Where Liberty is looking to address its $600 million plunge in income

2020 F1 season

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The most remarkable take-away from Liberty Media second-quarter investor call yesterday was the acceptance shown by analysts towards Formula 1’s financial predicament.

The championship booked revenues of just $24 million (£18.3m) for the three months ending June 30th, compared to $620m for the corresponding period in 2019: A vertiginous 96% drop. Where F1 last year reported Operating Income before Depreciation and Amortisation of $136m, the same figure this year is -$26m.

Operating income after adjustments swung from a positive $26m to -$122m. The reason for this swing will come as a surprise to no one. In 2019 F1 staged seven races in the second quarter, whereas none were hosted during the same three-month block this year. The $24m income during the period this year was derived from non-race contracts.

Crucially, the financial report states: “Since there were no events held during the second quarter of 2020 [due to the Covid-19 pandemic], revenue recognition was limited, with recognised primary F1 revenue in the period consisting only of the elements of sponsorship contracts associated with non-race related rights.

Chase Carey, Red Bull Ring, 2020
Carey had grim financial figures to report
“No race promotion fees nor broadcasting fees were recognised. Similarly, other F1 revenue decreased due to zero revenue being generated from the Paddock Club and other event-based and television production activities,” adding, “There was no team payment expense recorded, since such payments are recognised on a pro-rata basis as races take place on the calendar.”

Under normal circumstances such statements would have had the markets baying for blood. But times are emphatically far from ‘normal’. Still, had analysts spotted missed opportunities they would surely have lunged for Liberty’s jugular, and their sanguine demeanour suggests even the most hardened of Wall Street hacks recognise that Liberty is trying its utmost to return F1 to a semblance of normality even if its efforts are not (yet) tangible on the bottom line.

Indeed, the entire F1 portion of the investor call – Liberty Media has a number of other investments besides motorsport – focused on a return to racing, rather than on the past.

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The good news for the sport and its 10 teams is Q3 will be jam-packed with races, assuming all events are staged as per schedule. Where the original calendar listed seven races, the revised schedule has 12. That still leaves it five rounds short of the original plan for this point in the season, but Q4 could feature as many as six events.

Istanbul is another former grand prix venue F1 could return to
However, a downside is that most race promoters are paying negligible hosting fees or even charging Liberty for staging events. The pay-off, as outlined in our original blueprint for F1’s return to action, is Liberty’s ability to largely fulfil trackside advertising and corporate sponsorship contracts despite events being ‘ghost races’. Plus, Liberty is able to provide (paid) hospitality packages via Zoom.

During the call F1 chairman and CEO Chase Carey indicated a ‘limited number of fans’ could be admitted to Mugello’s race. The event officially marks Ferrari’s 1,000th world championship race, we expect quite a fight over the limited number of tickets among the Tifosi.

Separately, an F1 source advised that Sochi, Nuerburgring, Autodromo do Algarve and Imola are hoping to admit spectators subject to local regulations. For example, Algarve plans to accommodate 60,000 per day.

Hanoi Street Circuit, Vietnam, 2020
Hanoi’s race hopes look increasingly forlorn
Carey repeated the sport’s objective of 15-18 races in 2020. With 13 rounds confirmed and on schedule despite rising levels of Covid in various European countries, it follows that F1 needs to contract between two and five additional races to hit target. Races in Bahrain and Abu Dhabi are expected to end the season, taking the tally to 15 or 16 if Bahrain holds its mooted double-header.

Yet much of November after Imola’s race on November 1st remains open. F1 planned to race twice in Asia during that period, but China has closed its borders to international sporting events.

A single race in the region – Hanoi was a possibility – is not viable due to logistics costs. However, after 99 days without reported Covid cases, Vietnam last week reported a mysterious resurgence of the virus. Thus, plans for the event have effectively been scrapped.

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So where to go in the struggle for as many events as possible to be staged as cheaply (and profitably) as possible in F1’s quest to balance its books after the most challenging year in its history?

F1 has tested at Jerez since its last race there in 1997
A return to Jerez in mid-November for a grand prix for the first time since 1997 could be on the cards. Alternately, F1 may return to Istanbul or even race at both venues, followed by single events in Bahrain and Abu Dhabi. Thus 17 potential races by whatever permutation.

During the call Carey indicated that work has commenced on constructing the 2021 F1 calendar, which is expected to largely replicate the original 2020 fixture list in terms of events (22) and dates. No new events are predicted for next year, suggesting Miami’s race and a second Chinese round are some way off

Despite the situation being far from ‘normal’, F1 income is again on an upward trajectory, which has in turn placated the markets. However, until the sport again plays to full houses, Liberty and the teams will continue to stare into a deep financial pit regardless of the commercial rights holder’s best effort.

