Lions Gate Owes More Than $1 Billion -- Should You Sell?

A Fool takes a look under the hood of a Hollywood upstart.

Jul 8, 2014 at 6:00PM
Hunger Games Catching Fire Poster

Lions Gate needs more hits like The Hunger Games: Catching Fire if it's to pay down more than $1 billion in debt. Image source: Lions Gate.

For most of us, debt is a wealth-destroying parasite that siphons cash we might otherwise save for retirement, vacations, or the occasional splurge. So isn't it worrisome that Lions Gate (NYSE:LGF), worth just $5.2 billion in enterprise value as of this writing, carries more than $1 billion in debt on its balance sheet? Not really, but you'll need to take a closer look at the financials to understand why.

Measuring the impact of debt
Companies borrow for any number of reasons. For Lions Gate, debt helps to fund growth initiatives. That includes acquisitions, such as the 2012 buyout of Summit Entertainment that brought the studio rights to the Twilight franchise. A smart move, since Stephenie Meyer's sparkly vampires and shirtless werewolves earned $3.35 billion at the box office over four years, according to

Lions Gate accelerated payments on the Summit loan in fiscal 2013 and has since finished repaying all $500 million it borrowed. Yet significant debts remain, as this table shows:

Principal Debts (interest rate)
Fiscal 2014
Fiscal 2013

Corporate debt (between 2.65% and 5.25%)

$689.8 million

$884.3 million

Production debt (between 2.74% and 3.49%)

$418.9 million

$469.3 million


$1,108.7 million

$1,353.6 million

Source: Lions Gate 10-K annual filing.

Corporate debt is for strategic moves such as the Summit deal. Production debt is specific to making movies, such as The Hunger Games and Divergent series. Net gains from box office, DVD, Blu-ray, and digital download sales, and from licensing and syndication, help to repay these obligations.

More borrowing to come, and why that's a good thing
Yet we shouldn't expect Lions Gate to pay off all its debts soon. If anything, we'll see the studio borrowing more to fund forthcoming projects, including three more movies in the Divergent series as well as The Hunger Games: Mockingjay part 2. Any one of those films -- or all of them -- could cost at least $100 million to produce.

How big a risk is Lions Gate taking with these would-be blockbusters? Not as much as you might think. The studio has generated over $250 million in cash from operations in each of the last two fiscal years, more than enough to cover Lions Gate's meager capital expenditures (generally less than $10 million annually). Returns on capital have come in near or above 10% over the same period, well above the average cost of debt, S&P Capital IQ reports. Lions Gate is using leverage to create value for shareholders.

Foolish takeaway
History says we can expect the company to keep on doing so. Consider how CEO Jon Feltheimer and his team funded Divergent. Pre-selling foreign rights cut Lions Gate's out-of-pocket production spending to an estimated $15 million before marketing and distribution costs. A shrewd decision that I think will pay off many times over, especially with Divergent earning $150.6 million in domestic grosses and another $118.3 million overseas, according to Box Office Mojo.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.

Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends Lions Gate Entertainment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers