Breach Inlet Capital Sends Public Letter to Board of Liberty Media

Expresses Belief that Liberty Braves is Materially Undervalued as a Monopoly with Secular Tailwinds

Recommends that the Board immediately spinoff Liberty Braves to Maximize Shareholder Value

Breach Inlet Capital, LP, an investment firm focused on underfollowed and misunderstood small cap equities, delivered a letter to the Board of Directors of Liberty Media today. In its letter, Breach Inlet Capital outlines the reasons Liberty Braves BATRK is undervalued and should be spun-off to maximize shareholder value.

The full text of the letter follows:

November 2, 2022

Members of the Board of Directors
Liberty Media Corporation
12300 Liberty Boulevard
Englewood, CO 80112

Dear Members of the Board:

Breach Inlet Capital, LP has been a patient and supportive shareholder of Liberty Braves ("BATRK" and related tickers) for almost six years. Based on public disclosures, we are a top 25 shareholder with ownership of nearly 0.4mm shares.

We have a history of constructively engaging public company boards to create value for shareholders. Consistent with this approach, we previously sought to privately express our views through a private letter we delivered to Liberty Media's Board of Directors (the "Board") in July 2022. However, one month passed before you even acknowledged our letter and another three months have passed without you taking any responsive action, as far as we can tell.

Your lack of meaningful response over this extended period has led us to this point. Now, we send this second and public letter outlining our recommendations for value creation that we believe will benefit all shareholders.

To summarize, we believe that i) BATRK's fair value is ~60% above its current share price and ii) this upside could be meaningfully captured by immediately spinning off BATRK from Liberty Media.

Background on BATRK
Liberty Media ("LM") owns BATRK, Liberty SiriusXM ("LSXMK" and related trackers) and Liberty Formula One ("FWONK" and related trackers). To enable investors to invest in the performance of each asset, LM created a tracking stock for each of these three assets in 2016. BATRK represents LM's ownership of the Atlanta Braves Major League Baseball ("MLB") team and The Battery, which is the real estate surrounding the Braves' stadium (Truist Park).

BATRK is an Increasingly Valuable Asset
We believe BATRK is a mini-monopoly because i) history indicates that baseball will exist and continue to grow for the foreseeable future, ii) MLB controls the most profitable baseball market, iii) no MLB teams have been added in 24 years, and iv) the Braves are the only MLB team within 400+ miles of Atlanta¹. The Braves are also one of the oldest and most successful teams in MLB history.

In addition to being a monopoly, BATRK benefits from multiple secular tailwinds. First, TV contracts represent ~50% of MLB revenue² and televised professional sports are arguably the only TV content that consumers will keep paying to watch live. This reality is underscored by the fact that advertisers and media companies keep bidding up the value of TV contracts. This has escalated with non-traditional media companies like Apple, Amazon, Facebook, and Google (via YouTube) now clamoring for sports content. Coupled with a new ballpark and the Braves reclaiming the World Series in 2021, BATRK's 5-year Baseball Revenue CAGR is ~15%.

As a second tailwind, global economies continue to create new billionaires. Billionaires create demand and bidding wars for ownership of professional sports teams. Professional sports leagues, however, rarely launch new teams. As mentioned before, MLB has created zero new teams in the last 24 years. Said differently, the gap between demand (prospective buyers of teams) and supply (the number of teams) keeps widening, which is why MLB valuations keep rising and likely continue to rise. As evidence, the value of the Braves has increased 12% per year for the past 30 years (according to Forbes).³

Against this favorable backdrop of increasing demand, BATRK is also the beneficiary of a new and related tailwind. Beginning in 2019, MLB began to allow investment funds to "take minority stakes in multiple clubs, a move that lets the league capitalize on sky-high team valuations".⁴ As a result, institutional investors have an increasingly strong appetite to acquire ownership stakes in sports teams.⁵ This institutional interest, in turn, provides an additional stamp of approval to this asset class and should therefore attract more billionaire buyers. Plus, institutional investors can help write the large checks necessary to acquire teams.

In addition to the sources cited above, we also spoke with two prominent and experienced sports franchise advisors who further confirmed that BATRK is an increasingly valuable asset.

BATRK Remains Materially Mispriced
BATRK continues to trade at a meaningful discount to its intrinsic value, as implied by precedent MLB transactions. More specifically, the Miami Marlins, who consistently field teams that are not competitive and ranked 29^th (out of 30 teams) in MLB game attendance, sold for nearly 6x Revenue five years ago.⁶ Driven by the tailwinds described above, valuation multiples have continued to rise for sports franchises since the Marlins were acquired. In 2020, the New York Mets sold for over 7x Revenue in what was effectively a forced sale process.⁷ As evidence, the Mets were set to be acquired for nearly 8x Revenue in 2019 until the deal fell apart because the prior Mets owner requested to retain control for five years.⁸ Most recently, the Denver Broncos NFL team sold for nearly 9x Revenue.⁹

Yet, we estimate BATRK trades for only ~3.5x Baseball Revenue.¹⁰ Conservatively assuming the equity contributed to the Battery is valued at cost and the Braves are valued for 6x Revenue, then this implies BATRK's fair value is ~$50/share and ~60% above its current trading price.¹¹

Liberty Media's ("LM") Current Structure Does Not Appear to Maximize Shareholder Value
We appreciate that the Board has a fiduciary duty to all shareholders, which includes the shareholders of BATRK as well as FWONK and LSXMK. However, we believe your inaction is harming all shareholders.

