LMCA - Liberty Media

[muscleman]

Liberty Media is assuming about $4 billion of leverage for Formula One, and the $470 million of FCF is unlevered FCF, so you have to take into account the interest paid on that $4 billion. My sense is that they paid somewhere in the 17x range on levered FCF.

 

Thank you for the clarification. I'd be really surprised if the owner is willing to sell a trophy asset at 10x FCF.

17x FCF seems like a reasonable price. But the leverage is really high.

 

What kind of growth perspective do you think there is for this asset? I know NBA and other live sport rights have sky rocketing prices.

[muscleman]

I've been thinking more about content.........

In the past, programmers can't get its content delivered unless the cable cos agree, and there is usually just one cable tv company in each community.

Now people can view the content via netflix, youtube or other online channels. Eventually the competition for content will increase a lot.

Do you guys know any other really good content companies? F1 is undoubtedly a good asset. Do you think Discovery channels' are second tier? I know the viewership is high, but will it survive in a skinny bundle?

Any other live sport league assets that are publicly traded?

[muscleman]

https://www.sec.gov/Archives/edgar/data/1560385/000110465916143533/a16-18039_1ex99d2.htm

 

Page 9 growth market for premium sport rights.

Why is F1 not in here? Does anyone know the past price increase for F1 renewals?

 

The 2.8x for NBA is about 15% a year over the 9 years. Not as high as I thought it would be. When is the next renewal of F1 contracts?

 

 

[Liberty]

Investor day is today. Two Q&A sessions with Malone, among other things. Set your reminders (the stream is on the LMCA website):

 

[Jurgis]

Did anyone go to this? Do they allow individual shareholders?

 

I probably should try to go next year... Had it in mind, but too late for this year's.

[Liberty]

Did anyone go to this? Do they allow individual shareholders?

 

I probably should try to go next year... Had it in mind, but too late for this year's.

 

I wasn't there, but I know that many people from Financial Twitter were there.

[Jurgis]

Let's see if they gonna post recording like they did last year (I believe).

[muscleman]

I hope there is a recording. F1 is like NBA. Pretty strong moat. 17X FCF multiple isn't cheap but seems fair price.

[Liberty]

Malone interview on CNBC:

 

http://video.cnbc.com/gallery/?video=3000567154&play=1  (updated with full interview)

[muscleman]

http://www.forbes.com/sites/csylt/2016/11/11/liberty-media-asks-teams-to-help-fund-its-4-4-billion-f1-takeover/#59b8938243f8

 

The leverage is not only high, but also the type of debt makes me feel unease.

 

"it is being partly funded with loans secured on Liberty’s other assets such as its shares in companies like event promoter Live Nation, Time Warner and Viacom. Liberty has raised $445 million from selling debentures, which are convertible into Time Warner stock, and has secured a $500 million margin loan with its shares in Live Nation and Viacom pledged as collateral."

 

 

I like Malone's debt compartmentalization for his cable cos. That's not what's happening here.

Do you guys know if the NBA teams are also collectively losing big money year over year? I don't understand how a league can sustain while its teams keep losing money.

[scorpioncapital]

I believe the debt inside F1 is also non-recourse to Liberty if it is a holding company? A cynic might say that the margin and low "down-payment" is actually a way to protect against a risky investment by not putting that much of your own money in. Some might say the exact opposite, that the leverage ensures a large loss if it doesn't work out. Glass half full-empty sort of thing...Not sure on the team issue. Methinks there must be another benefit to the city/team to absorb such a loss. Are they affiliated with specific car manufacturers? Good question though.

 

 

[colinwalt]

http://www.forbes.com/sites/csylt/2016/11/11/liberty-media-asks-teams-to-help-fund-its-4-4-billion-f1-takeover/#59b8938243f8

 

The leverage is not only high, but also the type of debt makes me feel unease.

 

"it is being partly funded with loans secured on Liberty’s other assets such as its shares in companies like event promoter Live Nation, Time Warner and Viacom. Liberty has raised $445 million from selling debentures, which are convertible into Time Warner stock, and has secured a $500 million margin loan with its shares in Live Nation and Viacom pledged as collateral."

 

 

I like Malone's debt compartmentalization for his cable cos. That's not what's happening here.

Do you guys know if the NBA teams are also collectively losing big money year over year? I don't understand how a league can sustain while its teams keep losing money.

 

From the Q3 Earnings Release:

 

"At the second closing, Liberty’s interest in F1, along with existing F1 cash and debt (which will be non-recourse to Liberty), will be attributed to the Liberty Media Group."

[muscleman]

http://www.forbes.com/sites/csylt/2016/11/11/liberty-media-asks-teams-to-help-fund-its-4-4-billion-f1-takeover/#59b8938243f8

 

The leverage is not only high, but also the type of debt makes me feel unease.

 

"it is being partly funded with loans secured on Liberty’s other assets such as its shares in companies like event promoter Live Nation, Time Warner and Viacom. Liberty has raised $445 million from selling debentures, which are convertible into Time Warner stock, and has secured a $500 million margin loan with its shares in Live Nation and Viacom pledged as collateral."

