Why investors should jump on Atlanta Braves' 'trophy value'

On today's Good Buy or Goodbye segment, Gabelli Funds co-CIO Chris Marangi joins host Julie Hyman to navigate the best stock picks for investors in the sports media sector.

Marangi names Atlanta Braves Holdings (BATRK) as a stock to buy, highlighting the "very few opportunities to own sports assets in the public market." Furthermore, he highlights that the stock is currently trading at a discount to its private market valuation, presenting a good entry point for investors. Marangi also commends the company's strategic positioning, stating that it has "positioned it for a sale to capture that trophy value."

On the other hand, Marangi advises investors to avoid investing in the Walt Disney Company (DIS). Despite its iconic status, he acknowledges that the media giant is "still not immune to the forces impacting the media industry." With the rapid rise of streaming platforms, Marangi believes that Disney's future earnings potential may be hindered. Additionally, Marangi cites "moderating demand" in Disney's amusement parks as a concerning factor, attributing it to consumers' heightened economic sensitivity.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Angel Smith

Video transcript

It's a big noisy universe of stocks out there.

Welcome to.

Goodbye or goodbye.

Our goal to help cut through that noise to navigate the best moves for your portfolio.

Today, we're taking a look at sports media stocks in a match up between one intellectual property owner and a distributor.

What's the best way to play it right now?

I'm here with Chris Moran co cio at the be fun.

Thanks so much for being here.

Appreciate it.

So let's get your by stock and it is Atlanta Braves.

Now, this is an interesting one.

You were interestingly enough, not the first person who has talked to us about this stock, but it is not one that's widely held or that is as much talked about within the sort of media space.

The shares are down over the past year, about 8.5%.

But if you look at it, you talk about the loyalty that people have right to something like the Atlanta Braves.

Sure, I know everybody wants to talk about A I today with this is in many ways the anti A I play, this is in person.

This is 100 and 50 year old company.

It's the oldest continuously operating sports franchise in North America.

The Atlanta Braves, there are very few opportunities to own sports assets in the public markets.

This is one of them.

And as you talk about owning sports in the public markets here, you we have seen in the private markets that there's been a lot of growth.

So this shows here on this chart, the NFL and where we've seen that growth, the NBA, the MLB, the NHL and the compound annual growth rate altogether 16%.

So in the private markets, we have seen that growth, sports assets have appreciated actually greater than the S and P over this time frame.

Uh they've been great stores of value for lots of reasons um that we'll talk about but uh there again, very few ways to participate.

Yeah, there aren't very many ways to participate.

So what's interesting is that you say that the Atlanta Braves are, are treating any discount to that private market value, which is sort of counterintuitive.

Well, so we, you know, first we start with what, what the private market value is.

First, we, we calculate the private market value of the team based on where other uh sports teams have transacted in the market over the last 10 or 20 years.

And we have a look at that actually, these are some of the recent cops uh in, in various leagues.

Um The Phillies are the most relevant.

Um They sold a minority stake for seven times revenue.

We value the Braves at something like 5.5 or six times revenue.

You add the value of the real estate which they have around the park and they get to a value of something like 3.5 billion for the company divided by the 62 million shares.

And uh you get to a stock price in the high fifties versus 40 today.

Ok. Got you.

So that is a, a considerable discount.

And it is illustrative to see, you know, the Phillies valued it at $2.8 billion.

And then you have to ask with seeing those valuations kind of as the result of deals and knowing how much people are willing to pay for them.

It has to lead you to ask, could we see a deal with the Braves?

Right?

So there's been a persistent discount in other sports assets.

This is a little bit different because this asset is controlled by John Malone and the folks at Liberty media who split it off uh just about a year ago in July.

Uh in my view as a uh to position it for sale to a private who can capture that trophy value and close the discount to private market value.

Would we potentially see a sale of part of it?

Or do you think it's more likely you sell, you sell the entirety of the public company?

Got you.

So we always talk about what a risk could be potentially.

And in this way you think boredom is kind of a risk.

In other words, like if you no catalyst, you go kind of muddle along without a deal or something else happening.

I use boredom in particular because a lot of people find baseball boring.

It's not gotten more exciting with some of the rule changes.

But yeah, listen, there's not a lot of downside in my view to the private market value of this franchise.

