File: Analysis of the financial results of Formula 1 under the Liberty Media era

In a world where the economy reigns, Formula 1 stands out by distributing a highly profitable product; far beyond the simple desire to organize the championship of the premier category of auto racing.

Owner of the Formula 1 brand since 2017 after a beautiful purchase of nearly 8 billion dollars, Liberty Media has renamed all activities related to F1 to Formula One Group. Already the owner of the Atlanta Braves Baseball team and the Sirius XM satellite radio, the American group has acquired global renown with F1 and has managed to grow a recipe that was already generating lucrative millions of dollars in profits in just 2 years.

Let’s shed light on the financial activity of the Formula One Group, using terms that are understandable to everyone.

The 2019 revenues related to the Formula One Group amount to 2022 million dollars.

TV rights – 38% of total revenue, or $769 million in 2019

With an increasing international audience in recent years, reaching nearly 500 million viewers in 2019, F1 attracts many broadcasters who see significant potential for advertisers in their respective countries, as well as for paid subscriptions. The number of broadcasters is around 90 across 67 countries and represents the main source of revenue for F1.

Just for France, the national broadcaster Canal+ spends the handsome sum of 20 million euros per year to have the right to broadcast F1 since 2013. These costs are to be added to production costs, estimated at nearly 20 million euros per year.

Please note that the broadcasting contract with Canal + has been renewed for one more year until 2021.

Regarding the 2020 health situation, nothing has been specified to date regarding the future of these TV rights, the encrypted channel has not accepted to respond to us on this subject.

The promoters of the Grand Prix — 30% of total revenue, or $606 million in 2019.

Representing nearly a third of F1’s revenue, registration fees for the calendar directly explain the direction taken by the organization in recent years. Indeed, circuits are now primarily selected based on their ability to finance the organizing company rather than for their sporting and spectacular interests. This explains the appearance on the calendar of stages in the Persian Gulf with Bahrain and Abu Dhabi in particular. In this respect, Saudi Arabia is well positioned to become a future stage, with a grand project combining a circuit with an amusement park. The mythical and superb circuits such as Istanbul, to name just one, are disappearing due to the ever-increasing registration fees, in favor of desert, flat, and often poor in entertainment circuits. The pilots’ vote does not change anything.

In view of the 2020 context, it should be noted that in the event of cancellation, if it comes from the promoter, the registration fees are retained by the Formula One Group. In the opposite case where the latter cancels for health reasons or in the event of a race with less than 16 cars, the fees are refunded to the promoter.

With 21 races on the 2019 calendar, the average registration fees per stage therefore amount to over 30 million dollars.

An exception in the championship remains with the Monaco stage which is exempt from registration fees, due to its atypical and legendary status.

Easy to understand the race for financial support from host circuits, just as the massive communication surrounding GPs to fill the stands, where the financial contribution of ticket sales is crucial. (Note that Paddock Club revenues do not benefit the circuit promoter.)

After this observation, we understand Liberty Media’s desire to add races to the calendar. The 2020 championship, without the health crisis, was planned for a total of 22 GPs, one more than in 2019, and several tens of millions of dollars more for the organization.

F2, F3, Paddock-Club, various events, sale of equipment – 17% of total revenue, or $344 million in 2019

The F2, F3, and various other events generate significant revenues that contribute strongly, along with their ticket sales, to the group’s income, just like the Paddock Club ticket sales, the only way for fans to access the paddock, for a hefty sum. Note that in this respect, you will be pampered during the duration of your pass. Equipment sales also contribute to profits.

Advertising and championship sponsors – 15% of total revenue, totaling $303 million in 2019.

Pouring in over 300 million dollars into the F1 organization, official sponsors expect in return optimal visibility. Excessively displayed within and around the circuit’s infrastructure, both on the tarmac and on spectators’ tickets, the partners will remain valuable support as long as F1 stays popular. Among the main sponsors, we can mention Aramco (Saudi oil company), DHL (transport and logistics), Emirates (airline company), Heineken (hop-based beverages), Pirelli (tire manufacturer and championship supplier), Rolex (luxury watches).

