Liberty Media Introduces F1 TV, Could Generate $500 Million/Year in New Revenue


Formula One (FWONK), in collaboration with Tata Communications (NSE: TATACOMM), has launched F1 TV; a mobile application that will enable Grand Prix race fans to “create their own unique, immersive motorsports experiences.” The subscription-based OTT service, powered by TATACOMM’s Ultra Live Video Delivery Network (or VDN), will carry commercial-free live race streams (beginning with the start of 2018 season on March 25th), live video from 20 in-car driver cameras, coverage of qualifiers, practice footage, highlights and press conferences. Liberty Media plans to offer the service in “light” ($70/year) and “premium” packages ($120/year); the premium service will only be offered in F1’s most popular markets (Germany, France, Spain etc.).

Howie Long-Short: Formula One estimates that the sport has 500 million fans worldwide, with “conservatively” 1% of that audience considered to be a “super avid hardcore fan.” If Liberty’s estimates are correct and they can convert those “super fans” into $500 million/year in new revenue (they won’t be able to in short-term due to existing agreements with traditional broadcasters), it’ll boost the FWONK revenue 28% (generated $1.784 billion in ’17). That will be welcomed news to the teams, as the collective payment declined $47 million (to $919 million) in the first year under Liberty Media ownership. TATACOMM, which delivers 25% of the world’s internet routes, isn’t new to Grand Prix racing; the company has been the Official Connectivity Partner of Formula 1 for the last 6 seasons. Shares of the company are down 18% (to $9.40) over the last 12 months. The concern? The time frame for the company to become profitable. It will be 2019, at the earliest.

Fan Marino: Liberty has hired Brian Tyler (an all-time Top 10 grossing film composer) to compose a theme song for the sport. Assuming Tyler is being compensated, I wouldn’t classify that as a responsible expenditure; certainly, not after watching 2017 revenues decline. While Tyler will likely do a great job, who cares? Not the “super avid hardcore fan” that’s paying for the OTT service. While the decision is unlikely to make a difference to the fans, it has the teams upset; they believe Liberty should be picking up the tab on this project.

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Accounting Mechanism Could Impact F1 Share Price


Morgan Stanley is projecting $216.1 million in net losses for Formula One auto racing (FWONK) over the next 3 years. While team payouts (68% of profit) remain F1’s biggest combined expense, the financial services firm projects the racing organization’s single largest line item to be the $394.6 million annual amortization hit anticipated between now and 2020. The company is also on the hook for $515 million in interest payments (related to $5 billion in debt) over the same period. The Morgan Stanley report reflects F1 amortization and interest will exceed EBITDA by $115.2 million in ’18, $78.5 million in ’19 and $22.4 million in 2020. While private companies can massage earnings reports to show adjusted bottom line figures, public entities are required to follow fixed reporting standards; showing significant annual losses could negatively impact investor interest in FWONK.

Howie Long-Short: Formula One auto racing (FWONK) revenue declined (-$18 million, to $1.8 billion) in 2017, for just the second time in a decade, following the loss of (and inability to replace) the German Grand Prix and several key sponsors (see: Allianz, UBS). While F1 “shares are up nearly 20% since YE16”, if you exclude their 34% interest in Live Nation (LYV) “the F1 stub is actually up less than 5%.” As for the Morgan Stanley report, the net losses could actually be worse; their growth forecast has been called into question after a key source issued contradicting statements pertaining to increases in broadcast revenue.

Fan Marino: The Formula 1 U.S. Grand Prix is in Austin in October. Rolling Stone is reporting a Bruno Mars (6 Grammy’s last month) tour stop at the Circuit of the America’s on October 20th; coincidentally the week of the race. Stevie Wonder, Taylor Swift and Elton John have performed at the track the past 3 years, headlining the weekend’s off-track events.

