Formula One Sets 24 Race Schedule for 2024 With Inaugural Las Vegas Set to Debut

Senior Equity Analyst

Ali Mogharabi

Formula One Group controls the exclusive commercial and promotional rights to the FIA Formula One World Championship series; the monetization of those rights is the primary business of the group. The firm is responsible for development and promotion of the Formula One race series in concert with its three partners: the FIA (the regulatory body), the teams that participate in the series, and the series' commercial partners.

Formula One Group is a subsidiary of Liberty Media, which purchased the firm in January 2017. Formula One stock is a tracking stock for the assets under Formula One Group with Liberty Media. These assets include the Formula One rights, an 11% stake in the Braves Group (another Liberty Media subsidiary), and several minor stakes in public and private firms, including a drone racing league.

The group derives its revenue and operating income solely from the Formula One rights. The Formula One rights provide three main sources: hosting fees from race promoters, the sale of broadcasting rights to free and pay-TV networks around the world, and sponsorship and advertising revenue for the series and individual races. These three sources generated over 82% of 2022 revenue for Formula One Group.

Over the past 20 years, the sport has expanded its reach further outside of its traditional stronghold of Western Europe and the U.K. by adding races in East and Central Asia, the Middle East, and Russia. Of the 22 grands prix races on the 2022 schedule, 12 were outside of Europe, with seven of the 12 having debuted in 2000 or later. These newer races pay a higher hosting fee on average than the older grands prix and national or local governments subsidize many of the newer races.

We expect the series to expand to hit its 25-race ceiling by 2025, with China returning in 2024 with Las Vegas (2023) and another race being added to the schedule.

Business Strategy & Outlook

We assign Formula One Group a narrow economic moat based on the intangible assets underpinning the FIA Formula One World Championship. The firm holds exclusive promotion and commercial rights to the race series until 2110 under an agreement with the Federation Internationale de l’Automobile. The firm is responsible for development and promotion of the Formula One race series in concert with its three partners: the FIA (the regulatory body), the teams that participate in the series, and the series' commercial partners, which include the race promoters, broadcasters, sponsors, and advertisers. Formula One Group primarily generates revenue from three sources: hosting fees from race promoters, the sale of broadcasting rights to free and pay-TV networks around the world, and sponsors and advertisers for the series and individual races. 

The structure of the Formula One World Championship is relatively complex and the rights and the relationships between each party are sometimes difficult to untangle. While the FIA agreement confers certain exclusive long-term commercial and trademark rights to Formula One Group, the near- to medium-term operations and regulations of the Formula One World Championship series were previously covered under a series of Concorde Agreements among the FIA, Formula One Group, and the individual racing teams. After the expiration of the last Concorde Agreement in 2012, the FIA and Formula One Group signed the 2013 Concorde Agreement, which extends to 2021 with an automatic renewal period until 2030 unless the parties agree to sign another agreement in 2021, which would also last until 2030. Under the Concorde Agreement, the FIA is tasked with setting governance and regulatory safety standards. 

Unlike the previous Concorde Agreements, the 2013 agreement did not include the teams. Instead, the previous management team entered into separate agreements with each team, with three teams (Ferrari, Mercedes, and McLaren) gaining certain specific rights such as the ability to appoint a director to the board of Formula One holding firm Delta Topco, which Liberty Media now owns. The team agreements also cover the payments from the Formula One Group to the teams, which primarily are via the prize fund for the individual races and the overall driver and constructor championships. Certain teams, including Ferrari, Mercedes, and Red Bull, receive a guaranteed annual payment for simply competing, with the $70 million payment to Ferrari being the highest. The team payments are the single largest expense for Formula One Group, averaging just under 52% of revenue over the past three years. 

The team agreements all expire after the 2020 season, but we expect Formula One Group and the teams to sign new contracts prior to the expiration, as both sides need the Formula One season to occur. Because of the FIA 100-year agreement, the race teams could not hold the Formula One World Championship without the trademarks and licenses Formula One Group holds. While Formula One Group will theoretically find new teams to compete in the Formula One series without any of the current 10 teams, we find that scenario to be unlikely because three of the four firms currently supplying engines to Formula One teams also run their own teams (Ferrari, Mercedes, and Renault). Also, the startup costs for a brand-new team would be astronomical. Additionally, Formula One Group must make annual payments to the FIA to retain its hold on Formula One rights. 

While Nascar garners more attention in the U.S., the Formula One World Championship is the premier motorsport for fans around the world. The 2018 schedule of 21 grands prix was broadcast in over 200 countries and attracted over 4 million fans with an average attendance of 195,000 per race weekend. Similar to Nascar, Formula One derives some of its appeal from its historical teams such as Ferrari and McLaren along with its association with car manufacturers such as Mercedes and mass-market brands such as Red Bull. The series also depends on the rivalry between its top teams and drivers such as Lewis Hamilton and Sebastian Vettel to drive fan interest. 

Over the past 20 years, the sport has expanded its reach further outside of its traditional stronghold of Western Europe and the U.K. by adding races in East and Central Asia, the Middle East, and Russia. Of the 21 grands prix on the 2019 schedule, 12 races will be held outside Europe with six of 12 debuting in 2000 or later. These newer races pay a higher hosting fee on average than the older grands prix and many of the newer races are subsidized by national or local governments. The race promotion agreements vary in length from three to seven years and cover the hosting fee, any potential elevator clauses, and circuit promotion rights that were assigned to Formula One Group for items such as trackside advertising, title sponsorship, and other commercial rights. The expansion into Asia and the global sale of rights have helped the series attract more sponsors. Race promotion, along with advertising and sponsorship, generates just under 50% of annual revenue with broadcasting rights producing one third of yearly sales.

