BATRB - Liberty Braves: A Catalyst-Driven Home Run

2023-06-21 04:17:44 ET

Summary

• The Atlanta Braves represent a unique and scarce asset with significant brand value, offering potential for market-beating returns upon a sale of the team.
• Recent sales of sports teams suggest the Braves could be worth between 6-9x revenue, offering upside potential for investors.
• Risks include chronic stagnation of the share price in the absence of a sale and potential negative impacts from exogenous events, such as COVID-19.

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Introduction

Have you ever wanted to own a sports team?

If so, then the Atlanta Braves ( BATRK ) deserve your attention. BATRK is a tracking stock that represents the Atlanta Braves baseball team and The Battery Atlanta, which includes Truist Park, office buildings, and entertainment spaces. Two other classes of shares for the Braves exist ( BATRA ) ( BATRB ). For simplicity’s sake I will refer to BATRK as the common ticker as it is the most liquid of the three.

The Braves currently reside underneath the umbrella of Liberty Media ( LBTYA ) headed by the legendary John Malone. However, it is being spun out in Q2 2023 (at some point in the near future) and will become a standalone company. Many people suspect this is the first part of a future sale of the team and real estate interests.

While speculating on mergers is not traditionally known as investing, the recent rise in values of sports teams and the premium placed on live unscripted entertainment make the Braves an interesting opportunity for enterprising investors who are willing to look off the beaten path.

Valuation

The valuation of sports teams is unlike traditional companies. One has to be comfortable with this in order to see the potential opportunity brewing here. Sports teams are generally run on a break-even basis in order to maximize reinvestment back into the team for salaries, stadium upgrades, etc., so capital returns are not likely with this type of investment. Because of this, the valuation is not based on a specific determination of future free cash flow or EV/EBITDA.

In fact, the valuation of sports teams is relatively simple and is predicated on peer multiples as well as revenue multiples. A premium is also often placed on the pedigree of the team and the city/market size.

Peter Lynch would call this an asset play. As there are only 30 teams in the MLB, the Braves represent a very unique and scarce asset with significant brand value.

Before I talk about the Braves specifically, I would like to talk about other professional sports teams that have recently been sold

Recent Sports teams sales:

Washington Commanders in 2023 ('NFL')

2022 Revenue - $544 million

Revenue Multiple Sold for – 11x

Sales Price = $6.05 billion

Denver Broncos in 2022 ('NFL')

2021 Revenue - $520 million

Revenue Multiple Sold for – 9x

Sales Price = $4.7 Billion

Minnesota Timberwolves in 2021 ('NBA')

2020 Revenue - $200 million

Revenue Multiple Sold for – >7.5x

Sales Price = ~$1.5 billion

New York Mets in 2020 ('MLB')

2019 Revenue - $362 million

Revenue Multiple Sold for – ~7x

Sales Price = ~$2.4 billion

Another sale can be added to that list as recent news broke out that Michael Jordan has sold his majority stake in the Charlotte Hornets (NBA) for $3 billion.

Charlotte Hornets in 2023 ('NBA')

2022 Revenue - $269 million

Revenue Multiple Sold for – >11x

Sales Price = ~$3 billion

Publicly listed values for most sports teams are notoriously known to undervalue team values. In fact, the recent estimates of the Hornets , underestimated their value by 70% as they were listed at $1.77 billion, and yet they were sold for close to $3 billion.

Braves Baseball Team

In 2022, the Braves earned $535 million in revenue from baseball activities. Based on publicly listed estimates, the Braves are currently valued around $2.6 billion, which is about 4.8x revenue.

If one were to apply a similar undervaluation for the Braves as for the Charlotte Hornets, the Braves' true value would be about 70% above their current stated value. Based on these recent sales and peer multiples, the Braves could be worth between 6-9x Revenue, or even more.

A discussion of the Braves roster and pedigree may help understand why I believe they can be sold at a high revenue multiple around the Bull case or 9x 2022 revenue. The Braves won the world series in 2021 and are perennial contenders. With top pitchers like Max Fried and Spencer Strider along with current NL MVP front-runner Ronald Acuña Jr. who was the first ever player to hit for 15 HR and get 30 stolen bases in a team’s first 70 games, the Braves are one of the best teams in baseball.

The Braves have locked up some of their best players including Austin Riley, Ronald Acuña Jr., Spencer Strider, and Matt Olson on long-term contracts with only one of those four becoming a free agent before 2030. This ensures the Braves are well-positioned for future seasons.