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30 comments on “Where Liberty is looking to address its $600 million plunge in income”

  1. I’m loving the variety of circuits on this year’s calendar. If Istanbul Park came back it would top the lot! Would love to see Jerez too.

    1. Moscow Raceway a week after Sochi would be good.

  2. Just to add some info. The Portuguese Grand Prix is supposed to have public. In portugal the situation is under control and the F1 event will have public under the same rules as other shows (mandatory masks, reduced attendance etc). 28.000 tickets are reported to be already sold by the local organization

    1. I hope you’re right but from now to October a lot can happen…”under control” is more wishful thinking, than anything the authorities can guarantee. It wasn’t that long ago (a couple of weeks?) Portugal was on the top of new cases. Let’s see how the CL final event go and the consequences it’ll bring, specially to the region with most cases in the country (fyi other readers, not in Algarve where the race is supposed to take place).

  3. Adam (@rocketpanda)
    11th August 2020, 17:56

    I would be quite happy to see Istanbul back, it was a really nice track. Personally I’d not mind seeing India or Korea again either – both were pretty alright but given the pandemic, probably unlikely.

    1. India won’t happen(even though FOM is on contract to hold remaining 2 or 3 GP at the venue) it gets quite cold(25°/13°C on average for Nov) and foggy(at its worst in Dec when visibility is below 50ft even at noon) in that area from Nov onwards.

      1. Also that 25 might look high but due to cold wind flowing it take a long time to reach and it doesnt stay there for too long.

      2. @Chaitanya No, FOM isn’t under contract to hold the remaining 2 or 3 GP there. What is this claim about? Later this year it will have been seven years since the most recent Indian GP took place, so why would something like this still be in place today? Nothing like this has been reported anywhere at any point after the most recent event.
        I’m also a bit baffled at your point about the weather, not the visibility part, but the temperature as India is warm all-year-round with similar monthly temps to Bahrain and Abu Dhabi when comparing to other F1 venues (present or former). Here’s how warm the area of the former Indian GP track was in last year’s November:
        https://www.accuweather.com/en/in/noida/3146227/november-weather/3146227?year=2019
        I get what you mean with the cold wind, but still.

        1. It was a 5 year contract out of which 2 are still not completed and it is same story with Korean GP.
          Geographically India is quite diverse and depending on where you are in India(desert, coastal plains, deccan plateau, gangetic plains, hills of North east and Himalayas) the climate can be a mix of warm/cold/ freezing with humid/dry. Noida sits on Gangetic plains immediately south of Himalayas and those areas dont freeze(thanks to Himalayas which block the Arctic oscillations from North) but compared to Peninsular India they are bitterly cold. Anyways apart from Covid, there are tax issues which are a big obstacle in returning of Indian GP to calendar.

          1. @Chaitanya if it were for five years, then the last two would’ve been 2014 and 2015. It would’ve been for eight years if there were still two left.
            (perhaps @DieterRencken or @KeithCollantine could shed some light on this as this is news to me if true.)
            Yes, I could’ve been more precise with the specific area of India as the Greater Noida is only a part of a large(-ish) country.
            Yes, the tax issues are what I was indirectly implying in my response to @rocketpanda as the main obstacle for India making a one-off return at this short notice without COVID.

          2. Chaitanya, there are reports that Jaypee Sports, which were operating the circuit, had defaulted on at least part of the payments for the races which were held there – when Liberty Media took over in 2016, FOM was still trying to get the fess that Jaypee Sports owed them for the 2012 and 2013 races. If that is correct, the failure to pay the fees means that the contract is null and void and it would be Jaypee Sports that broke the contract through by defaulting on their obligations.

            As for the Korean GP, it is incorrect to say that there is a contract there. The race was originally placed on the draft calendar for the 2015 season, but the circuit owners were the ones who backed out of the deal – it’s why, back in 2015, it was reported that FOM was actually taking legal action against the organisers for breaching the contract.

    2. @rocketpanda India is definitely out of the question as it’s the country with the third-highest infection figures in the world only behind the US and Brazil. Even without COVID-19, it’d effectively be out of the running as the track wouldn’t really be ready for F1 at this short notice nor would the Yeongam circuit in South Korea.
      99% guaranteed that no F1 racing is going to take place east of Abu Dhabi this year.

      1. My understanding is that Jaypee Group is in liquidation – certainly large parts of the group are:

        https://www.makaan.com/iq/news-views/jaypee-in-insolvency-case-home-buyers-to-raise-claims-till-august-24

        Anon is right re defaults, plus there were tax and infrastructure issues at the circuit.

        1. In India the part about defaulting wasn’t reported, rather the statement I remember reading was Jaypee was already spending around $40M/race and were very disappointed with dropping of the event from F1 schedule. Anyways even if the current F1 owners decide to hold a event in India, it’s not a good venue for a race that late in the year.

