Why “solid and strong” Formula 1 isn’t fearing the day its biggest star walks away


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Liberty Media’s earnings calls are a fascinating study in how to reveal sufficient information about the company’s primary investments – Sirius radio, an audio streaming service; the Atlanta Braves, a US professional baseball team; and, of course, the Formula One Group – to the investor community without over-promising or committing.

The latest, held last Friday, opened with the standard ‘safe harbour’ disclaimers, then focussed on Liberty’s 2021 first quarter results. The call revealed just how much overall grasp the executive of F1’s commercial rights owner has accumulated of a business it formally acquired in 2017, having until then had no actual exposure to F1 and its various complexities.

If that was impressive, so too was the manner in which incoming F1 CEO Stefano Domenicali dealt with questions from hard-nosed financial analysts during his first official call. He is, of course, experienced in F1 after a successful stint as Ferrari team principal and an old hand in business circles – having doubled Lamborghini’s volumes while CEO – but Wall Street types are another breed entirely.

Having suffered a terrible 2020 Q1 due to Covid – no races were staged during the quarter and only incidental income ($17m) was booked, while costs had been incurred ahead of the cancelled Australian and Bahrain grands prix – the latest numbers ($159m) are on the up, with the bottom line showing a considerable improvement: last year’s $137m loss in Q1 was trimmed to a $33m deficit for the corresponding 2021 period.

Start, Bahrain International Circuit, 2021
Only one race was held in the first quarter of this year
True, that still marks a loss, but the trajectory is upwards and encouraging given that only one grand prix was booked during the quarter. Two races, as per pre-Covid, could well have seen black rather than red ink flow, so there are few doubts that scheduled six races – all revenue contributors in some shape or form, including Monaco – Q2 should see F1 back in paper profit. Strip out Turkey, whose race is in doubt, and the ink remains black.

F1 currently holds $1.8bn in cash in reserve which, Maffei said, is earmarked to keep it afloat during tough times: “We’ve had to cancel, for example, Canada and input Turkey in,” he explained, before news broke that Turkey was endangered list due to travel restrictions imposed by the British government.

“We are getting paid for that, but those [amounts] are at way reduced levels compared to what we would get if we had full fans. So we have a fairly large contingency in our own budgeting for the potential that we will not get the kind of revenues that we hope.

“Therefore, that cash is useful,” he said, adding, “But as the year progresses and we get more certainty about promoter revenue, we will look at what we do with that cash.” Prudent management and caution rule the day.

That said, Liberty’s media release states: “Race promotion revenue in the first quarter of 2021 included proceeds from a one-time settlement related to the cancellation of a race originally scheduled to commence in 2020.”

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This revenue would have boosted income, reducing Q1 losses. Which race? Bets are on Vietnam, cancelled last year, then deleted from the 2021 calendar after the promoter was indicted on fraud charges. According to our records the annual fee was $35m plus a 5% escalator through to end-2024, so the settlement could have been anywhere between $35m and $180m. It does, though, mean Hanoi is gone for good…

Manchester City football club
F1 faced a football-style breakaway threat in 2009
“As it relates to the settlement, we can’t comment on the specific details, but it did impact our results,” Liberty’s chief financial officer Brian Wendling told analysts of their Q1 results, then added cryptically: “But obviously, when you look at year-over-year results, the fact [is] that we had one race versus zero last year and the proportion of revenue recognition was the material driver of that, but we can’t comment on the specific settlement.”

How is that for an evasive response?

Either way, the markets did not react positively to the overall numbers, with the FWONK share price opening last week at $46.80 before dropping to $44.00 by the close of business on Friday, a 6% slide.

Financial reporting is routine during such calls, with the ‘colour’ – as it is dubbed by Wall Streeters – coming once the numbers have been dispensed with. That’s when the hard questions are asked, when respondents are cagey with replies: They are obviously obliged to be truthful, but the flipside is indiscreet disclosures can play havoc with share prices and potentially spark Securities Exchange Commission investigations.

Although the call related to all three Liberty group companies, around 70% of questions posed during the hour-long call related to F1 and its prospects. Saliently, a question about European football’s (aborted) Super League breakaway debacle and its potential impact on F1 was put to Liberty management.

“We watch Super League with interest because before we were involved with Formula 1, there was certainly the talk [in 2009] of a breakaway in Formula 1, which did not come to pass,” said Greg Maffei, Liberty CEO.

