g.research, LLC August 20, 2018 One Corporate Center Rye, NY 10580-1422 g.research, LLC Tel (914) 921-5150 www.gabellisecurities.com Liberty Braves Group (BATRA - $26.41 - NASDAQ) 20 Year Old Ronald Acuna Jr. and 21 Year Old All-Star Ozzie Albies Source: Bleacher Report, research, LLC Playoff Push John Tinker g.research, LLC 2018 (914) 921-8348 -Please Refer To Important Disclosures On The Last Page Of This Report- g.research, LLC One Corporate Center g.research, LLC August 20, 2018 Rye, NY 10580-1422 Tel (914) 921-5150 www.gabellisecurities.com Liberty Braves Group (BATRA - $26.41 - NASDAQ) Playoff Push - Buy Year EBITDA EV/EBITDA PMV Dividend: None Current Return: Nil 2020P $90 20.9x $43 A Shares 10.2 million 2019P 88 21.5 42 B Shares 1.0 " 2018E 76 24.9 37 K Shares 48.8 " 2017A 7 NM 34 52-Week Range: $27.02 - $21.35 COMPANY OVERVIEW The Atlanta Braves were founded in 1871 and are the oldest continuously operating professional sports franchise in US. The Liberty Braves Group moved to the new 41.5K seat SunTrust Park, Cobb County from Atlanta in February 2017. Liberty Media Corporation recapitalized the Atlanta Braves as a tracking stock in April 2016 along with Liberty SiriusXM and Liberty Formula One. Assets include the Major League Baseball team, the Atlanta Braves, the Atlanta Braves' stadium and the Battery real estate project. The Battery Atlanta is a 46 acre mixed use development with residential and commercial property which feeds off the stadium (16 acres) on 82 acres with initial completion in 2018 and 20 acres to be completed by 2022. We project a PMV of $42 per share in 2019. Reason for Comment – Playoff Push We are raising our 2019 PMV to $42 from $35 per share based on a playoff push and return to form. Previous valuation spurts have been driven by higher broadcast rights and the new stadium. Our increase is based on raising the baseball team revenue multiple to 5.2x from 5.0x 2019 revenue for $2,275 million, or $38 per share, which is still lower than last year’s sale of the less storied Marlins franchise for 5.7x previous years revenue. Valuation drivers include: The combination of higher than anticipated second year attendance at its new stadium - up approximately 3.5% to 32K, including 13 sell-outs. Attendance is being driven by the team’s success on the field and probable first playoff appearance since 2013 and the possibility of a World Series run. The Braves low payroll (estimated base cost $130M vs Boston Red Sox $225M) is effectively locked in for three/four years with a young “controllable” core and a top farm system producing players like 21-year old 2018 All-Star, Ossie Albies and 20-year old Ronald Acuna Jr. A manageable payroll results in our projecting approximately $80M a year in team EBITDA. The Forbes’ Braves valuation has increased 41% to $1,650 million over the last three years, in-line with MLB’s 39% increase. By contrast, superior team performance over the same three years resulting in winning the 2017 World Series Championship produced a 106% increase in valuation for the Houston Astros. Mr. Tepper’s acquisition of the NFL Panthers for a record $2.3 billion suggests that sports team ownership remains a combination of the ultimate trophy and recognition that sports teams are content as new internet buyers emerge for their streaming rights. The MLB continues to build “hidden assets” after the BAMTech sale (for approximately $75M per team) by generating fees providing data for online betting. The high stadium attendance supports the mixed use real estate development, which is continuing to expand with the new Thyssenkrupp Elevator Americas and Aloft Hotel. The Battery offers three of the top ten grossing restaurants in Atlanta; the looming residential property sale price is a speculated $170M and management has suggested an IRR of 22%. Investment Case We have always believed that the stock should appreciate with improving economics and without a team sale, similar to that of Madison Square Garden (MSG). Controlling shareholder Dr. Malone’s recent resignation from the Lionsgate and Charter Communications boards (although remaining as a Director Emeritus on Charter) suggests a focusing of his empire. The current gating factor is that Liberty media’s tracking stock structure currently precludes the Braves sale as the only ATB (Active Trading Business). Liberty CEO Maffei recently suggested that the problem of the heavily discounted Liberty SiriusXM could be resolved by a “GLIBA” type transaction which might free up the Braves. Malone, America’s largest individual landowner, may be happy to let the real estate assets play out and with a young inexpensive team await the outcome of the new MLB broadcast contract in 