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What's the deal with the new Braves stock?

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Finance stuff with tangential relevance to the Braves!

It's John Malone!
It's John Malone!
Mike Windle/Getty Images

Last week, Atlanta Braves corporate owner Liberty Media announced the creation of a Braves-specific tracking stock. Given that this sort of thing does not happen very often (first, because tracking stocks are unpopular, second because very few professional sports teams are represented by equities in any way), this announcement has prompted some questions, including:

  • What in the world is a tracking stock?
  • Why is this happening?
  • What implications does this have for the Braves?
  • Does this mean Liberty Media is getting closer to selling the team?
  • How much of this stock do I have to buy to make Andrelton Simmons come back?
I am far from expert in these sorts of matters, so I welcome any information that could further clarify things related to this issuance. However, I take a crack at answering these questions below.

(Note: I had some very smart and well-informed folks whose brains I probed to piece together the answers below. If something feels ambiguous below, it is likely because it is ambiguous in reality, and not due to a dearth of subject-specific knowledge. Along those lines, any mistakes or factual errors below are mine alone in transcribing their thoughts or incorrectly extrapolating them.)

What's a tracking stock, anyway?

A tracking stock is kind of the same as a regular stock, except it pays dividends based on how a particular business line performs, rather than on the basis of the financial performance of the overall corporate entity. Essentially, it is a way for corporate entities with lots of different subsidiaries and business lines to differentiate and separately value those subsidiaries and business lines. Buying a tracking stock does not confer the owner of the stock differential privileges in terms of a claim on assets: someone owning this Braves stock has a claim on an overall share of Liberty Media assets, not on Braves-specific assets. So no, buying this stock does not really give you a piece of the Braves, at least not moreso than a share of generic Liberty Media stock. (Additionally, there are some other privileges you don't get if you own tracking stocks, but they're not as relevant to the Braves.)

Tracking stocks were at least moderately popular about 20 to 25 years ago, when telecommunications companies were diversifying into internet services-related business lines and wanted to keep them separate from their generic, older time-y business lines. Since then, they've fallen out of a favor a bit because they're overly complicated and have the propensity to annoy investors or obscure information. However, Liberty Media (and its chairman, John Malone... is there anyone at a high level in the Braves' hierarchy not named John?) is probably the only big proponent of tracking stocks these days, potentially because it really is just an assortment of completely different business lines.

Of some note is that Liberty Media's machinations in this regard actually consist of two separate actions. The first action will result in the creation of separate tracking stocks, including the Braves-specific one, out of what was previously just a generic Liberty Media stock. The second action which pertains to this is an opportunity for holders of Liberty Media stock to buy some Braves-specific stock (at a discount). It's really the latter here that's of potential relevance to the Braves.

Why is this happening?

Well, in short, Liberty Media is issuing more stocks as a way of raising additional capital. (There are some other finance-y reasons too, but that one is the easiest to grasp and also fairly accurate.) But that's just a generic stock-selling operation, and not specific to this Braves tracking stock. As far as the Braves-specific stock, it's a way of giving investors options to specifically bet on the financial performance of the Braves, while also providing a better avenue for market valuation of the Braves and their assets.

To get into a little more detail, we need to take a bit of a step back and talk about SunTrust Park. From a recent SEC filing, Liberty Media has indicated that the Braves have a $450 million investment into SunTrust Park and its associated mixed-use development. While most of this appears to have been directly financed by the Braves (and not Liberty Media, although this distinction is a little artificial as the Braves are fully owned by the latter), the Braves did borrow $165 million from Liberty Media in order to make that investment.

Liberty Media is planning to raise $200 million via the tracking stock issuance. This $200 million will accrue to a new entity under Liberty Media (called something generic like Liberty Braves), and $165 million of that total will be used to pay down the $165 million loan.

Note that this potentially raises an interest point: while Liberty Media can apparently not directly interfere in the Braves' financial situation, it can apparently serve as a lender for projects the Braves potentially couldn't finance themselves. Additionally, it can organize the Braves and provide equity instruments that benefit them in a manner similar to, yet distinct from, just straight-up giving the franchise cash.

What implications does this have for the Braves?

Short answer: not very many... probably.

The first implication is that the Braves essentially no longer need to divine an extra $165 million to close the loop on the intercompany loan they received from Liberty Media. The tracking stock offering will take care of that. However, I'm skeptical to the extent to which this matters, as I can't imagine that the Braves went forward with the SunTrust Park plans without having a good understanding of the implications of financing the project in terms of their on-field payroll and the like. I could be wrong, but that would be a strange malfeasance of financial planning. Additionally, John Malone and other honchos at Liberty Media have gone on record supporting the SunTrust Park idea as a way of increasing revenues from attendance and building value in the franchise; this is not at all surprising given that Liberty and the Braves will enjoy the benefits of the park without financing it entirely by themselves.

In other words, while this move benefits the Braves by resolving them of the obligation to directly repay the $165 million loan out of their operating budget, I'm guessing that they were never going to gut their operating budget to repay the loan anyway, and something like this was always in the cards.

The second implication is considerably murkier. Part of the fine print of this move is that the new Liberty Braves entity will actually consist of the Braves, the debt to Liberty Media associated with the stadium, and an account which holds cash accrued from the sale of the Braves-specific tracking stock. This development could be interpreted as one of two ways:

  • The Braves and this generated cash are siloed, and the Braves are unable to draw upon this cash for their operating expenses and budgetary needs; or
  • The Braves and this generated cash are not siloed, and the Braves will be able to use the proceeds of this cash as they desire.
I don't know which of these is closer to reality. I suspect it is the former, just given the ways in which Liberty Media has supported (or not) the franchise since it acceded to ownership, but there's nothing affirmative stating the latter is not in play. However, it's potentially important to note that the Braves don't (to the best of my knowledge) have the ability to unilaterally sell more Braves tracking stock, so even if this move does give the Braves access to this extra cash ($200 million less $165 million is $35 million), that would still just be a one-time cash infusion, and would only increase if more similar stock is sold.

Is Liberty Media moving closer to selling the team?

One outside possibility is that this stock will provide some independent, public/market valuation of the Braves. This might make a sale of the team slightly easier in the future, but should not be taken in any way as an indication that Liberty Media is preparing to sell the team.

How much of this stock will I have to buy to make Andrelton Simmons come back?

I'm afraid you're on your own here.