‘One Thing They Can Never Take Away Is You Will Always Be A World Champion.’ Brian Snitker
In 2007, John Malone struck a deal with Rupert Murdoch to buy the Atlanta Braves for $400 million. By itself, this fact looks interesting, especially if you are a sports fan. However, it was only part of a bigger deal. I know this because as a long time Liberty shareholder, I remember the situation pretty clearly. You see, at the time, Malone owned nearly twenty percent of all the shares outstanding of Murdoch’s News Corp. Rupert felt threatened, and he needed to make sure he would protect his company so his family would take control when he passed on. Naturally, with both men knowing each other quite well, they surely could work something out, right?
Indeed. Murdoch was keen on getting rid of a what he considered a dog asset, that being DirectTV. He called it Bird turd, in reference to the big satellites it employed for it’s service. Malone had long been shut out of the cable and telecom area by his own contemporaries. They knew his capability. So, the deal was arranged that Murdoch would swap DirectTV for Malone’s stake in News Corp. Naturally, it was not that simple, as there are always tax considerations and regulatory issues to consider. Within this context, the deal was struck to include regional TV networks, cash (a billion), and an actively traded business. The business which was thrown in was, you guessed it; the Atlanta Braves.
At the time, the Braves were a struggling franchise. The stadium was located in downtown Atlanta, and was quite old. The local television contract was a long duration and it’s terms were not attractive. The team had a long history of winning, but they were mediocre, essentially a five hundred team. From a business perspective, the investment world didn’t even think about what kind of value could be achieved with the asset. Today, after the Braves win the 2021 World Series in one of the great sports and human stories in the last twenty years (make sure you read the ESPN piece), the Braves franchise is worth a whole lot. How much? Well, before this year, it was valued at a touch under $2 billion. It could very well get closer to $3 billion. The stock is publicly traded, and yes, we own it, and have for many years. A big holder is Mario Gabelli of GAMCO, who has been buying for a long time. You have to always pay attention to Mario and Malone. On that note, from the investment perspective, it is instructive to briefly look at what Liberty did to, shall we say, alter the asset value?
First, Liberty kept the existing baseball management in charge. They let the sports guys run the sports operations. When the Braves were below five hundred this year, the moves that were made ultimately led to the championship. Second, Liberty dealt with the stadium by finding a different place to play. Liberty and Malone were not going to be reliant on the success of the team in order to have a profitable business. They found Cobb County a willing and constructive partner, meaning the terms were attractive (and then some).
The Liberty idea was unique. It would be a complex, not just a stadium. It included a retail component, residential apartments, commercial real estate (Comcast has a big presence with a 25 year lease), and an entertainment venue. It ultimately included 25 year naming rights, too. The important distinction of the new stadium is all the suites, luxury boxes, food and beverage, and ancillary revenue would go to the Braves. The complex is called the Battery. Other franchises across all major sports leagues visit the Battery to use it as a template for their stadium situations. One other key piece is there was additional land included. The land is now being developed and has a huge international company with a ninety nine year lease. Malone has talked about deals where an acquirer kills the pig and doesn’t use all the blood and guts. Clearly, Liberty knows how to utilize and develop assets.
What was essentially a throw in has become a money gusher. In the most recent quarter, the Braves threw off nearly fifty million of cash. The battery was open during the three world series games and the away games as well. The parade drew over a million people. Those television rights expire in 2028. I suspect the terms will be just a wee bit better. The interesting question is, will Malone shop the team, and if so, what would he get? What would he take? My guess is three billion or more, but there is a strong probability he won’t sell, but you never know with Malone.
Elsewhere in the markets, Pelaton reported a disappointing quarter and guided down. Of course, the stock was crushed. The same thing took place with Chegg, and Vimeo. For shareholders, the drubbings you take from poor earnings reports can be discouraging. A few weeks ago, it happened to Starbucks. In the next two weeks, the stock subsequently recovered. If you believe in the business, sticking with it usually makes sense. If you need a tax loss, you might consider selling it and buying it back in a month and one day so you don’t suffer from a wash sale.
The October jobs report was strong with over 500k jobs created. Politically, the drubbing Democrats took in Virginia and New Jersey was highlighted by Edward Durr. He spent all of one hundred and fifty three dollars to beat a seven time Democrat incumbent who happened to be the leader of the New Jersey legislature. It is probably a premature conclusion, but 2022 could be quite eventful for both parties. A very interesting week as we head into what is usually a good time for markets. Thank you for reading the blog this week, and if you have any questions about investing, please email me at firstname.lastname@example.org.
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Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog, Investing in securities involves risk and the potential loss of ones principal. Past performance is no guarantee of future results. All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one’s overall financial situation. The fact that Yale Bock has earned the right to use the CFA designation does not mean Y H & C Investments will outperform broad market indexes.