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SportBusiness Disputes 42% of Morgan Stanley’s ’18 Formula One Growth Forecast


Morgan Stanley’s 2018 growth forecast for Formula One auto racing (FWONK), projected a $187 million increase in broadcasting revenue. However, 42% of that total has since been called into question after one of the sources cited in the report (SportBusiness) issued statements contradicting several key assumptions. The report assumes FWONK “will see the bulk of their major markets step up with new (larger) TV contracts”, increasing the company’s broadcasting fees 31% YOY (to $785 million); but, SportBusiness is projecting rights fees in Spain (F1’s biggest market) remain flat and has noted Germany does not have a pay-TV operator in place for the start of the 2018 season. When asked if Morgan Stanley would be revising its report in the wake of SportBusiness’ comments, Head of Media Research Ben Swinburne said “these are our estimates, based on a variety of analysis and press reports. I am unable to comment on any potential future changes to our forecast.”

Howie Long-Short: FWONK shares spiked (to over $39) following the release of Morgan Stanley’s report, which included an increased price target ($47); but, the document clearly states that among the risks are “broadcast contracts renewed under less favorable terms.” Assuming SportBusiness projections are accurate, then Morgan Stanley greatly overestimated FWONK’s ability to increase revenue YOY. Shares have steadily declined since SportBusiness issued a statement on Friday, closing at $36.56 on Tuesday.

Fan Marino: F1 has announced it will be replacing its Grid Girls with Grid Kids for 2018 season, a move is designed to drive youth interest in the sport. Grid Kids will be selected by merit or lottery, by their local motorsport clubs; with all those participating actively competing in karting or formulae.

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F1 Seeks to Maximize Sponsorship Opportunities, Offering Brands Unique Experiential Activities at Track


Under the Bernie Ecclestone regime, TV rights and race hosting fees were F1’s primary sources of revenue; but FWONA, under Liberty Media, has focused on expanding its appeal to maximize revenue-generating sponsorship opportunities. Efforts to draw in the female fan (men are currently 50% more likely to watch F1 than women) and the launch of an esports program, are designed to build on already attractive fan demographics. 83% of F1 fans shop online each month, 50% buy products from brands they see marketed during the race, the average F1 fans spends 2 hours/day on the internet and 43% of all internet users are F1 fans. FWONA recognizes it’s going to take time for brands to overcome “their perception of what F1 is”, but, for those who consider the opportunity; they’ll find the company has combined a fan centric approach with a “yes, why not?” attitude. The result has been a series of unique experiential activities at the track (i.e. Heineken pool party at the Monza Grand Prix) and an “authentic integration” of sponsors into the sport.

Howie Long-Short: Liberty Media Corporation, controlled by Chairman John Malone, is comprised of assets including the F1 racing circuit (FWONA, FWONK), satellite radio provider SiriusXM (LSXMA, LSXMB, LSXMK) and the Atlanta Braves (BATRA, BATRK). The company reported Q3 earnings increased 37% YOY (to $168 million). Liberty Sirius XM (+$183 million) and Liberty Braves (+$22 million) drove the growth, while the Formula One Group lost $37 million.

Fan Marino: FWONA has announced plans to revamp how merchandise is sold at the racetrack; creating a “superstore tent”, operated by Fanatics, as opposed to individual team tents. F1 Commercial Chief Sean Bratches has said “all race supporters support the plan”, but that isn’t the case with all teams; Ferrari, which has sold more merchandise than any other F1 team in history, believes it will “lose revenue with the new structure”. They believe impatient fans won’t want the trouble of seeking out the product they wish to purchase. They may be right, NASCAR attempted a similar model in ’15; it was rejected by fans (i.e. sales were down) and the racing series returned to the old scheme for the ’17 season. Red Bull and Mercedes are on board with Bratches plan.

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New F1 Logo Likely Infringing on 3M Trademark


The new F1 (FWONK) logo, created by Wieden & Kennedy (created Just Do It for NKE), may be infringing on a pan-European trademark (and potentially trademarks in 10 other countries) registered to 3M (MMM). The new logo representing a “race track”, looks eerily like the logo used by Futuro (compression tights) to represent a “stylized knee joint”. The purpose of the FWONK rebrand, which cost an estimated $1 million, was to create a logo that would be optimized for digital platforms and merchandising; with the intention of launching the new clothing line at the season opener in March, a plan that may now need to be altered. 3M has not yet opposed FWONK’s trademark registration, but is “looking in to this matter further.”