The charges related to the Formula One Group in 2019 amounted to $1540 million.

The payment of teams – $1012 million in 2019, representing 50% of the total revenue amount.

This sum, essential for funding the structures of the various teams, is divided into three distinct categories:

– La première, représentant 30% de la somme dédiée aux équipes, verse un montant équitable entre les dix équipes du championnat, avec pour seule contrainte l’exigence d’avoir fini au moins deux fois dans le top 10 du championnat. Ceci invite les prétendants à la F1 à s’engager à minima à moyen-terme dans la catégorie reine. Pour 2019, le montant fixe par équipe avoisine donc les 30 millions de dollars.

– La deuxième catégorie de la cagnotte disponible est reversée selon le classement final constructeur. A ce titre, si les avantagés sont les top-teams, le bas de tableau ne récolte quant-à-lui que des miettes. Ce système peut paraître injuste du fait que les plus gros budgets sont avant même le versement du Formula One Group, les meilleurs performeurs. Le système est cependant établi ainsi depuis de nombreuses années et récompense le mérite, motivant les équipes pour atteindre le haut du classement.

The jackpot is distributed as follows: 19% for the 1st, 16% for the 2nd, 13% for the 3rd, 11% for the 4th, 10% for the 5th, 9% for the 6th, 8% for the 7th, 6% for the 8th, 5% for the 9th, and finally 4% for the 10th and last place.

– Enfin, la troisième catégorie récompense certaines équipes sous forme de bonus. L’équipe la plus privilégiée en ce sens est Ferrari qui perçoit au titre de plus ancienne écurie de F1 un bonus de près de 73 millions de dollars pour 2019. Des bonus supplémentaires sont versés aux top teams Ferrari, Mercedes, Red Bull et McLaren ainsi qu’un dernier destiné aux équipes mythiques du plateau à savoir Mercedes, Red Bull et Williams.

Controversial, the Ferrari bonus privilege also comes with its right to veto, which can be applied to every decision of the FIA. The Italian team was nevertheless able to retain its bonus and veto right for the years to come, to the displeasure of rival teams.

Operating expenses – $528 million in 2019, representing 26% of total revenue.

These are the expenses associated with operating the Formula One Group’s business. The expenses include, like any business, fixed costs (salaries, administrative staff, headquarters operation, insurance, etc.) but also, and for a large part, variable costs inherent to the business, both for communication and logistical expenses.

Having reviewed the income and expenses, the 2019 financial statement related to the Formula One Group shows a gross operating profit of 482 million dollars.

This amount precedes the consideration of depreciation (spreading the cost of purchasing movable and immovable property such as an office building depreciated over 25 years), established at 446 million dollars, as well as shareholder remuneration amounting to 19 million dollars. Net profit is 17 million dollars after taking these elements into account.

The figures related to profit can be summarized by an indicator called EBITDA (American index) representing profit before interest, taxes, depreciation, and amortization.

Thus, the EBITDA of the Formula One Group for 2019 is 23%. For comparison, for the same year, Coca-Cola recorded an EBITDA of nearly 12% while Ferrari is around 8%.

With a year-end cash balance of nearly half a billion dollars, Liberty Media has clearly made a good choice for the future.

The current Covid19 crisis puts this financial achievement into question but the company should be able to get through the crisis without too much damage, according to the financial analysis company Moody’s. Indeed, based on its figures, the firm will be able to resort to borrowing to limit the impact as much as possible, knowing that variable costs will automatically be lower due to canceled logistical expenses.

However, according to hopes for July and closed-door races, the financial agreements between circuit promoters and Liberty Media remain quite opaque, and it is likely that circuits will not be able to pay the exorbitant entry fees without the return of ticket sales.