2021. Table 1 Liberty Braves Group Earnings Model 2016A-2022P (in millions, except per share data) '17-'22 FYE 12/31 2016 2017A 2018E 2019P 2020P 2021P 2022P CAGR Revenue $262 $386 $453 $485 $498 $511 $526 6.4% EBITDA (16)7768890939669.2 TEV / EBITDA NM NM 24.9x 21.5x 20.9x 20.2x 19.6x Capex ($360) ($219) ($35) ($35) ($21) ($22) ($22) Source: Public data and g.research; 2017 adds back $13M contractual write-off - 1 - g.research, LLC Stadium Attendance Increasing Second year attendance is up approximately 3.5% to 32K, including 13 sell-outs and just surpassing 32,000 for the first time since 2007. Traditionally, a new stadium’s second year attendance dips. We believe attendance should continue to increase as the team returns to playoff form. The average attendance for Braves’ seventeen playoff seasons going back to 1990 is 35,139. The Braves were one of baseball’s best teams during 1991-2005, reaching the playoffs for fourteen consecutive seasons. While the new stadium is smaller – 41,084 vs 49,586, the potential market in Cobb, combined with the Battery dining and entertainment facilities is greater. The exhibit below illustrates the historical performance and attendance of the Braves dating back to 1990. (Note that 1994 is excluded due to a strike shortened season.) Exhibit 1 Braves Seasons 1990-2018 Average Attendance Playoff Seasons (17) 35,139 Non-Playoff Seasons (10) 27,700 - 2 - g.research, LLC Market Size Sportmediawatch.com ranks Atlanta as the 9th largest TV market with an estimated reach of 2.4 million homes. New York, Los Angeles, and Chicago are at the top with 7.0, 5.3, and 3.3 million homes respectively. Exhibit 2 illustrates that the Braves have a larger reach outside the state of Georgia as there are no MLB teams in the south east. The nearest team is the Tampa Bay Rays, one of the smaller teams with an average attendance of 14,000. Exhibit 2 MLB Geographic Markets Source: New York Times Table 2 Social Media Social media is an increasingly critical factor contributing to a team’s Top 15 Team Twitters Followers marketability and overall reach. Currently, Twitter is the best platform for (Thousands) sports teams because of the instant response and news breaking capabilities. Twitter is supplemented by the presence of high ranking MLB insiders like New York Yankees 3,287 Ken Rosenthal (960K followers - The Athletic, Fox, MLB Network) and Chicago Cubs 2,457 Buster Olney (1.3 million followers - ESPN). The Braves Twitter account Toronto Blue Jays 2,233 currently has 1.2 million followers compared to a league average of around Los Angeles Dodgers 2,024 1.1 million. The Braves, see Table 2, rank eleven out of the top fifteen teams. There is upside as leading player Freddie Freeman has 260K followers Boston Red Sox 1,992 whereas top player Mike Trout (LA Angels) has 2.5 million. Facebook may Philadelphia Phillies 1,820 not be as relevant to younger fans that prefer Instagram – the Braves San Francisco Giants 1,791 Instagram account is followed by 754K people, whereas the Yankees are followed by 1.9 million. There does not appear to be a verified Freddie Detroit Tigers 1,446 Freeman Instagram account, by contrast Mike Trout is followed by 1.5 Texas Rangers 1,414 million, Yankees’ Aaron Judge has 943K and NBA star LeBron James is Houston Astros 1,324 followed by 40 million. Interestingly, 13% or 3.9 million children aged between 6-12 participate in baseball on a regular basis suggesting a continued Atlanta Braves 1,206 youthful interest. St. Louis Cardinals 1,178 Kansas City Royals 1,034 Los Angeles Angels 1,009 New York Mets 1,004 Source: Statsta.com - 3 - g.research, LLC MLB Broadcasting 2021 – The Golden Year? Table 3 MLB Broadcast Contracts The MLB’s current broadcast contracts are with Fox, TBS and ESPN who paid a combined $12.5 billion for the rights between 2014-2021. The rights increased a dramatic ~118% as live sports value in an increasingly fragmented video world became apparent. These contracts have large implications on the value of all teams, with the Braves Forbes valuation increasing from $730 million in 2014 to $1.15 billion in 2015. A new contract should be negotiated in 2020 - the negotiation is complicated with the NFL’s ESPN agreement for $15.2 billion also expiring in 2021, with another $30 billion of rights expiring in 2022. New buyers include Facebook who purchased rights this season to broadcast 25 MLB games on Wednesday afternoon for ~$30 million. Twitter has had a similar deal for the last three years. Facebook is acquiring other global sports rights such as Spanish La Liga soccer in India. Amazon recently acquired NFL and English Premier League soccer rights, which puts severe pressure on traditional media broadcasters.