Howie Long-Short: 3M (formerly Minnesota Mining & Manufacturing Company) owns Scotch tape, Scotch-Brite and Post-It Notes (among others); and sells more than 55,000 products. In 2016, the company generated $30.1 billion in revenue; 17x what FWONK brought in. FWONK could pay MMM for the rights to continue using the logo, but that decision would likely draw pushback from the teams; as the expense would reduce their prize pool. Alternatively, FWONK could choose to use one of the other 2 logos it applied for trademarks on; or simply revert to the old logo (the fan choice).

Fan Marino: F1 fans may not love the new logo, but they should be excited about David Hill participating in the production of F1 race broadcasts. Hill “will oversee the graphics package and the way the race is televised”. Fans may not recognize Hill’s name, but if they watch the NFL on Fox they’ll recognize some of his work; including the score bug and first-down graphics. He’s also credited with launching Fox Sports, building the Fox Sports network of RSNs (recently sold to DIS) and won an Emmy for producing the 2011 World Series. Great hire!

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Ferrari CEO Again Threatens F1 Exit, Implies Start of Competing Series

At the company’s annual Christmas meeting, Ferrari (RACE) CEO Sergio Marchionne reiterated that the team will be leaving F1 (FWONK) if Liberty Media execs institute plans to standardize parts and revise power plant rules. Marchionne said, “we are not interested in cars being the same, with simple and cheap engines like NASCAR. If they decide to make us all the same, we will go in 3 seconds”. Should the team decide to leave the sport, Marchionne indicated Ferrari would look to form an “alternative championship from 2020/2021.”

Howie Long-ShortFWONK fell 4.7% on Wednesday following Marchionne’s statement. Shares are down 12.3% over the last 30 days, a loss of nearly $1 billion in value. As for RACE, the company posted strong Q3 results with net profit +24% YOY (to $166 million). Now there are rumors circulating the company may be looking to increase production 12% (from ’16 numbers) by 2019, which should excite investors.

Fan Marino: Standardizing engines take away one of Ferrari’s biggest advantages, as one of the series’ biggest spenders. Any leveling of the racing field will have a direct negative impact on the team’s bottom line, in a sport where the winner’s pool was already cut 13% this (down to $273 million); so, it’s understandable why the team is opposed. Former F1 CEO Bernie Ecclestone certainly doesn’t think F1 should cater to Ferrari’s demands, saying, “democracy has no place in Formula 1”, adding this type of behavior is nothing new from the sport’s most famous team “if they don’t win there is usually panic.”

Ferrari Claims It Could Leave Formula 1, Start Its Own Series

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DIS’ Acquisition of Star Sports Draws International Attention

Disney’s (DIS) acquisition of Twenty-First Century Fox (FOXA) assets received attention within the domestic sports world for the 22 regional sports networks included in the deal, but on a global scale, it was the purchase of Star Sports that generated the most noise. Star recently acquired the rights to the Indian Premier League (IPL) through ’22, for $2.55 billion; a rapidly growing league with a television audience that grew 22% YOY. The network also owns the rights to 76% of national team matches, ICC events and a host of other fast growing sports within the country (hockey, badminton, F1); giving DIS a significant share of India’s sports television market. Star’s digital/mobile platform Hotstar, owns the valuable streaming rights to the IPL.

Howie Long-Short: The massive draw of the IPL made Sony Max (the previous rights holder) the most watched television channel in India during the tournament; so expect the annual 2 month competition to be an advertising and sponsorship boon for both Star and Hotstar, and ultimately DIS’ bottom line. The rights aren’t coming cheap though; Star Sports will pay nearly 3x the amount Sony (SNE) paid, for half the term period.

Fan Marino: F1 held the Indian Grand Prix from 2011-2014, before Bernie Ecclestone halted the race due to issues with government taxation; despite the track holding a contract that assures them rights to 2 more races. It appears as if the race could be coming back though under Liberty Media (FWONK) management. New F1 CEO Chase Carey said in September, “there are places around the world that present us with great opportunities to grow the sport over time and certainly a country like India with the success and the growth it has had in recent years, makes it an exciting opportunity down the road.”

Why IPL could be the golden goose of Disney-Fox’s massive $52.4 billion deal

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