Additionally, big market teams generally reach higher values than small market teams and the map below shows how the Atlanta Braves have a sizable market size and are the primary baseball team for fans in 5 states (Georgia, Tennessee, Alabama, Mississippi, and South Carolina).

The Battery Atlanta

BATRK is unique in that not only does it include the Braves, but it also includes The Battery, which includes the Braves stadium, Truist Park, and other office buildings, shopping facilities, and entertainment venues around the stadium. The Battery generated $53 million in FFO in 2022 and using a conservative 10x multiple, the value of the Battery could be about $500 million. In fact, according to Wikipedia , it cost about $400 million to build in 2014.

I will use this $500 million in all 3 cases of my valuation.

I will now present a Bull, Bear, and Base case for the valuation of BATRK, which includes the Braves baseball team and The Battery. I will also use EV instead of market cap to ensure debt is incorporated into the final valuation.

BATRK Current Valuation

Total EV = (62 million shares outstanding * $39.73) + $250 million in net debt

= $2.71 billion

Bear Case – Sold for 6x Revenues

$535 million in Baseball Revenue * 6 =

$3.2 billion + $500 million (The Battery) =

$3.61 billion

+33% upside

Base Case – Sold for 7.5x Revenues

$535 million in Baseball Revenue * 7.5 =

$4.01 billion + $500 million (The Battery) =

$4.51 billion

+66% upside

Bull Case – Sold for 9x Revenues

$535 million in Baseball Revenue * 9 =

$4.82 billion + $500 million (The Battery) =

$5.32 billion

+96% upside

Other Publicly Traded Sports Teams

There are a few other publicly traded sports teams, with the 2 most famous being Manchester United ( MANU ) and Madison Square Garden Sports Corp. ( MSGS ), which holds the New York Rangers and the New York Knicks. These 2 have lagged the market.

Manchester United is currently rumored to be in the midst of a potential sale, but their current EV/revenue multiple of about 6.7x leaves only about 10% upside as close peer, Chelsea, recently sold for $3.2 billion or about 7.35x their 2021 Revenue. I concede that this was a forced sale due to Roman Abramovich’s ties to Russia, and Chelsea may have sold for a higher price if a longer sales period was allowed.

MSGS is more difficult to value as recent spinoffs have changed the composition of its assets, but if one were to use publicly listed valuations for both the NY Rangers and NY Knicks , the combined value would be about $8.6 billion. Assuming a 70% undervaluation similar to the Charlotte Hornets, one could come to a valuation of $14.5 billion for both teams or a potential 170% return on the current $5.4 billion EV of MSGS. However, the Dolan family is unlikely to sell these assets anytime soon, and so there is no catalyst for the stock to re-rate unless a sale is announced. This risk of chronic undervaluation due to a lack of a catalyst that would realize the full value of the team assets is not necessarily unique to MSGS, and I discuss this risk further in the article.

Correlation to other Assets

One of the most important factors in having a diversified portfolio is to own uncorrelated assets, which have been shown to help weather portfolio downturns and insulate from idiosyncratic risk.

The Braves have little correlation to the S&P500 ( SPY ) and even show a moderate negative correlation with the Nasdaq ( QQQ ) and long-term treasuries ( TLT ). This makes the Braves an interesting portfolio diversifier.

Because the Braves are valued at revenue multiples, revenue growth is a good proxy for their overall market return. Their revenue growth has averaged about 8% since 2017, which is also about equal to their market return over that time period.

Risks

There are several risks associated with investing in non-traditional assets, including sports teams.

A sports team does not generally have any shareholder return and so there is no valuation support other than a possible sale of the team, which means that values can stay stagnant or go down for a long time leading to chronic underperformance. In fact, MSGS has lagged the market for years despite containing such important assets as the NY Knicks and NY Rangers, as there is no catalyst for a re-rating to occur.

Additionally, exogenous events including the COVID-19 crisis, which shut down in-person attendance for most events and sports teams, had a negative impact on the Braves including a precipitous revenue decline in 2020. The stock was hammered as well, as it fell 45% and took a full year to recover its pre-pandemic price.

Finally, an underperforming team, forced sale, or tarnished brand image can all negatively affect the possible value of the asset.

Conclusion

The Braves represent a unique uncorrelated asset for enterprising investors with significant possibility for market-beating returns upon a sale of the team. The major risks to the thesis include chronic stagnation of the share price in the absence of a sale and a re-emergence of COVID-19 that could dent revenue growth.

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