It's not like it's gonna get technologically disintermediated or they're gonna fall on their face in terms of earnings.

Really.

It's just a matter of the discount persisting for a very long period of time because there's not a transaction to surface the value.

Do you happen to be a Braves fan?

Also, I am not a Braves fan.

I am a New York Yankees fan.

I was gonna say your accent implies you would be more a northern uh fan than an Atlanta Braves fan and you guys do own Atlanta Braves and your portfolios.

Our clients are actually the larger shareholders of this company.

Ok.

There you go.

So let's talk about the stock.

You don't like.

This one is interesting.

It's Disney now these years are up over the past year.

There's been a lot going on with Disney.

Obviously, the first reason you say you call it analog dollars for digital dimes.

What do you mean by that?

So first of all.

Let me preface this by saying before I get all the dis nerds out there.

Uh Mad at me, Disney has fantastic intellectual property and is run by a very great leader and Bob Tiger, but it's still not immune to the forces impacting the media industry.

And, and I started as a media analyst 20 years ago and I'm very familiar with those and, and that's basically this um concept that media companies were over earning for decades in the old big pay TV bundle system that has come apart with streaming.

And uh it means that the companies are gonna earn less going forward.

And Disney's done a pretty good job of, of transitioning their business to direct to consumer, but it's never gonna be as good.

It once was and still has some challenges in the immediate term.

And you also, when you also say analog dollars for digital dimes is that, you know, they do have an analog business also in the form of the parks, but they're also investing all this money and trying to make streaming sort of work.

Yeah.

And this and the parks business is more than half of the IDA, more than half of the cash flow of this company and, and more than half of the value too, but we still like that business on a secular basis.

The experiential economy is one we've uh been a proponent of it actually.

Um it works for the Braves as well, but that one actually has some cyclical challenges coming up.

Yeah.

And let's talk about that, the economic sensitivity and those, those parks are not getting any less expensive, that is for sure for those of us with Children who've been there recently.

And, uh, you know, both, both Comcast which owns the Universal Parks and Disney have called out a moderating demand this summer in their, in their parks just as we get through COVID normalization and, and frankly, as the consumer a little bit strained and can't spend as much.

And then we showed that stock chart at the beginning where the stock is appreciated, something like 18.5% over the past year.

And as I said, there's a lot that's been going on, namely a big proxy fight, right?

That has helped in part drive the shares up.

What now?

Yeah, exactly.

That's sort of the issue is that, you know, a lot of the catalysts are in the rearview mirror, but it's the, the try and proxy battle that, that you referenced uh taking costs out, um getting the DTC business, the direct to consumer business to profit neutral, profitability, which they've all done and check, check those boxes.

And that's why the stock has done well from here.

It's gonna be more difficult trading out of call it a 20 times kind of uh multiple slight premium to the market and there's just not a lot of enough of a margin of safety for us to continue owning it.

Ok.

So let's talk about what then could go, right.

That would maybe change your view.

You know, if they do have good assets, they do still have Bob Iger in there.

We don't know what's happening after Bob Iger, but you know, he could turn the ship from here.

It's largely an execution story.

And if they over execute, if they take more costs out, if they get direct to consumer uh right faster than we think they will, the CYC is gonna continue to dwell.

The other thing I'd mention is this is an industry that's undergoing consolidation.

You've got paramount subject of a takeover battle.

Warner Brothers.

Discovery could be another one.

I don't think it's likely that anybody buys Disney, but there have been whispers of Apple, for example, being interested again, I don't think that's likely but it's, it's not a nonzero chance and that is a risk to the upside.

Now, you said you wouldn't want to own Disney or do you guys have some Disney?

You've owned Disney in the past?

We've been saying goodbye to it.

Interesting.

OK.

But you still have a little bit, but you're, you're working it down and we're very tech sensitive.

So we have clients with very low basis.

Understood, Chris.

Thank you so much.

Let's that summarize what you're telling folks here.

You said you would buy Atlanta Braves holdings based on a significant discount to sport teams private market value.

On the other side, you think avoid Disney amid the decline of traditional media and lack of catalyst going forward, Chris.

Good to see you.

Thanks for coming in and thank you so much for watching.

Goodbye or goodbye.

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