Hitting a Double, for the Price of a Single (BATRA/BATRB/BATRK)

Liberty Media Corporation distributed tracking stock* in April associated with the company’s ownership of the Atlanta Braves. With virtually no pro sports franchises available to invest in, in the public markets I figured it was at least worth a look. I think the market currently is vastly undervaluing the assets an investor gets exposure to through the Liberty Braves company (BATRA/BATRB/BATRK)*.

 

Through BATRA you not only get exposure to a pro sports franchise in a top-10 market but ownership of the real-estate development surrounding the team’s new stadium, as well as a fast-growing technology company looking to capitalize on the cord-cutting trend. All of this is currently valued by the market at approximately $1.195bn which I feel currently barely recognizes the value of the Atlanta Braves, assuming no future growth, while ignoring the real estate and technology assets. Note that the market value mentioned above will conflict with market value indicated by the stock as Liberty Media holds a 15.5% equity stake in Liberty Braves not indicated in the shares outstanding.

 

 

Atlanta Braves

Valuing a pro sports franchise is different than your typical valuation exercise as virtually no team is publically traded and value is typically only recognized in a sale. Sales have occurred infrequently lately in large part due to the increases in franchise values in recent years. Despite this, let’s attempt to get an arbitrary value for the Atlanta Braves. Through the first 9mos of 2016, Liberty Braves’ revenues totaled $244mm. Analyst estimates call for $247mm in 2016 as the business is very seasonal, with Q1 and Q4 experiencing very low revenues due to almost no games being played unless the team makes a playoff run.

 

There have been 6 private market sales of pro sports franchises since 2012. Excluding outliers, the average price to sales ratio was 4.5x. Applying this metric to the Braves would give us a $1.1bn valuation.

(Source: Liberty Media investor presentation)

 

But this isn’t an accurate depiction of value as the Braves have a brand new stadium opening in 2017. If you look at the six most recent MLB new stadiums, the teams experienced an average 19% 1-year revenue bump. Applying this to projected 2016 revenue, then applying the 4.5x transaction multiple, gives us a more accurate valuation estimate of $1.3bn.

(Source: Liberty Media investor presentation)

The intriguing part to me is that the market barely even recognizes the value of the Braves and there are two more assets that investors get exposure to.

 

Real Estate

The Braves also own the real estate development around the new ballpark, including the following assets:

 

(Source: Liberty Media investor presentation)

 

The real estate development is on schedule to be completed throughout 2017. Net equity value when adjusting for third-party investment and Braves-level debt is $200mm.

 

MLB Advanced Media

Finally, probably the most exciting asset the Braves stock gives us exposure to. All 30 MLB teams have an equal ownership stake in Major League Baseball Advanced Media (MLBAM). MLBAM is the media arm of Major League Baseball operating all 30 teams websites, streaming MLB games as well as handling streaming capabilities for the WWE, NHL, PGA Tour, and even HBO.

 

In early 2016 Walt Disney purchased 1/3 of BAM Tech, MLBAM’s streaming technology company, for $1bn with an option to own up to 2/3rds of the company over the next four years. This values each team’s stake at $67mm. When CEO Bob Iger was making the rounds on CNBC and Bloomberg post-investment, he was very clear that the goal of the BAM Tech stake is to partner the company with ESPN to create an over-the-top sports package to sell directly to consumers. With each company’s stake in BAM Tech currently at $67mm, I would safely wager that the value of that position is much higher given where the media landscape is likely headed.

 

Conclusion

The market currently is valuing the Liberty Braves at $1.195bn. If we add up our three value estimates: Atlanta Braves $1.3bn, Mixed-use Real Estate Development $200mm, BAM Tech stake $67mm. This gives us a total value of $1.567bn, a 31% discount to market value. It is important to note that our calculation concerned values of the assets and did not include any growth assumptions for the Braves, which would in turn lead to growth for the real estate surrounding the ballpark. It also assumed the value of the BAM Tech stake based on the Walt Disney investment, assuming no earnings growth associated with Disney’s partnership.

To compare to the stock outstanding, make sure to adjust for Liberty Media’s 15.5% equity stake that is not included in the shares outstanding.

 

Full disclosure, this is one of the companies I bought when I rebalanced my portfolio for 2017. I think it is a great value and you basically get the Braves, with no upside, through the current price with free option values on the real estate and the BAM Tech stake.

 

Please comment and tell me how wrong I am!

 

 

 

 

* The goal of the tracking stock is to better differentiate the performance and value of separate businesses within the company while hopefully reducing NAV discounts and boosting the parent stock price.

 

*There are 3 separate tickers out there associated with the Liberty Braves: BATRA, BATRB, and BATRK. BATRA has 1 vote per share, BATRB has 10 votes per share, and BATRK has no votes attributable.