The Green Bay Packers are the only publicly traded major sports team in the U.S. But since the team is a nonprofit corporation, shares of Green Bay Packers stock are just expensive souvenirs that don't provide any financial benefits.
By contrast, the Atlanta Braves are owned by Liberty Media (NASDAQ: FWONA) (NASDAQ: FWONK) -- but investors can indirectly bet on the Braves' financial success through a pair of tracking stocks created by Liberty Media two years ago.
Liberty Braves (NASDAQ: BATRA) (NASDAQ: BATRK) is a risky investment, given that Liberty Media's Braves Group division currently loses money. However, it has big upside over the next few years, thanks to the phased opening of a mixed-use development adjacent to the Atlanta Braves' new stadium, along with potential on-the-field improvements for the Braves.
2017 in review
The Atlanta Braves opened a new stadium in suburban Cobb County -- SunTrust Park -- for the 2017 season. The new stadium drove a 47% increase in revenue to $386 million for the full year, driven by strong ticket sales, more premium seat and luxury suite revenue, higher corporate sponsorship revenue, and increased sales at concession stands.
Liberty Braves stock tracks Liberty Media's ownership of the Atlanta Braves and a surrounding mixed-use development. Image source: Liberty Media.
Attendance at Braves home games surged 24% year over year in 2017, even though the team compiled a mediocre record of 72-90. Excitement related to the new ballpark also helped drive a 50% surge in TV ratings last season.
Despite this strong revenue growth, the Braves Group -- which represents the portion of Liberty Media tracked by Liberty Braves stock -- recorded a $106 million operating loss in 2017. This was wider than its $57 million operating loss in 2016. The biggest drivers of this loss were a surge in stock-based compensation (caused by an increase in the franchise's estimated value), higher depreciation due to the opening of the new stadium and parts of the adjacent mixed-use development, and a $13 million write-off related to penalties assessed by Major League Baseball for violating the rules governing signing bonuses for international prospects.
Three key sources of upside
Liberty Braves is positioned to become profitable in the next few years -- excluding depreciation expense on its real estate, which doesn't reflect actual changes in its value -- which could trigger a stock rally.
First, the Braves' minor league system is ranked No. 1 by Bleacher Report, No. 1 by ESPN's Keith Law, and No. 2 by MLB Pipeline. Outfielder Ronald Acuna -- who will almost certainly be promoted to the majors within the next few months -- is considered the best prospect in all of baseball by many outside observers. The Braves also have numerous other top-100 prospects (mainly pitchers), along with some promising young players on the major league squad.
Second, Atlanta has a 2018 payroll of $115 million but only $46 million of salary commitments for next year. With top prospects set to replace several high-priced (and likely overpaid) veterans by 2019, the Braves will have a ton of spending money for the upcoming offseason. This should allow the franchise to bring in one or two elite free agents without significantly increasing the total payroll.
As a result, while the Braves will probably be mediocre again in 2018, by 2019 or 2020 the team could be a legitimate championship contender. This could drive a further increase in fan interest -- and thus revenue.
Third, construction is wrapping up on the mixed-use development adjacent to the stadium: The Battery Atlanta. Comcast moved its regional headquarters there last November, and an Omni Hotel opened in early January. The retail and residential components were both more than 70% leased as of mid-February and should be open and "stabilized" by the middle of 2018.
During 2017, The Battery Atlanta drove up costs for Liberty Braves without producing much revenue. In 2018, shareholders will finally benefit from this project, which capitalizes on the proven success of "live-work-play" mixed-use real estate developments.
Risk factors to consider
While Liberty Braves has a lot going for it, there are some unique risk factors that potential investors should be aware of. First, Liberty Braves is a tracking stock: not an independent company or even a legal subsidiary of Liberty Media. Thus, Liberty Braves shareholders are not insulated from the risk of financial problems in other parts of the Liberty Media empire.
Second, while the Atlanta Braves have a promising pipeline of young prospects, some of these players may not live up to the hype. Injuries to key players or poor free agency decisions by management could prevent the team from reaching its potential in the next few years, causing fans to lose interest.
Third, the novelty of the Braves' new stadium will wear off over time. That could potentially cause attendance to decline, particularly if the Braves aren't competitive on the field.
I believe that the potential upside as the team improves and the Battery Atlanta real estate development opens outweighs these risks. As a result, I invested in Liberty Braves stock last month.
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