“We feel very confident we understand the breakaway very well, and I think we pretty much eliminated that opportunity or potential at Formula 1,” added Domenicali’s boss, no doubt well aware the sport’s new CEO had played a crucial role in that 2009 breakaway threat as Ferrari team principal.

F1 is in “solid, robust” shape, says Domenicali
Maffei’s response is literally true, for by committing to the 2021-25 Concorde Agreement all signatory teams agree not to participate in any series or championship which could reasonably be deemed to be a direct competitor of F1. What he did not, though, reveal is that the agreement contains a clause permitting teams to terminate their obligations provided they give notice by March 1 to leave at the end of that year.

Thus, a breakaway could be staged with sufficient notice period, and thus the veracity of Maffei’s response hinges on the words “pretty much eliminated”, for they are open to interpretation and thus not binding. Don’t kid yourself, Mr Maffei: If the teams are unhappy with any aspects of Liberty’s modus operandi they could break away before 2025.

Domenicali rebuffed a suggestion F1 should retain the current technical regulations given the series’ competitive start to 2021. “Max Verstappen [is] literally banging wheels with Lewis Hamilton” one analyst opined, “F1 is probably having the most competitive season since 2012, with Ferrari coming back, [a resurgent] McLaren and [the rise of] Lando Norris, et cetera.”

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But, as Domenicali pointed out: “The train has already left the station.” Work on the 2022 cars is already well advanced.

Domenicali acknowledged Hamilton is a “great asset”
“We are very pleased because we are convinced that this year is already a great season, but next year with the changes that are planned will be another great opportunity to showcase what is Formula 1 in terms of the ability of always keeping the attention at the centre. Next year will highlight the possibility to have a bigger fight, not only two or three drivers, but even more, and that’s the objective.” Cautious…

Another questioned how the eventual retirements of Lewis Hamilton and Sebastian Vettel would affect the sport. The pair, with almost a dozen titles between them, are well into their thirties. Hamilton is unquestionably the sport’s biggest star, with a social media presence which dwarfs that of his rivals, yet only signed a one-year contract extension for the 2021 F1 season.

“With regard to Lewis Hamilton, surely [he] is a great asset,” said Domenicali. “He’s doing an incredible job on the sporting side and in terms of image, he was able to grow Formula 1 in other areas that are not specifically related to Formula 1.

“But Formula 1 itself is strong, and drivers, champions are always in a place where one day they may retire,” Domenicali continued. “I don’t know what Lewis is doing. We are talking with him, but of course now he’s focused on his actual season. He’s fully boosted to make sure he’ll be the only driver that [will] win eight titles in the history of Formula 1.”

Domenicali has seen champions come and go – he was with Ferrari during the Schumacher hegemony – so is confident that F1 will survive Hamilton’s retirement, whenever that may be. Who knows, on-track fighting may be all the better without the two dominant drivers of the decade. That said, whether by design or not, Domenicali did not comment about Vettel, at all…

“Formula 1 is solid, robust,” he said. “For sure, whatever will be decision of Lewis, Formula 1 will react and we’ll move forward. The good news is that in Formula 1, we have so many good drivers today, but at least the challenge will be even stronger. Therefore, of course, whatever will be the decision of Lewis, we will respect [it], but Formula 1 is really solid and strong.”

Hamilton is set to race on into 2022
At any rate, this appears unlikely to be a short-term concern for Liberty Media, as Hamilton indicated over the Spanish Grand Prix weekend he intends to extend his current contract before the summer break.

The same analyst also wished to know: “Is an American driver important in F1 in terms of driving popularity here in the US?”

Given Domenicali was talking to (mainly) American analysts, he was most diplomatic in his response. “The answer for me is very clearly ‘yes’. We are working with teams try to understand what is the possibility for an American driver to come to the attention of Formula 1 team in the short term.”

However, Domenicali added, “I don’t see, being very pragmatic and realistic, that coming [to pass] in the next two, three years, but maybe thereafter.”

However, with Zak Brown pushing hard for the inclusion of some form of compulsory testing for rookie drivers by teams – either during Friday practice or in-season – that may happen even sooner, for the Californian intends to give McLaren’s 22-year-old Mexican IndyCar winner Pato O’Ward a formal F1 trial.

On the Sprint Qualifying front – analysts referred to it a “race” but weren’t ‘corrected’ on their terminology as the media has been, while Maffei spoke of a “Sprint Qualifying race” – Domenicali said that Silverstone had “already reported a surge in ticket sales following news that they would be hosting [the first] of these events.”

