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If I had a little money...
At the Monza GP in 2016, the paddock was alive with rumors that the Formula One Group, the company that exploits (and I use the word deliberately) the commercial rights of the sport, had been sold to Liberty Media. It was, when the details finally emerged, a convoluted deal that values the company at US$8bn. Valuation is an odd thing, but something is worth what someone is willing to pay for it and Liberty agreed to this deal because it gave them what they wanted. The other Formula One Group shareholders tagged along, because they had no choice.
The deal, once completed, will give the current shareholders US$1.1bn in cash, plus 138 million newly issued shares in Liberty Media, worth in the region of US$3bn, plus some “exchangeable debt instruments” – which are basically debt-for equity swaps that amount to US$351m. The overall deal is odd in that it will leave the buyers with much of the US$4.1bn debt that has been built up by the firm, secured on the future revenues of the sport. The deal should be completed early next year and after around six months, the current shareholders will be allowed to sell their shares in Liberty, which by then will have changed its name to become the Formula One Group.
Nobody in Formula 1 will be sad to see the back of CVC Capital Partners. Liberty is a much better bet – it sees the sport as a business that can be improved, rather than as a cash cow to be milked, and believes that more money can be made from F1 by expanding and investing. Formula 1 does underperform when it comes to the sale of TV rights. The pay-TV deals of recent years may have increased revenues, but they have dropped the audience and that has had other impacts on the sport. With different strategies for TV sales, including digital streaming to mobile devices, and cheaper pay-TV, Liberty could do a better job, not least because Bernie Ecclestone has never been very successful when it comes to the USA. This is clearly a target market and Liberty will no doubt be looking to find ways to host three or more races in the USA in the years ahead. If this involves dropping some of F1’s lucrative but dubious events, then they must be prepared to do it.
A change in management (and style) may also help to boost the F1 sponsorship market because there are many companies who ought to be advertising but are not doing so, preferring to be seen doing business with more transparent and corporate businesses. Big corporations are more likely to spend money with a NASDAQ-traded entity, than with a company incorporated in Jersey, with shareholders that cannot easily be traced. Governments will also do business with sports if they feel the events will give them a return on the investment without any downside or bad publicity. F1 has a bit of a bad boy reputation and with Liberty in charge that will change. It may take some time, but F1 seems to be looking at a future as a NASDAQ-listed entity. It will be interesting to see how that works out as the business has thrived on secrecy.
Liberty Media owns interests in a broad range of communications, media, and entertainment businesses attributed to three tracking stock groups: the Liberty SiriusXM Group; the Liberty Braves Group; and the Liberty Media Group, which includes a share of the Live Nation music business. One can see F1 getting a major presence on Sirius internet radio and developing more music-F1 events. One might even imagine an F1 event in the vicinity of the Braves’ stadium in Atlanta. Expanding the F1 calendar is not going to be easy, given that teams would need to expand dramatically to have overlapping staff, and it is probably a better idea to refocus the calendar, weeding out events that do not really fit the F1 ethos (there are several) and rearranging the calendar to make more sense. Similarly, there is room for development in the world of corporate hospitality and merchandising, which is massively under-developed at the moment. All things considered, there is reason to be cheerful about the future.
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