 

 

I like Malone's debt compartmentalization for his cable cos. That's not what's happening here.

Do you guys know if the NBA teams are also collectively losing big money year over year? I don't understand how a league can sustain while its teams keep losing money.

 

From the Q3 Earnings Release:

 

"At the second closing, Liberty’s interest in F1, along with existing F1 cash and debt (which will be non-recourse to Liberty), will be attributed to the Liberty Media Group."

 

The debt inside F1 is non-recourse to Liberty but Liberty's margin loan is recourse to Liberty. And if Viacom and Live nation stock prices drop, they will have a problem with the margin loan.

 

 

[colinwalt]

http://www.forbes.com/sites/csylt/2016/11/11/liberty-media-asks-teams-to-help-fund-its-4-4-billion-f1-takeover/#59b8938243f8

 

The leverage is not only high, but also the type of debt makes me feel unease.

 

"it is being partly funded with loans secured on Liberty’s other assets such as its shares in companies like event promoter Live Nation, Time Warner and Viacom. Liberty has raised $445 million from selling debentures, which are convertible into Time Warner stock, and has secured a $500 million margin loan with its shares in Live Nation and Viacom pledged as collateral."

 

 

I like Malone's debt compartmentalization for his cable cos. That's not what's happening here.

Do you guys know if the NBA teams are also collectively losing big money year over year? I don't understand how a league can sustain while its teams keep losing money.

 

From the Q3 Earnings Release:

 

"At the second closing, Liberty’s interest in F1, along with existing F1 cash and debt (which will be non-recourse to Liberty), will be attributed to the Liberty Media Group."

 

The debt inside F1 is non-recourse to Liberty but Liberty's margin loan is recourse to Liberty. And if Viacom and Live nation stock prices drop, they will have a problem with the margin loan.

 

True, but from the CC transcript (which, admittedly is a bit garbled) I got the feeling that the margin loan is probably temporary - I could be wrong + maybe have too much faith in Malone, but he usually knows what he is doing with these things - and I wouldn't be surprised if they have hedges on the pledged shares - from the 10Q:

 

"We periodically use equity collars and other financial instruments to manage market risk associated with certain investment positions."

 

From the CC Transcript:

 

"Ben Swinburne

 

Want to come back to Formula One maybe for Mark. At this point with the margin low and I think closing next couple of days, is the financing all in place to close the second piece of the transaction and any thoughts on permanent financing for the margin piece, it sounds like you’re going to keep sort of [not clear].

 

Mark Carlton

 

I think the financing is all in place right now. We obviously as we do with all of our companies look at financing alternatives and different ways to be more efficient at our financing and more efficient and focused with our leverage. But everything is in place now to do what we need to do and we'll keep our eye on the markets and what's happening and when the time comes certainly when we get to closing this transaction we'll be able to have a lot more direct involvement in that financing and what we do with it but we're paying attention."

[muscleman]

http://www.forbes.com/sites/csylt/2016/11/11/liberty-media-asks-teams-to-help-fund-its-4-4-billion-f1-takeover/#59b8938243f8

 

The leverage is not only high, but also the type of debt makes me feel unease.

 

"it is being partly funded with loans secured on Liberty’s other assets such as its shares in companies like event promoter Live Nation, Time Warner and Viacom. Liberty has raised $445 million from selling debentures, which are convertible into Time Warner stock, and has secured a $500 million margin loan with its shares in Live Nation and Viacom pledged as collateral."

 

 

I like Malone's debt compartmentalization for his cable cos. That's not what's happening here.

Do you guys know if the NBA teams are also collectively losing big money year over year? I don't understand how a league can sustain while its teams keep losing money.

 

From the Q3 Earnings Release:

 

"At the second closing, Liberty’s interest in F1, along with existing F1 cash and debt (which will be non-recourse to Liberty), will be attributed to the Liberty Media Group."

 

The debt inside F1 is non-recourse to Liberty but Liberty's margin loan is recourse to Liberty. And if Viacom and Live nation stock prices drop, they will have a problem with the margin loan.

 

True, but from the CC transcript (which, admittedly is a bit garbled) I got the feeling that the margin loan is probably temporary - I could be wrong + maybe have too much faith in Malone, but he usually knows what he is doing with these things - and I wouldn't be surprised if they have hedges on the pledged shares - from the 10Q:

 

"We periodically use equity collars and other financial instruments to manage market risk associated with certain investment positions."

 

From the CC Transcript:

 

"Ben Swinburne

 

Want to come back to Formula One maybe for Mark. At this point with the margin low and I think closing next couple of days, is the financing all in place to close the second piece of the transaction and any thoughts on permanent financing for the margin piece, it sounds like you’re going to keep sort of [not clear].

 

Mark Carlton

 

I think the financing is all in place right now. We obviously as we do with all of our companies look at financing alternatives and different ways to be more efficient at our financing and more efficient and focused with our leverage. But everything is in place now to do what we need to do and we'll keep our eye on the markets and what's happening and when the time comes certainly when we get to closing this transaction we'll be able to have a lot more direct involvement in that financing and what we do with it but we're paying attention."

