Atlanta Braves Holdings, Inc.

Moat: 2/5

Understandability: 2/5

Balance Sheet Health: 3/5

A sports and real estate company primarily owning the Atlanta Braves Major League Baseball Club, and the real estate and entertainment development around the team’s stadium, Truist Park.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Atlanta Braves Holdings, Inc. (BATRA) is unique as a publicly traded entity, primarily because it is primarily a baseball team instead of a traditional company. This results in a business with a unique financial structure and various risks and advantages not commonly found. Let’s delve deep into analyzing it.

Business Overview

BATRA operates through two main segments:

  1. Baseball: This segment encompasses the Atlanta Braves Major League Baseball club, including all revenues and expenses associated with running the team. Key revenue drivers in this segment are ticket sales, media rights, concessions, merchandise sales, and advertising/sponsorship deals. The MLB is a highly regulated industry and the structure of its leagues, drafts and revenue distribution has an impact on the profitability.
  2. Mixed-Use Development: This segment consists of The Battery Atlanta, a mixed-use real estate development surrounding Truist Park. Revenue comes from the commercial leases, retail space, hotel and other entertainment facilities at the development. This segment benefits from the popularity of the Braves baseball franchise, which attracts visitors.

Industry Trends:

  • The sports industry, while usually resistant to economic downturns, can see dips in ticket sales and merchandise due to changes in consumer discretionary spending. However, attendance and fan engagement is directly proportional to success on the field, and good team performance will drive higher revenues.
  • The broadcasting industry for sports is changing rapidly with different types of media competing for eyeballs and advertisers, causing fluctuations in the value of media deals.
  • The real estate market cycles are highly variable and prone to volatility, creating an unpredictable revenue stream from the real-estate sector.
  • The growth of experience economy is a tailwind for both ticket sales and increased visitors for the mixed-use segment.

Competitive Landscape:

  • Baseball: As a Major League Baseball team, the company is part of an established sports league, with a set of fixed competitors and regulated revenue sharing, player trades, and many other aspects.
  • Mixed-Use Development: They compete directly with other shopping, entertainment, and real estate options in the Atlanta metro area, meaning that they are subject to a standard competitive framework, and not only on the merits of their own.

What Makes BATRA Different?

  • Vertical Integration: The mix of sports entertainment and real estate development is rare and offers synergies between the two. BATRA can leverage its baseball team as an anchor tenant and a draw for its commercial developments.
  • Long Term Contracts and Revenue Streams: Because of the media rights and broadcast deals, their revenues have long term commitments and are not dependent on a singular source.
  • Geographic Monopoly: Atlanta Braves operates as a geographical monopoly, with a dedicated fanbase in the Atlanta region, limiting some of the effects of direct competition in the MLB.

Moat Analysis

Moat Rating: 2/5

  • Brand Recognition: The Atlanta Braves have strong brand recognition locally and some nationally, providing a consistent draw for ticket and merchandise sales. However, its regional nature dilutes this moat.
  • Scarcity: The company has a limited number of players as a Major League Baseball team, which is limited by design. The Atlanta Braves are one of the teams that exist, so they do benefit from a naturally oligopolistic industry. However, more teams means less value for each of them.
  • Limited Supply of Games: As a MLB team, their games are unique events and they have a limited supply, that should generate revenue.
  • Lack of Pricing Power: The MLB as a structure creates a cap in the prices that can be paid by individual team, diluting their ability to utilize high demand.
  • Lack of Switching Costs: Although the Braves have a strong fanbase, consumers have many options for sports and entertainment, and switching costs are low.
  • Limited Long-Term Predictability: The success of any individual team is not guaranteed and directly influences revenues, and it is difficult to predict success consistently, making this moat very brittle.

Legitimate Risks to the Moat:

  • Team Performance: Declines in team performance can significantly reduce attendance and merchandise sales. Furthermore, a decline in the success of the team may reduce the appeal of the surrounding development as well.
  • Economic Conditions: Recessions or economic downturns can affect consumers’ spending habits and reduce visits to both the stadium and associated amenities. Furthermore, the real estate sector is highly vulnerable to economic slowdowns.
  • Changing Media Landscape: Changing trends in broadcasting and how fans consume sports can impact the media contracts (a significant source of revenue for the business), and therefore profitability.
  • High Labor Costs: In the MLB, player salaries are highly variable and influenced by the market. If the player pool becomes highly competitive, it may greatly reduce profits for the company.

