Description

Liberty Media Braves Group represents a compelling investment at current levels. I would encourage people to go back and read Azalea’s write-up from June 2020 as he (or she) makes many compelling points about the situation which I both agree with and remain pertinent. I believe the environment today given inflation, recession risk, covid seemingly ending makes the investment actually more relatively attractive now than it was then. As well the Braves happened to win a World Series last year which may or not have any implication!

Generally speaking, I am a bull on major pro sports team valuations for one main reason: they are essentially a pure play measure of billionaire breadth and wealth. Owning a sports team is the ultimate super duper rich guy trophy. If you believe that long term, there will be more billionaires with more $$, it’s just hard for team valuations to not go up. This is because the supply of major sports teams in America is essentially fixed. Post the financial era, virtually every time a major team has come up for sale, it has ended up selling for a record price thought previously unthinkable.

Recent example: It’s not apples to apples but I thought this point was hammered home when, in the middle of Covid when the NBA was completely shut down, the Utah Jazz sold for a price “exceeding $1.6bn.” the Utah Jazz! Of course this is only a single example but I think it’s instructive. 

Why the Braves Specifically?

1. They are actually profitable! No one buys a sports team anymore for the cash flow given high valuations but the Braves actually make money. In 2021, the group had OBITDA (does anyone know what the difference between OBITDA and EBITDA is???) of $104mm. This compares to an Enterprise Value of $1.9 Billion giving it an EV/OBITDA multiple of < 20x. That may not sound cheap but in the world of sports franchise multiples, it’s extremely low for a team like this in a good market. In a non world series winning year, that cash flow might be a little lower but they also continue to build out their real estate asset (see below). Keep in mind owners are often able to enhance returns for teams via friendly stadium deal structuring, etc as well.

2. The Battery is a hidden asset.

Description: Braves Holdings, through affiliated entities and third party development partners, has developed a significant portion of the land around Truist Park for a mixed-use complex that features retail, residential, office, hotel and entertainment opportunities, known as The Battery Atlanta.

In 2021, The Battery generated $21mm of net operating income. At a 6% cap rate, this is worth $350mm or $6.63 per share. As well the company continues to develop the asset and NOI ought to increase over time.

3. Underpriced local media rights– Please see Azalea’s write-up on this. The Braves’ local deal is up in 2027 so nothing has changed on that front but could be a big driver of value going forward.

4. The Braves are actually good! Remember, the ultimate buyer here is some vain billionaire type who wants to go to the games and hold a trophy some day and have tons of fun. Trust me- it matters if he gets to have a 24 year old Ronald Acuna Jr as his cornerstone and all the guys they won the World Series with last year when he wasn’t able to play (well maybe not Freddie Freeman).

5. Atlanta is a good market to own a team. It’s a big market-- 7th largest TV market, up from 10th a few years back. Even more importantly perhaps, is that it’s actually a market that is a short flight from A LOT of billionaires. If you live in New York or Boston or Miami (or Europe!) and want to own a team that is accessible via an easy flight, Atlanta is a great option. It may sound silly but i believe this kind of thing matters.

What’s it worth? The latest Forbes update (generally speaking teams sell for more!) gives the team a valuation of $2.1bn. In addition, the Battery at a 6% cap rate is worth $350mm. The group has $552mm of net debt and 52.8mm shares. This would spit out a private value for the stock of $35.94 compared to the current $25.43 or over 40% upside. I believe that this value will continue to grow given the dynamic described above (more billionaires, more TV money and fixed number of teams).

Betting– One other very difficult to quantify potential source of upside is betting. In recent years, online wagering has exploded in the US. This should be good for driving interest in baseball generally and for national media deals etc. In Georgia, online betting is not yet legal. There have been several attempts to change this in the legislature recently but none made it to the House floor. At some point, this almost certainly will change given the bevy of other states that have passed betting legislation.. In some ways, baseball is an ideal sport for betting since there is ample time between plays to bet on specific outcomes. 

Liberty factor: There is some good and some bad here but overall i believe a patient investor is likely to get a good outcome with these guys as the capital stewards. You have to deal with the tracking stock issue and the legal vagaries that come with that which i don’t love. On the other hand Malone isn’t perfect but he certainly is oriented toward ultimate value realization. Overall i would argue that his track record for shareholders is still very very good if not what it once was.

Catalyst

Eventual Sale