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Liberty’s Braves Win World Series, Edward Durr, and A Good Jobs Report!

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 information@y-hc.com.

If you know of anyone who could use our investment advice, please don’t be afraid to reach out or pass their name along.

If you would like a free consultation regarding your portfolio, click here to set one up!

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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.

Major Companies Report As Supply Chains and Delta Weigh On Results!

‘On Halloween, You Get To Become Anything You Want to Be.’

In families with multiple kids, the older siblings are admired by the younger ones.  Often, worn out parents put big brother and sister in charge of their smaller, more energetic members.  Unless you are not familiar with the calendar, tomorrow is October 31. It is well known as Halloween.  For kids, it is a great day.  In many cases, older kids take their younger family members out and they go trick or treating together.  At the end of the evening, the kids come home and compare the collection of candies they accumulated.  It makes sense for one to swap a candy they like for one they are not as enamored with. Still, the younger kids are very much dependent on their older brothers and sisters to lead the journey.  In a similar fashion, a majority of companies in public markets trade in concert with how the largest entities perform.

Over the last week, the biggest companies in the world reported their financial results from the last three months.  The ones which get the most attention are Apple, Amazon, Facebook (becoming Meta), Google, and Microsoft.  Other large enterprises which reported include Coca Cola, Visa, Shell, Exxon, McDonald’s, and Chevron.  The largest companies constitute a bigger overall market value and so their results significantly impact what takes place in the overall market indexes. Each index has a specific kind of calculation and different composition which determines the overall performance.  The Dow is equal weighted whereas the S&P 500 and Nasdaq are market cap weighted.  A holding like Microsoft or Apple, sporting trillion-dollar market values, are more impactful than an entity which is worth a mere billion or one hundred million dollars.

So, it makes complete sense the broader market indexes are tremendously affected by the results of the largest companies.  If we flip this on it’s head, the smaller the entity, the less dependent the price should be on what takes place with the biggest companies.  Unfortunately, this premise does not always hold.  One of the important factors to consider is what entities have the largest percentage of ownership in a company.  Large fund families like Vanguard, Fidelity, State Street, and Blackrock own major pieces of many of the largest companies across the globe.  Moving further down the spectrum, they often own smaller companies.  However, smaller entities like hedge funds, mutual funds, or investment advisory firms can have big ownership stakes in microcap, small, and mid cap entities.  Many are worried about the possibility of a market correction.  If you consider the fact that 25% of the market value of the indexes is tied to the largest four or five entities, you realize how important those companies are to overall market performance.  The same dynamic of the older kids (largest companies) dictating what takes priority in families (markets) holds true in the investment world.

As far as specific earnings are concerned, Apple and Amazon missed estimates as both companies told of supply chain problems.  Just as important, their guidance indicates these supply issues may persist into next year.  In the energy area, the majors (Exxon, Chevron, and Royal Dutch Shell) reported with the first two showing huge cash generation.  Shell missed because of poor hedging but paid down an enormous amount of debt.  If oil and gas prices stay where they are, or continue rising, energy probably heads higher, maybe dramatically so.  Naturally, inventory builds showed up and prices headed lower last week.  A warmer winter would cause gas prices to head lower, and the converse is also true.

Politically, all eyes are on the Virginia Governor contest on Tuesday.  Democrats continue to struggle with a divided party as Progressives are stopping the big infrastructure bill in the House.  Moderates won’t yield to the enormous spending requests Progressives are set on.  Jumbled Joe left for Italy to join the world for discussions on the climate.  Naturally, the largest carbon emitter didn’t show up, that being China.  If the big kids aren’t in the discussion, whatever the parents want to get accomplished probably won’t get done.  On that note, I hope you and your family enjoy the Halloween weekend.  Trick or Treat.

 

If you know of anyone who could use our investment advice, please don’t be afraid to reach out or pass their name along.

If you would like a free consultation regarding your portfolio, click here to set one up!

 

Thank you for reading the blog this week, and if you have any questions about investing, please email me at information@y-hc.com.

Interested in finding out your investment style?  Take an investment assessment from Positivly!

 

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.

 

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