Business Resilience

  • High Barriers to Entry: The Major League Baseball is an established, regulated business with high barriers to entry. The limited number of teams in the league provides a certain level of market protection, making the franchise resilient and ensuring the team and the surrounding development has some value.
  • Fan Loyalty: The strong fan loyalty that the Atlanta Braves enjoy provides some level of resilience through challenging periods, as die-hard fans will support the team regardless of short term performance or business conditions.
  • Diversified Revenue Streams: The revenue streams from baseball and mixed-use development provides some diversification, providing the company with more than one value drivers.
  • Management Expertise: While the management is very good at managing a baseball team, they may not have the necessary expertise to maneuver the market conditions in the real-estate business. Management will continue to be scrutinized with the upcoming spin off.
  • Real-estate dependency: The real-estate development is tied to the financial success of the baseball team and the popularity of MLB, exposing this revenue stream to other underlying risks.

Financial Analysis

Key Financial Data (as of the latest report - September 30, 2022):

  • Total Assets: $1,996,676,000
  • Total Liabilities: $1,372,638,000
  • Total Equity: $623,988,000
  • Total Revenues (YTD): $553,902,000
  • Operating Income (Loss): -$37,811,000
  • Net Loss: -$126,879,000

The latest financial results show that the business is experiencing a significant loss during the reporting period. Looking through the data, it is clear that these losses were driven almost entirely from the “Mixed-Use Development” business, which lost 17.2M, with baseball generating a small profit. As such, the company’s finances are highly dependent on their ability to make the mixed-use development profitable, and they are not guaranteed in their long term prospects.

Key Points and Observations:

  • Revenue Diversification: Revenues are split between the Baseball segment and the Mixed-Use Development, creating a varied and more complex revenue stream.
  • High Leverage: The company has a high level of debt relative to its equity, which may make the company vulnerable to any kind of financial downturns and other risks.
  • Declining Earnings The company has a negative EPS, which has been declining year over year, showing that the underlying business is struggling to achieve profitability.
  • Cyclicality: The business is highly subject to seasonality and revenue from baseball is concentrated in a specific time of year, and are highly dependent on fan turnout.
  • Variable nature of operations: The business can have very volatile revenues and profit margins, because they are directly correlated with team performance. This also makes their forecasts and predictions unreliable.
  • Impact from interest rates: Due to their heavy debt load, changes in the prevailing interest rates may significantly impact the profitability of the company.

Earnings Calls and Recent Developments:

  • The latest earnings call has been mainly about the planned spinoff of the Battery and how that could affect the company, along with continued questions from investors about the profitability of different areas of the company.
  • Management has highlighted the long-term nature of these projects and is looking for new methods to bring profitability to the areas of the company which are failing (such as the Mixed-Use Development).
  • They reiterated that they are not concerned with short term performance and plan on taking advantage of the unique position the company is in with its synergy between the different segments of the business.
  • Some of the key issues and future directions were discussed. While revenue and growth rates are expected to grow in most sectors, the management acknowledges that the challenges of creating unique experiences and capturing their respective target audiences will continue.

Understandability

Understandability Rating: 2/5

  • The business model has multiple parts. The business has a mixture of aspects in MLB, and real estate development that makes analyzing this business complex.
  • The heavy dependency on the baseball team makes this a difficult business to model, because their financial performance is tied directly to the performance of the baseball team. This is also inherently difficult to estimate due to unpredictable variables.
  • The large debt load and the fact that they are restructuring adds to the complexity of the financials.
  • Most investors will not be familiar with the different rules and regulations in the Major League Baseball, and it may be difficult for them to understand the value drivers.
  • The company is undergoing many large transitions and restructuring operations, making it hard to predict their future financials.

Balance Sheet Health

Balance Sheet Health Rating: 3/5

  • High Debt-to-Equity Ratio: The company’s reliance on debt is a concern, particularly in a volatile and highly cyclical environment and exposes the company to interest rate fluctuations. They will need to improve profitability to service existing debt.
  • Positive Long-term Assets: They have large investments in property and equipment which should give the company a stable base to draw profits from.
  • Declining Current Assets and Liquidity: The low cash and other liquid assets make them prone to any short term downturns.
  • Low Cash Flows: Cash flows are negative as of the recent reports. These flows are needed for expansion and servicing of debt.
  • High Liabilities: Their total liabilities are more than double their equity, making them highly leveraged.

Conclusion

Atlanta Braves Holdings Inc. is a unique business with the mixture of sports and real-estate, however, the company has faced challenges recently and there are legitimate risks that can affect the company in the future. There is some protection from strong regional and brand, but overall the company is vulnerable to team performance, and also the current volatility of the market and debt conditions.

The business is slightly complicated to understand as it does not fit the mold of other traditional companies. The company’s complex accounting and unique operational characteristics along with its financial statements and the many caveats with the industry may be hard to navigate for a retail investor. Their financials are also not entirely stable and has a high debt load that does not make them a very healthy choice in the eyes of the market. The management is very important, and their decisions will greatly influence future performance and profitability. It would be wise to understand the intricacies of their operations before making an investment decision.