Formula One Group can be described as a combination of the trademark holder and the business development and promotion arms of the Formula One World Championship. As a result, the firm's business model is very capital-light with only $15 million in capital expenditures in 2018 and $90 million in net PP&E at the end of 2018 versus annual revenue of $1.8 billion. This lack of capital intensity means that annual free cash conversion for the firm over the past six years was 97%. 

Despite the capital-light nature of the business, Formula One Group has been unable to generate high returns on invested capital during the time that it has been part of Liberty Media. This inability is in part a function of the price that Liberty Media paid to acquire Formula One Group. While the goodwill from the transaction is a large part of the firm's total assets (36% at the end of 2018), we do not include goodwill in our adjusted ROIC projections. We believe that the goodwill is simply a one-time asset from the acquisition and we do not expect the firm to make other large acquisitions in the future.

Narrow

Economic Moat

Liberty Media Corp-Liberty Formula One

Liberty Media Corp. engages in the operation of media, communications, and entertainment businesses. It operates through the following segments: Sirius XM Holdings, Formula 1. The Sirius XM Holdings segment refers to the complementary audio entertainment businesses, Sirius XM and Pandora. Sirius XM features music, sports, entertainment, comedy, talk, news, traffic, weather channels, and infotainment services. Pandora provides music, comedy, and a podcast streaming discovery platform. The Formula 1 segment focuses on the global motorsports business that holds exclusive commercial rights with respect to the World Championship, an annual, motor race-based competition. The company was founded on March 28, 1991, and is headquartered in Englewood, CO.

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Operates as a holding company providing live entertainment.

Liberty Media Corp-Liberty SiriusXM

ENGLEWOOD, Colo.--(BUSINESS WIRE)--Liberty Media Corporation Announces First Quarter Earnings Release and Conference Call.

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ENGLEWOOD, Colo.--(BUSINESS WIRE)--Liberty Media Announces Agreement to Acquire Commercial Rightsholder of MotoGP™.

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Formula One Group (FWONA) Q4 2023 Earnings Call Transcript

ENGLEWOOD, Colo.--(BUSINESS WIRE)--Liberty Media Corporation Announces Fourth Quarter Earnings Release and Conference Call.

Liberty Media Corporation Announces Fourth Quarter Earnings Release and Conference Call

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Formula One Group (NASDAQ:FWONA ) Q3 2023 Earnings Conference Call November 3, 2023 10:00 AM ET Company Participants Shane Kleinstein - VP-IR Greg Maffei - President and CEO-Liberty Media Corporation Stefano Domenicali - President and CEO Brian Wendling - Chief Accounting and Principal Financial Officer, Liberty Media Corporation Renee Wilm - Chief Legal Officer and Chief Administrative Officer Derek Schiller - President and CEO, Atlanta Braves Conference Call Participants David Karnovsky - JPMorgan Ben Swinburne - Morgan Stanley Bryan Kraft - Deutsche Bank Vijay Jayant - Evercore Stephen Laszczyk - Goldman Sachs Stephen Glagola - TD Cowen David Joyce - Seaport Research Partners Jason Bazinet - Citi Barton Crockett - Rosenblatt Securities Operator Welcome to the Liberty Media Corporation's 2023 Q3 Earnings Call. [Operator Instructions] Afterwards, we will conduct a question-and-answer session.

Formula One Group (FWONA) Q3 2023 Earnings Call Transcript

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Apple

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ENGLEWOOD, Colo.--(BUSINESS WIRE)--Liberty Media Corporation (“Liberty Media”) (Nasdaq: LSXMA, LSXMB, LSXMK, FWONA, FWONK, LLYVA, LLYVK) announced today that it has entered into a definitive agreement to acquire greater than 90% of QuintEvents, LLC (“Quint”) in a transaction valuing the company at $313 million. Quint will be attributed to Liberty Media's Formula One Group tracking stock, and the transaction, which is expected to be accretive, will be funded with cash on hand.

Liberty Media Corporation Announces Definitive Agreement to Acquire QuintEvents

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Formula One Group (NASDAQ:FWONA ) Q2 2023 Earnings Conference Call August 4, 2023 10:00 AM ET Company Participants Shane Kleinstein - Vice President-Investor Relations Greg Maffei - President and Chief Executive Officer-Liberty Media Corporation Stefano Domenicali - President and Chief Executive Officer Brian Wendling - Chief Accounting and Principal Financial Officer-Liberty Media Corporation Renee Wilm - Chief Legal Officer & Chief Administrative Officer Ben Oren - Executive Vice President & Treasurer Conference Call Participants Stephen Glagola - Cowen & Company Ben Swinburne - Morgan Stanley Vijay Jayant - Evercore Bryan Kraft - Deutsche Bank David Karnovsky - J.P. Morgan Stephen Laszczyk - Goldman Sachs Marlane Pereiro - Bank of America Operator Good morning, and welcome to the Liberty Media Corporation's 2023 Q2 Earnings Call.

Formula One Group (FWONA) Q2 2023 Earnings Call Transcript

ENGLEWOOD, Colo.--(BUSINESS WIRE)--Liberty Media Corporation Reports Second Quarter 2023 Financial Results.

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News for Liberty Media Corp-Liberty Formula One Stock (FWONK)