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F1 in pole position with expansion prospects

December 10, 2020

Formula 1 has managed the pandemic “reasonably well”, says a report from investment bank Berenberg, and is now well-positioned for 2021 growth and an improvement in revenues.

“F1 will exit the year in arguably the best operating position it has been in years. This year, management and all F1 teams signed a host of agreements that should solidify the sport’s finances and competition through 2025,” says the bank.

Berenberg adds: “We believe F1 is a uniquely valuable sports franchise with an underappreciated earnings profile. Within our live events coverage, we believe F1 provides investors the best combination of 1) near-term certainty; and 2) long-term upside potential.”

F1 is owned by Liberty Media and trades as a tracking stock. Following a recent reattribution of assets and liabilities within Liberty Media, F1 is now a pure play motorsport company. “Recent changes to F1’s racing rules should foster stronger competition and fan engagement, ultimately leading to enhanced monetisation of the sport through higher broadcasting fees and sponsorship revenues,” says Berenberg.

“Like all live events companies, the pandemic took a toll on F1 in 2020. Race count went from a planned 22 to 17 races, which negatively affected each of its primary revenue streams: race promotion (from fewer races), sponsorship and advertising (from non-delivery of certain contracted elements and concessions), and broadcasting (due to contractual race minimums). The toll on F1’s finances extended beyond the effects of a lower race count, however. F1 offered its business partners more leniency than was contractually required in light of this year’s extraordinary circumstances – to support the finances of its promoters, sponsors, broadcasters, and the teams,” continues Berenberg.

CEO Chase Carey indicated at a recent investor day that he expects the calendar to grow to 24 races “in the next few years”, due to rising levels of promoter interest. He suggested promoter interest is so high, F1 may actually have to rotate host cities despite adding more races. Promoter revenue growth also should be supported by the likelihood of a higher mix of “fly-away” races, which typically carry a higher fee than those that take place in Europe, adds the bank.

“We believe a 24-race calendar by 2023 is reasonable. Post-pandemic, potential host cities will look to add events – like an F1 race – to signal their cities are open for tourism business. F1 is technically allowed to run up to 25 races in a year, but management has suggested there are practical limits to the number of races the sport can support,” cautions the report.

Formula 1 has enjoyed a steadily growing revenue stream from broadcasters (about 9 per cent CAGR from 2016 to 2019).

But there may be a shift away from ‘pure’ broadcasting to OTT.  The bank says: “Digital streaming players will almost certainly participate in the future bidding for F1’s broadcast rights. In fact, they already have. DAZN, a standalone streaming sports service, has been active in rights negotiations across many of F1’s markets. Going forward, we expect Amazon (among others) to actively bid for F1’s broadcast rights. Amazon has moved beyond the experimental phase of sports carriage, having recently signed and extended rights to major sports properties in key markets, such as Thursday Night Football in the US and UEFA in Germany.”

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