Currently, LM consists of three disparate businesses with intercompany obligations. As a result, LM is a complex collection of intertwined assets that are difficult to accurately value. Furthermore, each tracking stock has multiple share classes and special voting rights for LM management. We believe this adds further complexity and causes market participants to apply an even greater discount to LM's assets.

As evidence, we would reiterate our prior section that "BATRK Remains Materially Mispriced". Likely due to LM's confusing and convoluted structure, the Braves are being valued for only ~3.5x Revenue while comparable sports teams have been acquired for 6x to 9x Revenue in recent years.

As a further indication that LM's structure may not maximize shareholder value, consider the case study of Sirius XM ("SIRI") and LM's tracking-stock ("LSXMK"). LSXMK's total shareholder return ("TSR")¹² is only ~40% since its inception (4/18/16) compared to SIRI's TSR of ~70% over that timeframe. That data highlights substantial underperformance. LSXMK shareholders were likely better off owning SIRI as LSXMK's discount to SIRI appears to have widened over time.

FWONK is the best performing of LM's tracking stocks. But, note that the FWONK "A" shares trades at a 10% discount to the FWONK "K" shares. Also, we suspect that FWONK would garner an even higher valuation as a standalone entity.

Maximizing Shareholder Value by Separating / Spinning Off Assets
Likely similar to most BATRK shareholders, we invested in BATRK because we believed: i) the Braves and the Battery were attractive and increasingly valuable assets, ii) recent MLB transactions implied BATRK was worth far more than its publicly-quoted trading price, and iii) the Board would take action to close the gap between BATRK's trading price and fair value by spinning off BATRK when tax-efficient.

Based on public comments and disclosures, LSXMK and FWONK were both Active Trader Businesses ("ATBs") as of February 2022.¹³ Therefore, LM should be able to tax-efficiently split its three tracking stock groups (BATRK, FWONK, LSXMK) into standalone, asset-backed public companies ("Option 1"). Or if LSXMK is not an ATB (as some Wall Street analysts have suggested), then LM should still be able to tax-efficiently spinoff BATRK since FWONK is certainly an ATB ("Option 2").

We believe either of these options would create substantial value for shareholders of BATRK, FWONK, and LSXMK and that the Board has a fiduciary duty to explore them. With Option 1: i) the complexity of LM's structure would be eliminated, ii) all tracking stocks would become asset-backed stocks, and iii) these could potentially then be tax-efficiently acquired. With Option 2: i) the complexity of LM's structure would be diminished with one less tracking stock (BATRK), ii) BATRK would be asset-backed, and iii) BATRK could potentially then be tax-efficiently acquired.

Nine months have passed since FWONK became an ATB and the Board has still not publicly outlined a plan to separate these assets in order to maximize shareholder value. Therefore, we recommend the Board immediately announce Option 1 or Option 2 as described above. We are confident that either action would create significant value for all shareholders, which is the Board's primary fiduciary duty.

We are happy to discuss our recommendation with the Board and look forward to your response.

Best Regards,

Chris Colvin, CFA
Founder and Portfolio Manager
Breach Inlet Capital, LP

¹ Source: LINK
² Source: LINK
³ Sources: LINK; LINK
⁴ Source: LINK
⁵ Sources: LINK; LINK
⁶ $1.2b Enterprise Value / $206mm Revenue = 5.8x
Sources: LINK; LINK
⁷ $2.4b EV / $340mm Revenue = 7.1x
Sources: LINK; LINK
⁸ $2.6b EV / $340mm Revenue = 7.6x
Source: LINK; LINK
⁹ $4.65b EV / $526mm Revenue = 8.8x
Sources: LINK; LINK
¹⁰ BATRK Adjusted Enterprise Value (~$1.8b) / LTM Baseball Revenue (~$0.5b) = ~3.5x Revenue
BATRK Adjusted Enterprise Value: ~$2.3b EV – Battery Equity contributed (~$0.2b) – Battery Debt ($0.3b)
LTM Baseball Revenue: Forbes 2021 Revenue $443mm x (BATRK Reported LTM Baseball Revenue/Reported FY21 Baseball Revenue); Forbes Revenue is lower so using that but then adjusting for revenue growth in 2022 season
Sources: BATRK filings; LINK
¹¹ (6 x ~$0.5b Baseball Revenue + ~$0.2b Battery Equity) / 62mm shares
¹² TSR: (current share price + dividends) / share price at inception –1
¹³ Source: Slide 11 of November 2021 Investor Day Presentation; 1Q22 earnings call

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