 

Yeah.... I reread that part a few times and I guess it probably means margin loan is temporary, which is good.

However, there is no lock-up on the seller's LMCA shares, so they may sell them right after closing.

 

I'd wait until I can confirm on the margin piece.

 

Have you done any research on the historical tension between the league and the teams? They threatened to start a new league but failed to do so. What stopped them?

 

In other words, what's the league's upper hand to force the teams to play in the league?

 

[colinwalt]

 

Yeah.... I reread that part a few times and I guess it probably means margin loan is temporary, which is good.

However, there is no lock-up on the seller's LMCA shares, so they may sell them right after closing.

 

I'd wait until I can confirm on the margin piece.

 

Have you done any research on the historical tension between the league and the teams? They threatened to start a new league but failed to do so. What stopped them?

 

In other words, what's the league's upper hand to force the teams to play in the league?

 

Selling LMCA shares could be good no? Push down the price, better for buybacks...

 

Nope, haven't researched that deeply...

[fisch777]

The "league" itself is a major barrier to teams starting a new series.  The league has long-term contracts with 21 tracks (COTA cost $271M to build alone), ~18 global flagship sponsors that pay ~20-30M/yr, global TV rights that reach 400M viewers annually, in-house video production, and an in-house global logistics network that transports all of this infrastructure like a travelling circus to 21 different countries on 6 continents.   

 

I'd say this is pretty tough to replicate, though teams have threatened to leave before. 

[scorpioncapital]

With the anti-trust climate in Europe, while I'm hoping the deal closes I do have some reservations - e.g. http://www.forbes.com/sites/csylt/2016/11/13/liberty-media-f1-takeover-investigated-by-austrian-anti-trust-authority/#6d9e99022308

 

There is a not unreasonable chance that Liberty either has to make some concessions especially with the Global influences of Malone or they get stuck at a large, but not full take-over. Or maybe the league decides to forfeit their 1% stake profit regarding the conflict of interest.

 

 

[fisch777]

Yeah there is some regulatory risk.  I feel better that LMC has done ~3 years of diligence already.

 

That said, I would take anything written by Christian Sylt with a giant grain of salt.  It is widely speculated in F1 that he is Bernie's mouthpiece/puppet.  If you follow his "stories" or his website Formula Money, literally every single piece since the deal has been spun to discredit Liberty and the chances of the deal closing.  He has little understanding of basic M&A finance (EV vs. equity) and is often just throwing speculative numbers out.

 

He is like a bad British tabloid for the F1 business.  Bernie is notoriously controlling (and has been successful at that), so it makes sense he is feeling threatened and would attempt to derail/pressure deal, at least for future negotiating leverage. 

[Liberty]

Liberty Investor Day slide decks:

 

http://files.shareholder.com/downloads/ABEA-4CW8ZW/1929806846x0x917225/950B3902-8674-4D84-83A8-35F6CC279161/2016_Liberty_Media_Corp.pdf

 

http://files.shareholder.com/downloads/AMDA-GY7JI/2578107127x0x917223/8001B87A-B2AE-4B07-998C-6F23606BF8DF/2016_Liberty_Interactive_Corp.pdf

[Guest cherzeca]

anyone know when the f1 proxy statement is due out?

[gfp]

Can anybody here tell me what "ATB" stands for in the context of this formula 1 conference call Q&A:

 

"Bryan Kraft, Analyst, Deutsche Bank Securities, Inc.

 

. . . [W]hen would . . . Formula 1 become [an] ATB…?

 

Gregory B. Maffei

 

. . . Formula 1 is a long way away."

 

From:

https://www.sec.gov/Archives/edgar/data/1560385/000110465916157334/a16-18039_4defa14a.htm

 

edit:  I guess I figured it out, relates to spin-off law "Active Trade or Business"

http://www.bakerbotts.com/ideas/publications/2015/09/tax-update-irs-formally-expands

[Jurgis]

Is it me or they are Monday morning quarterbacking the CAGR in slide 7? I.e. they assume you sold STRZA "1 year after spinoff" and reinvested in LMCA - cynic would think that's because STRZA went down. But they don't assume you sold any other trackers or spinoffs - cynic would say because they went up. No?

[muscleman]

Is it me or they are Monday morning quarterbacking the CAGR in slide 7? I.e. they assume you sold STRZA "1 year after spinoff" and reinvested in LMCA - cynic would think that's because STRZA went down. But they don't assume you sold any other trackers or spinoffs - cynic would say because they went up. No?

 

 

That's exactly what I am thinking.  :)

[muscleman]

The "league" itself is a major barrier to teams starting a new series.  The league has long-term contracts with 21 tracks (COTA cost $271M to build alone), ~18 global flagship sponsors that pay ~20-30M/yr, global TV rights that reach 400M viewers annually, in-house video production, and an in-house global logistics network that transports all of this infrastructure like a travelling circus to 21 different countries on 6 continents.   

 

I'd say this is pretty tough to replicate, though teams have threatened to leave before.

 

What other leagues are publicly traded? Are most of these leagues so profitable that the owners wouldn't sell?