The question of TV rights also arose, sparked by the end of ESPN’s freebie run and the decision by Disney to close its various sports broadcasters in Asia, including F1 broadcaster Star. Both deals expire at the end of 2022, yet Disney plans to pull the plug on Star in October this year.

Domenicali said Star’s contract would be enforced, suggesting a settlement, while Maffei looked at the bigger picture and spoke of “a trade-off on exposure, which free TV offers against, in many cases, higher short-term rates for either over-the-top (OTT) platforms or even more streaming platforms over platforms like satellite.

Analysis: Not just a fans’ pipe dream – Why live F1 should return to free TV
“We’ll weigh our total dollars available against the exposure that we get for things like generally promoter value and advertising and sponsorship.”

Intriguingly, this is very much in line with what we suggested last week, namely that F1 should evaluate the full impact of free-to-air TV rather than grab the best financial deals on offer from pay stations.

Following a wholesale revamp of streaming service F1 TV, subscriptions are were said to be up (although Liberty refuses to reveal numbers). F1 TV Pro, which offers live race coverage, is now available in 85 countries, while the non-live Access offering reaches 188.

“F1 TV has also started the season strongly with the record viewing,” said Domenicali, adding that ratings for each race were around three times higher than the 2020 season average, with minutes viewed over the course of a weekend up by more than 60% over last year. He also praised the new app, which provides a number of additional features.

Liberty can be commended for the manner in which it has managed the sport through the Covid pandemic, having arguably done a better job than either of the previous commercial rights holders would or could have.

That said, there is headroom for improvement, particularly on the media rights front. If 2020 was a year of enforced contraction, F1 now faces a season of consolidation ahead of its ‘new era’ in 2022. Crucially, though, the call underscored that F1’s financial foundations are extremely solid and that F1 is in robust health. Call it ‘double vaccinated’ against Covid’s effects.

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33 comments on “Why “solid and strong” Formula 1 isn’t fearing the day its biggest star walks away”

  1. ian dearing
    12th May 2021, 12:17

    So Silverstone had a surge in bookings following the announcement of a sprint race? Yea sure they did, and for the reasons stated I’m sure.

    1. Ah, Ian, yeah, they are always cautious with formulating their answers, right.

      Off course it was annouced at about the same moment that Silverstone actually announced that they were selling tickets again – being more or less the first mass scale such event people can visit after Covid times.

      So it clearly remains a question of how much the big numbers were based on fans finally having an opportunity for a live motorsport event vs. having that extra action on the friday :-)

    2. Yep, no other possible explanation…

      1. It was a given since the inception: a permanent experiment. Now all they have to do is spin it. It will always be “asked by the fans” ” the numbers are there” “It’s our best chance against boredom” “we will make it even better…with sprinklers” After we swallow that pill, back to the reverse grid pill, cause you know, It’s still boring! ;)

    3. The venue that consistently sells out pretty much as soon as tickets go on sale. And just after it’s been announced that spectators could actually attend this year.

      Of course the sprint race was the reason for the surge. It explains why Monza has been selected as well and why they “wanted” Brazil

      Great spin for the shareholders but then that’s really what these meetings are for.

  2. Mike (@suwperman)
    12th May 2021, 12:27

    Liberty is the best owner F1 has had since Bernie bought it. They genuinely seem to want to expand its reach. Bernie, Bayern and CVC never took an active role and only wanted to take money from the series. Liberty so far seems different. Hats off to them!

    1. Huh

    2. But then why is everything about Formula One awful these days, @suwperman?

  3. “We are talking with him,” says Stefano. Nobody is as interesting as Lewis. F1 will carry on, but he’ll leave a gap, his reach and media power is on a different scale to anyone else – when Toto wanted attention focussed on Red Bull’s rear wing, who did he call?

    1. Omar R (@)
      13th May 2021, 5:09

      True, but F1 has a lot of promising stars coming. There might be one of them who monopolizes the championships the next 5-10 years (booooring) or maybe we could see many champions. If the first happens, the “void” will be filled soon. If the second happens, F1 will sell the new fans the image of being more competitive. It’s a win-win for them.

      1. It needs a woman really. A middle-class white male is just not that interesting. Yes Max v Charles v George v Lando should be great actual racing, but they’re drivers and that’s about it, it’s their whole life and all they’ve done. And there’s no ~ism for the constant tension and bickering. Juju Noda is back in Danish F4, perhaps it could be her. If she beat Max in 2027 a lot of heads would explode.

