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July 20, 2023

Braves Spin-Off ‘Half Step’ That Shows Liberty Intends to Realize Full Value of Assets

Liberty Media recently spun off the Atlanta Braves and the team’s associated real estate development project, The Battery, into a new asset-based stock in an attempt to highlight –and unlock– value.

“It’s a highly desirable, unique asset that should trade better on its own,” Matthew Harrigan (equity research analyst, Benchmark) said. 

Atlanta Braves Holdings (NASDAQ: BATRA, BATRK) finished down 15

%

 on Wednesday, its first day trading.

The reorg can also be viewed as a half-step meant to appease shareholders who would really prefer the company break off its control position in SiriusXM and 34% interest in Live Nation (NASDAQ: LSXMA, LSXMB, LSXMK).

“That’s where there is a massive amount of value and a very significant 30% or higher discount,” Harrigan said.

But there are potential risks and liabilities associated with a hard spin of those assets. So, Liberty started with its ‘crown jewel’.

“This was a smaller bite at the apple, [one the company made] with very high confidence [it isn’t] going to end up with a tax bill,” Harrigan said. “It [still] communicates to investors that Liberty ultimately does want to realize full value for those other businesses.”

Liberty also owns Formula One (NASDAQ: FWONA, FWONK).

Liberty Media has a convoluted corporate structure.

Since 2014, its underlying businesses have been broken up into a collective of publicly traded tracking stocks. Tracking stocks give shareholders the rights to specific assets under the parent co.

“But from the vantage point of litigation and taxes, it [has been] all one company,” Harrigan said.

There are tax advantages to keeping disparate businesses under a single corporate umbrella. It can also be advantageous if one of the underlying businesses seeks to achieve critical mass.

However, “tracking stocks generally trade at a discount,” Harrigan said. “In Liberty’s case, they often trade at quite a material discount" to the sum of the parts.

Shareholders have been pressuring the company to unlock value across its holdings, most notably in SiriusXM and Live Nation.

Both are “much larger, more cash generative, valuable assets than the Braves,” Harrigan said.

For contextual purposes, SiriusXM has a $20 billion market cap. Live Nation’s (NYSE: LYV) is $22 billion.

It is also easier for them to understand LSXMA’s discount to net asset value than that of the baseball team. They can simply look at the company’s debt, cash, and the value of its position LYV. By contrast, the Braves’ discount must be compared to a 

Sportico

or

Forbes

estimation.

But the size of those companies makes them more difficult to spin them off.

So, “this is kind of a baby step,” Harrigan said.

The creation of a new asset-based stock gives fans and retail investors a more focused investment opportunity. It also enables broader ownership.

“There are some mutual funds that aren’t even allowed to invest in tracking stocks because [as an investor] you don’t have as firm a claim to the assets,” Harrigan said.

And should, as Greg Maffei noted at the company’s ’22 Investor Day, help facilitate potential business combinations.

“If you’re doing any M&A [or trying to sell the company], it’s simply impossible [under the tracking co. structure],” Harrigan said.  

Liberty hopes the reorg will help close the gap between where the Braves’ stock trades and where its private market value resides.

Sportico

values the club and related assets at $2.75 billion. Atlanta Braves Holdings’ current market cap is $2.3 billion.

Shareholders would benefit from the reduced discount, as would chairman John Malone who still owns stock in the club.

But one could argue LSXMA, LSXMB, LSXMK, FWONA, and FWONK shareholders might too.

“If they eventually monetize the Braves stock, [perhaps] it is more likely that some of these other tracking stock elements of Liberty have a similar path and therefore shouldn’t trade at such a heavy discount,” Harrigan said.

That may be wishful thinking.  

The hard spin is not certain to yield the desired results. Sports teams have historically traded at a discount to private market value.

“You can’t plan on consistent earnings growth or [dividends],” former Goldman Sachs partner Eric Grubman said. “There’s nothing wrong with that, but it’s generally not why people invest in public stocks.”

Harrigan doesn’t dispute the point, however, he notes that few publicly traded clubs have been under “professional management” like the Braves are under Liberty.

Atlanta is also “one of the more profitable baseball clubs, it’s in a highly desirable market and [has a track record of being fiscally responsible],” he said.

It’s also not certain that Liberty plans to sell the now unencumbered franchise (as conventional wisdom suggests).

In fact, the spinoff seemingly makes an immediate exit less likely.

“You don’t do a spin and then have a [sovereign wealth fund] buy the team the next week. That’s not how this works,” Harrigan said. “Generally, when you do these tax-free spinoffs, you want to wait a year or two [to avoid IRS troubles].”

Of course, MLB would have to approve that (or any other) ownership transfer too.

The equity analyst does not believe Liberty has “any imminent desire” to sell the team, anyway. Baseball’s current trajectory seemingly makes the economic opportunity all the more interesting.

But should that position change down the road, the company is now positioned to unload the club.