Want the Braves to Dump Melvin? Not Gonna Happen

The Financials

The Braves are part of a curious conglomerate of companies collectively owned by the Liberty Media Corporation, a publicly traded company (Nasdaq symbol LMCK).  Among the other sister companies are Viacom, Sprint Nextel, Time Warner Cable, and 56.7% of the SiriusXM satellite radio company.

Late last week, Liberty Media filed their annual report with the Securities and Exchange Commission.  It’s mostly the kind of stuff that accountants pore over and baseball fans doze off about, so I’ll spare the details.  But the Ajc.com did go over it, and there are some noteworthy highlights involving the Braves – who don’t normally get this much attention in that report.

• The team has borrowed $100 million – so far – to finance stadium construction.  They have also used some cash reserves for the project.
• LMCK obtained a line of credit for up to $250 million that can be used for that purpose ($100m used; $150m more available).
• This money is essentially “fronting” the stadium costs until Cobb County can issue the municipal bonds for their part of the stadium deal (up to $397 million – Liberty pegs the number at $368 million, to be available the second half of this year if the courts concur).  This advance funding was done to keep the project on schedule for a 2017 opening.
• While the AJC puts the total stadium cost at $622 million, the Liberty Annual Report mentions $622 million plus another $50 million “in other costs and equipment related to the new ballpark” that will be required.
• The report cites the future obligations via “long-term employment contracts” of “certain of their players”.  As of the end of 2014, that number was $398 million.  TomahawkTake.com data suggest this is now $402.7 million, not counting contract incentives.
• The additional “mixed use” development around the stadium is expected to cost $452 million – with $363 million of that paid for by “affiliated entities”.

BOTTOM LINE:  There was $10 million revenue decline for the team in 2014, down to $251 million from $261 million in 2014 (from AJC.com analysis).

WHY THE LOWER NUMBERS?

• Ticket revenue would have declined.  ESPN numbers show an average attendance per game in 2014 at 29,065 (18th ranked).  In 2013 it was 31,465 (13th in the league).
• The Liberty report has an interesting line in it:

“increased player payroll due to season ending injuries at key positions which required additional players to be added to the roster. Additionally, other players were released from the roster and full recognition of guaranteed portions of their contracts were recognized during the current period.“

• Translation of the financial-ese language?  Ervin Santana and Dan Uggla.

Much more as we continue… please hit NEXT….

Apr 4, 2014; Denver, CO, USA; Fans wait to buy tickets before the opening day baseball game between the Colorado Rockies and the Arizona Diamondbacks at Coors Field. Mandatory Credit: Chris Humphreys-USA TODAY Sports

Not a Profitable Situation

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The

AJC.com article

is a bit vague about team profits in 2014 – as in Liberty Media in their own report.  The most direct line from the AJC is this one:

The unspecified dip in operating profit (before depreciation, amortization and certain other charges) followed a $20 million increase to $42 million in 2013.

2013 did indeed have a sizable increase in revenue from ticket sales, as the 2012 stadium attendance was nearly at the 2014 level.  So we can guess at some math here that impacts the 2014 profit number:

• 2012 profit:  roughly $22 million
• 2014 attendance: slightly lower than 2012 levels.
• 2014 did not see a one-time TV rights payment that was realized in 2013
• 2014 busted the budget to pay for Ervin Santana ($14 million extra)
• 2014 further busted the budget to write-off Dan Uggla’s contract – which has been paid off, according to the language in the SEC filing.

Based on all of that:  the Atlanta Braves had a net operating loss in 2014.  My own estimate:  they were probably in the hole to the tune of $5 million.

NEXT – the Upton angle….

So…What About Upton?

Melvin’s contract obligates the Braves to an additional $46.35 million between now and the end of the 2017 season.  Some have asked about insurance for his contract, given the injury.  David O’Brien and Will Carroll (@injuryexpert on twitter) have an answer:

So that’s to say… no.  If he’s not out for 90 days, then the Braves likely pick up no help whatsoever there.

Liberty Media, being a publicly traded company, thrives on two things:  profit and stock price.  As of this writing, they are currently trading at roughly $39.48 per share – up well over 1% for the day and sitting at a new 52-week high.  After seeing the annual report, one bullish analyst trimmed their future forecasted outlook for LMCK to $54 a share (from $64).  Still obviously optimistic, though less so than before.

To meet price targets, the company needs strong results from all of its subsidiaries – including the Braves.  You can see just how low the margin is for the team ($42 million profit on $261 million revenue in 2013; a possible $5 million loss in 2014 against $251 million revenue for 2014).

If the team were to cut ties with Upton, that’s a $46 million check that they would have to write in 2015… $31 million more than the expectations for 2015.  That number goes directly to lower revenue, and in turn to lower profit.  It would immediately throw the club into a “loss” for 2015 – at a time in which they are already borrowing $100 million  – at least – to finance the new stadium, never mind fronting costs for the “mixed-use” development (costs to Liberty being around $90 million).  It’s just not a recipe for corporate success.

Yes – you can argue that the company has sufficient cash holdings and assets to just write that check and be done with it.  But that’s just not how profitable companies do business. Stockholders want to see consistency; financially conservative decisions – nothing rash, nothing done out of haste or short-sightedness.  That’s actually why the new stadium deal is a winner for LMCK – it’s a long-term investment that even the stock analysts are on board with.

Even if Melvin Upton Jr represents a “sunk cost”, it’s one that is set up to be paid over a three year period at no interest, which for planning purposes is a lot more palatable than a single bulk check.

So if you’re looking for Upton to be released… it’s just not going to happen. Not now; most likely not next year either.  The financial environment just isn’t conducive to that being done at this time. Certainly not from Liberty Media’s perspective.

Jul 9, 2014; New York, NY, USA; Atlanta Braves center fielder B.J. Upton (2) reacts with New York Mets shortstop Ruben Tejada (11) and second baseman Daniel Murphy (28) after watching a video replay during the first inning at Citi Field. Mandatory Credit: Adam Hunger-USA TODAY Sports

One more interesting tidbit

This is a direct quote from that LMCK Annual Report:

The success of ANLBC [Atlanta National League Baseball Club], in part, depends on its ability to recruit and retain key persons.  The financial success of ANLBC is influenced by the record of the Atlanta Braves Major League baseball team during each season, which is directly impacted by their ability to employ and retain top performing players, coaches and managers. We cannot assure you that if the Atlanta Braves Major League baseball team experiences turnover of these key persons, they will be able to recruit and retain acceptable replacements, in part, because the market for such employees is very competitive and limited.

Well there’s truth for you.  Truth that often frustrates the fans.