expected to continue for three summers and is estimated to cost a whopping $850 million. Thankfully, renovation work takes place only during the offseasons, when demand for the venue is minimal.

NBA lockout
In July, the NBA announced that to stem losses of $300 million annually, it would need to overhaul its revenue-sharing agreement. This has led to a lockout that could put the start of the season in jeopardy. Consequentially, MSG fears it could lose ticket revenues of almost $1 million per night. This could seriously affect profits for the short term until the situation changes.

The Foolish bottom line
MSG's renovation project has hurt near-term revenues, but the venue is expected to reopen in October for any regular-season games that end up taking place. My short-term outlook on this stock is cautious because of the NBA situation, which could hurt MSG's ticket revenues. But, all in all, for the long run this company is poised to see a great deal of growth, backed by improved revenue streams. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.