FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2022

18. 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 face value and fair value of our financial assets and liabilities as of December 31, 2022 and 2021 (in millions):


	2022				2021
	Face Value		Fair Value		Face Value		Fair Value
Level 1:
Investments in equity securities	N/A		$	6	N/A		$	5
Deferred compensation assets	$	41	41		$	48	48
Deferred compensation liabilities	35		35		38		38
STG:
Money market funds	N/A		741		N/A		265
DSG (a):
Money market funds	N/A		—		N/A		101
Level 2:
Investments in equity securities (b)	N/A		153		N/A		114
STG (c):
5.875% Senior Notes due 2026 (d)	—		—		348		357

5.500% Senior Notes due 2030	500		347		500		489
5.125% Senior Notes due 2027 (e)	282		230		400		391
4.125% Senior Secured Notes due 2030	750		560		750		712
Term Loan B-1, due January 3, 2024 (d)	—		—		379		373
Term Loan B-2, due September 30, 2026	1,258		1,198		1,271		1,239
Term Loan B-3, due April 1, 2028	729		692		736		722
Term Loan B-4, due April 21, 2029 (d)	746		709		—		—

DSG (a) (c):
12.750% Senior Secured Notes due 2026	—		—		31		17
6.625% Senior Notes due 2027	—		—		1,744		490
5.375% Senior Secured Notes due 2026	—		—		3,050		1,525
Term Loan, due August 24, 2026	—		—		3,226		1,484
Debt of variable interest entities (c)	8		8		9		9
Debt of non-media subsidiaries (c)	16		16		17		17
Level 3:
Investments in equity securities (f)	N/A		75		N/A		282

N/A - Not applicable

(a)The debt of DSG, a wholly-owned subsidiary of DSIH, was deconsolidated from our balance sheet as part of the Deconsolidation. See Deconsolidation of Diamond Sports Intermediate Holdings LLC within Note 1. Nature of Operations and Summary of Significant Accounting Policies.

(b)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.

(c)Amounts are carried in our consolidated balance sheets net of debt discount, premium, and deferred financing costs, which are excluded in the above table, of $56 million and $158 million as of December 31, 2022 and 2021, respectively.

(d)In April 2022, STG raised Term B-4 Loans in an aggregate principal amount of $750 million, the proceeds of which were used to refinance all of STG’s outstanding Term Loan B-1 due January 2024 and to redeem STG’s outstanding 5.875% senior notes due 2026. See STG Bank Credit Agreement within Note 7. Notes Payable and Commercial Bank Financing.

(e)During the year ended December 31, 2022, we purchased $118 million aggregate principal amount of the STG 5.125% Notes in open market transactions for consideration of $104 million. The STG 5.125% Notes acquired during the nine months ended September 30, 2022 were canceled immediately following their acquisition. See STG Notes within Note 7. Notes Payable and Commercial Bank Financing.

(f)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 years ended December 31, 2022, 2021, and 2020, we recorded a fair value adjustment loss of $112 million, loss of $50 million, and gain of $133 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 16% discount for lack of marketability ("DLOM") as of December 31, 2021. 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 16% as of December 31, 2021. There are certain restrictions surrounding the sale and ownership of common stock through the second 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 Note 6. 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 (in millions):


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


Measurement adjustments	(50)
Fair Value at December 31, 2021	282
Measurement adjustments	(112)
Transfer to Level 2	(95)
Fair Value at December 31, 2022	$	75

- 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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