  4. ian dearing
    12th May 2021, 16:13

    When it was announced Seb was leaving Ferrari the F1 share priced dipped a few % but rose quickly with the Sainz announcement two days later. So it should be worth a quick punt if Ham suddenly announces his retirement a la Rosberg. Particularly if he is still at the top of his game.

    1. F1 is bigger than any individual driver. Much bigger. Lewis Hamilton is its biggest star, but frankly remembering the Schumacher and Senna days, I’d say that the level of influence and popularity is not quite the same. It’s just that it all seems amplified by social media.

      While Hamilton has been extremely popular, the racing itself has suffered like I haven’t seen it suffer since the 2002 season. The rise of Hamilton corresponded with excitement in racing and drama when he went against Rosberg. But that ended very suddenly after Rosberg left.

      1. ian dearing
        12th May 2021, 20:25

        Not disagreeing with most of that, but we are talking about taking advantage of a dip in the market. And these big money players dont ask Liberty stupid questions, or waste their own time without a pay day at the end of it or at least an exit strategy. And Liberty are not going to waste its time answering stupid questions, or talking to Hamilton just for the fun of it.

  5. I feel almost certain Lewis will be gone end of this year, at very least for a sabbatical.
    Nicole wants to get married and settle down. She’s waited far too long.

    1. Kimberley Barrass
      12th May 2021, 21:18

      You are aware that Nicole is married to someone else entirely, and Lewis has famously avoided complicated relationships since 2011 and his annus horriblus, partly because of Nicole aren’t you?

    2. Hamilton’s really living inside your head rent free huh? :D

  6. I had no idea that Liberty owned the Braves. Not sure that it means too much, but as a Braves supporter I guess its always good to know who owns your team. There are definitely worse owners out there.

  7. Don’t know why F1 isn’t that day… I just wish HAM would go to another team before retirement, excepting RBR.

  8. What if F1 is benefited?… it´s nothing against Hamilton, he clearly is a nominee for F1 GOAT, but if his departure means a posible multiple WDC fight, that day F1 could get stronger… and i know if Lecrec doesnt get a winning a car, Verstappen is going to be the new Hamilton

  9. Haas might fire Nikita Mazepin and offer the seat to Sir Whatever, and we might possibly notice a minor difference

    1. Our efforts to get him out are still ongoing. They should admit their biggest mistake and do it for all of us.

      1. Their biggest mistake was staying afloat financially, and putting extra money into next years car?

        1. It’s only a big mistake. The biggest mistake is signing Nikita.

          1. Who brings all that money….?
            Without Mazepin, Haas wouldn’t have it.

          2. Imagine how we all look at Nikita if he never punched Ilott, did black-flag worthy driving and posted that infamous video. We would all see him as just another pay-driver a la Diniz and Stroll and many more.

            But the recent pay drivers will never beat Lauda and Alonso as the greatest paydriver!

  10. “We feel very confident we understand the breakaway very well, and I think we pretty much eliminated that opportunity or potential at Formula 1,” added Domenicali’s boss, no doubt well aware the sport’s new CEO had played a crucial role in that 2009 breakaway threat as Ferrari team principal.

    And here he is 13 years later championing to investors the benefits of the cost cap he rallied so hard against… F1 is a strange business.

  11. Why F1 isnt fearing that? Maybe just because many many stars have done it before?

  12. Hamilton leaving at the end of this tear is the best thing that could happen for F1.

    The 8 year dominance of Mercedes and Lewis is hurting the sport.

    Max, Leclerc, Norris and Russell all fighting it out is far more valuable than Hamilton getting another championship in a superior car.

    1. ian dearing
      13th May 2021, 9:28

      So how does that work then. You take Hamilton out, and the superior car disappears?

      Odd how finally we have have two locked together at the front of the grid for the first time in ages, and quite a few people want one of them out as soon as possible. I wonder why?

      1. You don’t have to take offence to every comment about Hamilton.
        All people are asking for is something different. An end to the current domination.

        Would it be better if someone else dominated in the same manner? No, probably not for most – but the same argument would then inevitably just go for them too.
        Most people don’t like such domination in F1. They want more better competition and more unpredictability in sport. It really is that simple.

        1. ian dearing
          13th May 2021, 15:45

          And you dont have to react without thinking to every Hamilton related post. Or assume you act on behalf of ‘most’.
          So explain why the superior car disappears when Hamilton goes? Which was my question.

    2. Although I agree, its not Lewis’ fault he is this good. Nor Mercedes

Comments are closed.