          “It would not be right for me to talk about the contract with anyone else other than Mr. Ecclestone and FOM. I am already in touch with him but you can’t expect me to discuss publicly what transpires between us. We will soon meet to sort out the issues and am confident the race will be back next year,” said Gaur, whose company shells out around $40 million a year to host the race at a time when it is also feeling the heat of the current global financial crisis.

  4. I don’t see how 60,000 people would be achievable on any circuit this year. My general belief has been that no race this year could take place with spectators in attendance, but should some later races have them, I expect it’d be significantly below that figure. A bit over-optimistic under the COVID-circumstances, even if only people living in the host country, or within the specific country subdivision were allowed to enter the track boundaries.
    As for the likely cancellations of the Chinese and Vietnamese GP: Why still wait with formally cancelling them? Wouldn’t it have been better to officially call them off at the same time as all the Americas-events? Why wait with something that is going to happen anyway? I don’t get the point in delaying the inevitable any more than with the Canadian GP, for example. In hindsight, cancelling it outright back in April would’ve been better as already at that time, the chances of it getting rescheduled were more or less nonexistent. Oh well, back to what’s more relevant now:
    I was a bit afraid when I got the idea of F1 racing in Istanbul on the original Abu Dhabi GP date as I mistakenly remembered Istanbul being rather cool/chilly in November, so I double-checked to find out that it’s surprisingly warm throughout the month (20s figures for the most part), so having it on the last Sunday of November mightn’t be bad after all
    https://www.accuweather.com/en/tr/istanbul/318251/november-weather/318251?year=2019
    Should Jerez join, after all, I wish in this scenario Imola would be on October 25 and Portimao on November 8 with Jerez seven days later or the other way round to minimize travelling, but oh well, maybe there was a reason Jerez (or Valencia, or Aragon) wasn’t (or didn’t seem to be) a proper candidate to join for this year as a ‘joker’ event earlier this year.
    Nevertheless, should both Jerez and Istanbul join as the final non-original 2020 venues the ending to the season would most likely look like this as already implied in the article:
    Jerez November 15
    Istanbul November 29
    Bahrain December 6
    Abu Dhabi December 13

    1. Why still wait with formally cancelling them? Wouldn’t it have been better to officially call them off at the same time as all the Americas-events? Why wait with something that is going to happen anyway?

      Well, just about four months ago people were saying the same about the F1 season in general, and look how that turned out. You can’t just give up right away.

  5. Interesting to hear about plans for next year. I wonder how realistic those are; are Liberty just expecting the virus to disappear when the year changes from 2020 to 2021, or are they relying on vaccine to arrive before the start of the next season?

    1. I guess they have to start planning it, but it would be completely unrealistic to think that things will be back to normal just because we’ve kicked over into 2021.

      One would assume they already also have contingency planning going on.

  6. Plus, Liberty is able to provide (paid) hospitality packages via Zoom

    What’s this? Like a conference call with a driver or team boss? Yech

  7. Bernie will be raising a glass of brazilian bubbly and a quiet chuckle.

  8. The two week breaks between Mugello, Sochi, Nürburgring and Algarve make it difficult to fit more European rounds.
    Maybe Istanbul between Sochi and Nürburgring?

    1. @zomtec Not going to happen – Nurburgring, and subsequently, Portimao and Imola would have to be pushed back should Istanbul be placed seven days after Sochi. Any updates and or additions on the race schedule will only concern the remainder of the year post-Imola.

      1. I presume 4th October is unlikely for Istanbul but it would be only 2 hours by plane from Sochi and 3 hours by plane to Frankfurt and this year we will have had 3 triple headers. However less than two months to get a track ready without Grade 1 certification is asking a lot.

  9. Fine Racing Point a couple more times and they will be in profit ;)

  10. This is an interesting trackside building at Jerez, it reminds me an UFO or a stealth aircraft levitating there, and even if it looks cool, combined with this feeling it’s quite alien for me in the context of a racetrack.

    1. It’s the media centre which crosses the track at the finish line – known as the spaceship.
      Well known in the motogp and WSBK circles. And its a great track.

  11. Come on Liberty, turn that money machine on!! That Concorde agreement won’t sign itself

  12. F1 desperately needs Asian money to run their billion dollar business, especially since they have a hard time convincing Europeans to loosen their pockets.

  13. sepang???????????????this year?

  14. You reap what you sow.
    Greed is & will, kill F1.
    Biggest mistake?
    Removing free to air F1 coverage in UK.
    Ergo millions of previous F1 fans were removed from the audience potential.
    By default that reduces any commercial sponsorship’s audience exposure.

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