FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2021

FAIR VALUE MEASUREMENTS:

Accounting guidance provides for valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). A fair value hierarchy using three broad levels prioritizes the inputs to valuation techniques used to measure fair value. The following is a brief description of those three levels:

•Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The following table sets forth the carrying value and fair value of our financial assets and liabilities for the periods presented (in millions):


	As of September 30, 2021				As of December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
Level 1:
Investments in equity securities	$	5	$	5	$	68	$	68
STG:
Money market funds	426		426		448		448
Deferred compensation assets	49		49		42		42
Deferred compensation liabilities	42		42		36		36
DSG:
Money market funds	128		128		292		292

Level 2:
Investments in equity securities (a)	150		150		—		—
STG (b):
5.875% Senior Unsecured Notes due 2026	348		357		348		358

5.500% Senior Unsecured Notes due 2030	500		496		500		520
5.125% Senior Unsecured Notes due 2027	400		399		400		408
4.125% Senior Secured Notes due 2030	750		735		750		770
Term Loan B-1	379		374		1,119		1,107
Term Loan B-2	1,274		1,249		1,284		1,264
Term Loan B-3 (c)	738		727		—		—

DSG (b):
12.750% Senior Secured Notes due 2026	31		23		31		28
6.625% Senior Unsecured Notes due 2027	1,744		772		1,744		1,056
5.375% Senior Secured Notes due 2026	3,050		2,024		3,050		2,483
Term Loan	3,234		2,021		3,259		2,884
Accounts Receivable Securitization Facility	183		183		177		177

Debt of variable interest entities (b)	13		13		17		17
Debt of non-media subsidiaries (b)	17		17		17		17

Level 3
Investments in equity securities (d)	354		354		332		332

(a)Consists of unrestricted warrants to acquire marketable common equity securities. The fair value of the warrants are derived from the quoted trading prices of the underlying common equity securities less the exercise price.

(b)Amounts are carried in our consolidated balance sheets net of debt discount, premium, and deferred financing cost, which are excluded in the above table, of $165 million and $183 million as of September 30, 2021 and December 31, 2020, respectively.

(c)On April 1, 2021, STG amended the STG Bank Credit Agreement to raise term loans in an aggregate principal amount of $740 million, the proceeds of which were used to refinance a portion of STG's term loan maturing in January 2024. See Bank Credit Agreements under Note 4. Notes Payable, Finance Leases, and Commercial Bank Financing for further discussion.

(d)On November 18, 2020, we entered into a commercial agreement with Bally's and received warrants and options to acquire common equity in the business. During the three and nine months ended September 30, 2021 we recorded a fair value adjustment loss of $30 million and a fair value adjustment gain of $22 million, respectively, related to these interests. The fair value of the warrants is primarily derived from the quoted trading prices of the underlying common equity adjusted for a 20% and 25% discount for lack of marketability (DLOM) as of September 30, 2021 and December 31, 2020, respectively. The fair value of the options is derived utilizing the Black Scholes valuation model. The most significant inputs include the trading price of the underlying common stock, the exercise price of the options, which range from $30 to $45 per share, and a DLOM of 20% and 25% as of September 30, 2021 and December 31, 2020, respectively. There are certain restrictions surrounding the sale and ownership of common stock and the Company has agreed not to sell any shares beneficially owned prior to the first anniversary of the agreement. The Company is also precluded from owning more than 4.9% of the outstanding common shares of Bally's, inclusive of shares obtained through the exercise of the warrants and options described above. See Other Investments under Note 3. Other Assets for further discussion.

The following table summarizes the changes in financial assets measured at fair value on a recurring basis and categorized as Level 3 under the fair value hierarchy for the three and nine months ended September 30, 2021 (in millions):


	Options and Warrants
Fair value at June 30, 2021	$	384


Measurement adjustments	(30)
Fair value at September 30, 2021	$	354

	Options and Warrants
Fair value at December 31, 2020	$	332


Measurement adjustments	22
Fair value at September 30, 2021	$	354

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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