So why has Liberty Media bought the F1 business at a price that values it at $8bn? Well, with it emerging that Bernie Ecclestone already has contracts in place that guarantee income of $9.3bn over the next 10 years, the reasons are pretty obvious.
The revelation about F1's future income is one of the more interesting snippets that can be gleaned from a document Liberty issued last night, and which sums up why it has invested in the sport. It also hints at what the future holds.
The machinations of the F1 business have always been shrouded in mystery, although if you know where to look, some numbers are in the public domain. Some information was also released prior to the abandoned listing on the Singapore stock exchange a few years ago.
Because Liberty Media is listed on the New York stock exchange, F1's new owner is obliged to be transparent and keep both the authorities and current shareholders happy. It also wants to pique the interest of potential future investors.
So it has created what you might call a beginner's guide to the sport aimed at folk in the US business world who know nothing about it.
Last night's document, in effect a powerpoint presentation entitled "Introducing Formula One Group," does exactly what it says on the tin.
While the listings of teams, events and drivers and so on are not of much value to anyone who follows F1, and some of the financial details leave the brain numb, the document nevertheless gives a fascinating insight into Liberty's thinking.
The company summarises what it describes as "An Iconic Sports Business" as follows:
• Unique sports entertainment franchise
• Iconic global brand built on 67-year history
• Massive international fan base and media coverage
• Over 400 million unique TV viewers globally
• Highly attractive financial profile with contracted revenue streams
Liberty then stresses that F1's income derives from four main sources, the first three of which it describes as "core revenue."
It also gives us an approximate percentage contribution for each stream. While everyone knows the basics of where F1 earns its money, it's useful to see it so handily expressed.
1. Race Promotion
• Fees paid to host, stage and promote events
• Contracts typically have automatic escalators: ~30-35% (5-10+ years)
• Contracts with ~100 broadcasters
• Average broadcast contract typically includes annual escalator
• F1 has historically produced live feed for all races (excl. Monaco): ~30-35% (3-6 years)
3. Advertising & Sponsorship
• Global partners and official suppliers
• Race specific title sponsorship
• Track-side advertising: ~15% (3+ years)
• Includes hospitality (i.e. Paddock Club), freight, TV production and post production, feeder racing: ~20%
Intriguingly, Liberty describes F1 as a "Low Risk Business Model with Long-Term Contracts," and stresses the following points:
• Multiple revenue streams
• High-quality and government counterparties
• Staggered revenue renewals with long-term contracts
• Approximately $9.3b of revenue under long-term contracts extending through 2026
• Limited obligations for F1 under contracts
• Not hit-driven business
That last phrase is often applied in the music and gaming industries, and effectively notes that interest in F1 is consistent, and not subject to fashion or trends.
The reference to "government counterparties" is a reminder of just how many races are either paid for or subsidised by national, regional or local authorities.
It's also fascinating to learn that $9.3bn is contracted for the next decade, without even adding in the renewal of deals that run out during that time, never mind anything new that might come along.
The numbers are impressive.
Liberty also name checks F1's four main broadcast partners (Sky, RTL, RAI Sport and TV Globo), its six global sponsorship partners (Heineken, Pirelli, Rolex, Tata, UBS and Emirates), and four other race title sponsors (Gulf Air, Etihad, Singapore Airlines and Petronas). Only nine of this year's 21 races had a title sponsor, by the way.
Later Liberty outlines the revenue and profit figures for the past three years, with a projection for 2016. If you are not familiar with corporate balance sheets, EBITDA is earnings before interest, taxes, depreciation and amortisation. Here we get the numbers before and after the teams' share is paid out.
|Number of Races:||19||19||19||21|
|Pre-Team Share ("PTS") EBITDA:||$1,248m||$1,317m||$1,340m||$1,446m|
That's a pretty healthy bottom line, and one that will clearly appeal to investors. So what of the future, and what will Liberty bring to the party? Under the heading "A Strategic, Long-Term Owner" the company outlines the direction the sport will take under its stewardship.
• Opportunity to develop Formula One for long-term benefit of sport, its fans and our shareholders
• Extensive experience in media, entertainment, live events and digital
• Liberty Media Group expected to be renamed Formula One Group
Later in the document Liberty elaborates on those future plans as a "Big Opportunity at Formula One," tactfully pointing out that it will be "adding to the strong foundation built by current management, teams and FIA."
• F1 is world's leading commercial sport entertainment franchise
• Opportunity to develop the sport for benefit of all stakeholders (fans, teams, partners, shareholders).
Select opportunities include:
• Increase promotion and marketing of F1 as a sport and brand
• Enhance distribution of content, especially in digital
• Establish broader range of commercial partners, including sponsorship
• Evolve race calendar
• Leverage Liberty's expertise in live events and digital monetisation
There's a clear sign that Liberty expects to expand the current 21-race calendar. Under "Track Record of Successful Global Calendar Development," it presents a chart outlining the 13 new or revived (ie USA, Austria and Mexico) races that have been added to the schedule since 2004, although there's no mention of the fact that Turkey, Valencia, Korea and India are now long gone. Or indeed that the likes of Magny-Cours, Nurburgring and Fuji were not able to sustain their events...
• Historical success in expanding the world championship race calendar to 21 events in 2016 (32 countries have historically hosted a race)
• Potential future race opportunities in attractive new markets
• Race expansion creates new race fans and increases commercial opportunities
It's interesting to note that when the final part of the deal is completed, Liberty's shareholding of 35.3 percent will include 3.1 percent held by its founder John Malone, and 1.0 percent by its president and CEO Greg Maffi. Contrary to what some might have expected, CVC will still have a substantial stake.
This is how the current shareholdings of the various parties will shrink as Liberty comes in:
Liberty: 0% to 35.3%
CVC: 38.1% to 24.7%
Waddell & Reed: 20.5% to 13.3%
LB I Group (Lehman): 12.1% to 7.8%
Bambino Holdings: 8.4% to 5.4%
Norges: 4.1% to 2.7%
Bernie Ecclestone 3.3% to 2.1%
Management: 2.8% to 1.8%
Other: 10.6% to 6.9%
Buried somewhere under 'Other' are the current 1 percent (approximately) shareholdings of both the FIA and Ferrari Spa.
We have yet to find out what will happen to the former, but teams are likely to be given an opportunity to acquire shares, and one presumes that Ferrari will take advantage and expand its interest.
Competitors with a stake in F1? Better late than never...