Last week, Formula 1 chief Stefano Domenicali painted a positive image of the sport he heads, during an investors’ video-conference call shortly after the release of Liberty Media’s financial results for the third quarter of 2023.
The results included details of Liberty’s other sporting franchise, the Atlanta Braves who won their fifth consecutive NL East Championship
In summary, highlights attributed to Formula One Group include:
- Announced multiple broadcast extensions, including Sky Sports covering UK and Ireland, Germany and Italy in multi-year agreements, ESPN for US market through 2025, and ServusTV in Austria through 2025
- Announced 2023 race calendar with renewals of Monaco and Mexico City races until 2025
- Expanded partnership with AWS as a Global Partner
- Audi announced F1 entry as new engine supplier in tandem with introduction of next-generation engine regulations in 2026
- Issued $475 million aggregate principal amount of 2.25% FWONK convertible notes due 2027
- Repurchased $213 million face value of 1% FWONK cash convertible notes due 2023
- Liberty Media Acquisition Corporation to hold special meeting of stockholders on November 14, 2022 to approve early unwind and redemption of outstanding public shares
Details of what pertained to during the Liberty Media conference call:
A bullish Greg Maffei, Liberty Media President and CEO, kicked off the conference with his opening statement: “Formula 1 is capitalizing on its popularity, setting new attendance records around the globe and securing important commercial agreements, while Live Nation continues to benefit from consumers prioritizing the thrill of live experiences. SiriusXM once again posted solid results and returned $1.8 billion to shareholders year-to-date.”
Stefano Domenicali, Formula 1 President and CEO added: “Formula 1 is delivering in 2022 across all areas including financial results, engagement with fans and action on the track. We look forward to a strong finish to the season with drivers and teams battling on the track.
“We were excited to announce our record-setting 24 race calendar for 2023 which includes the much-anticipated Las Vegas Grand Prix. We also announced significant multi-year broadcast renewals to extend our relationships at attractive rates with ESPN in the US and in three key European markets with Sky,” added the F1 chief.
Primary F1 revenue represents the majority of F1’s revenue and is derived from:
- race promotion revenue,
- media rights fees and
- sponsorship fees.
There were seven races held in the third quarters of both 2022 and 2021. There are 22 events scheduled for the 2022 race calendar. Throughout 2021 and particularly in the first half of the season, attendance at races was limited due to the pandemic.
Restrictions on fan attendance reduced as 2021 progressed, with all races in the second half of the year operating at either full capacity or with fewer restrictions. The Paddock Club resumed normal operations beginning with the Austrian Grand Prix on July 4, 2021.
F1’s results in 2022 are not being impacted by capacity limitations, and throughout the first nine months of the 2022 season F1 has seen strong growth in attendance in the grandstands and the Paddock Club.
Primary F1 revenue increased in the third quarter with growth across media rights and sponsorship, partially offset by a decline in race promotion revenue. Race promotion revenue decreased due to lower fees generated from the different mix of events held, with one additional race held outside of Europe in the prior year period.
Media rights increased due to growth in F1TV subscription revenue and increased fees
Under new and renewed contractual agreements, and sponsorship revenue increased due to the recognition of revenue from new sponsors.
Other F1 revenue increased in the third quarter primarily due to higher hospitality revenue generated from the Paddock Club, which operated at one additional race in the third quarter of 2022 compared to the prior year period and has seen record attendance year-to-date.
Cost of F1 revenue increased compared to the prior year due to the pro rata recognition of increased team payments. Other cost of F1 revenue is largely variable in nature and mostly relates to revenue opportunities.
These costs increased in the third quarter driven by the costs of higher hospitality attendance in the Paddock Club and one additional Paddock Club event operated compared to the prior year period. In addition, other cost of F1 revenue grew due to higher commissions and partner servicing costs associated with the Primary F1 revenue streams and higher Formula 2 and Formula 3 related costs.
Selling, general and administrative expense increased in the third quarter due to higher personnel and IT costs and increased legal and other advisory fees.
The Liberty SiriusXM Group holds an approximate 1.8% intergroup interest (4.2 million notional shares) in the Formula One Group as of October 31, 2022.
Total debt attributed to Liberty SiriusXM Group decreased $299 million
These shares are not included in the outstanding share count of Formula One Group in Liberty Media’s most recent Form 10-Q. Assuming the issuance of the shares underlying this intergroup interest, the Formula One Group outstanding share count as of October 31, 2022 would have been 238 million.
Total cash and cash equivalents attributed to Liberty SiriusXM Group decreased $230 million in the third quarter as cash from operations at SiriusXM and the receipt of cash from the settlement of Braves Group and Formula One intergroup interests described below were more than offset by net debt repayment and return of capital at SiriusXM.
Included in the cash and cash equivalents balance attributed to Liberty SiriusXM Group at September 30, 2022 is $39 million held at SiriusXM. Although SiriusXM is a consolidated subsidiary, it is a separate public company with a non-controlling interest, therefore Liberty Media does not have ready access to SiriusXM’s cash balance. Liberty SiriusXM Group received $70 million of dividends from SiriusXM during the quarter.
Total debt attributed to Liberty SiriusXM Group decreased $299 million during the quarter due to net debt repayment at both SiriusXM and Liberty SiriusXM Group. During the third quarter, Liberty SiriusXM Group paid approximately $284 million to repurchase $210 million aggregate principal amount of the 1.375% cash convertible senior notes due 2023.
This payment was funded as follows:
- the receipt of $64 million cash from the Formula One Group in exchange for the cancellation of 1.1 million notional shares underlying a portion on the inter-group interest in the Formula One Group held by Liberty SiriusXM Group,
- the receipt of $14 million from the Braves Group in exchange for the cancellation of 0.5 million notional shares underlying a portion of the inter-group interest in the Braves Group held by Liberty SiriusXM Group, and
- the receipt of $27 million related to the settlement of the bond hedge and warrants related to the repurchase of the notes. The number and type of notional shares cancelled in the exchange was determined based on the number and type of shares underlying the notes repurchased.
Total cash and cash equivalents attributed to the Formula One Group increased $175 million during the quarter due to cash from operations at F1 and net debt issuance. Total debt at Formula One Group increased $261 million in the third quarter.
On August 12, 2022, Liberty issued $475 million aggregate principal amount of 2.25% FWONK convertible notes due 2027. The notes will mature on August 15, 2027, unless earlier redeemed, and have an initial conversion rate of 11.6198 shares of FWONK per $1,000 principal amount of notes, representing an initial conversion price of approximately $86.06 for each share of FWONK.
Proceeds from the offering were used in part to repurchase $213 million aggregate principal amount of 1% FWONK cash convertible notes due 2023.