Companies are always inventing new ways to manage earnings, and we’re constantly reviewing the latest tricks, loopholes, and accounting rule changes to ensure we continue to have the best fundamental data in the world. We enjoy shining lights in dark corners and uncovering the truth.
By now, reports of data center accounting shenanigans are everywhere. In February 2026, The Wall Street Journal highlighted how Ernst & Young identified Meta’s (META) data center lease accounting as a “Critical Audit Matter” due to “the significant judgement required in determining that activities that most significantly affect the variable interest entity’s economic performance…”
However, investors are likely unaware of another new trick that hides major liabilities off-balance sheet. Our regular readers became aware when we published our analysis of the hidden $500 billion accounting trick impacting the largest players in the AI race on February 18th.
The latest loophole: Residual Value Guarantees (RVG).
What is a Residual Value Guarantee?
An RVG is a lease provision where the lessee promises that the leased asset will be worth a minimum specified amount at the end of the term. If the asset’s actual value is lower, the lessee must pay the difference. These payments, should they occur, represent a real liability, but unless they are probable, no liability is recorded.
How Meta Uses RVGs to Hide Billions in Potential Liabilities
Meta’s Blue Owl joint venture provides a real-life use case of RVGs. In the company’s 2025 10-K. The Meta Residual Value Guarantee is a contingent liability where Meta guarantees to cover the shortfall if the market value of a specialized data center (specifically, the $27 billion Hyperion project) is less than a pre-agreed amount upon lease termination. This acts as a backstop for investors, ensuring they recover funds if Meta exits early, while keeping the debt off-balance-sheet for Meta.
Key details about the Meta RVG:
- Purpose: It supports a ~16-year, $27 billion Blue Owl joint venture for AI data center construction, allowing Meta to treat the project as an operating lease rather than debt.
- Trigger: The payment is triggered if Meta terminates the lease early or does not renew it within the guaranteed period.
- Calculation: If triggered, the payment equals the guaranteed value minus the actual market value of the facility, capped at an agreed amount.
This RVG keeps the massive construction cost off-balance sheet for now, yet represents a significant, long-term contingent liability if AI infrastructure needs change or if the data centers become obsolete. Both Meta and Ernst & Young believe it is unlikely that Meta will pay the RVG, so the company does not record the RVG as a liability.
How We Inform Our Clients
It is fairly normal for leases to have these kinds of contingencies included in them and they often go unrecorded and unmentioned. Meta’s RVG is unique because (1) it’s so large and (2) the pace of change in the value of data centers is so high.
We include an Analyst Note on our Stock Rating for Meta to alert clients to this potential RVG liability. While we don’t include the RVG as a liability in our calculation of total debt, investors need to be aware should the economics of this deal change.
We routinely identify the most dangerous earnings distortions and accounting loopholes in the market and implement every update, such as this, into our models.
That means as long as you’re a Stock Tracker or higher member, you’ll get every update and improvement, included with your membership.
This article was originally published on March 10, 2026.
Disclosure: David Trainer, Lee Moneta-Koehler, and Kyle Guske II receive no compensation to write about any specific stock, style, or theme.
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