FWONB - Formula One Group: Gentlemen Start Your Engines

Summary

• Formula One season starts and the interest in the sport is growing.
• Liberty Media's Formula One Group managed to deliver higher revenue and earnings in 2022.
• Complex corporate structure and many inter-related transactions keep us away from investing here.
• Share buyback is a positive, but we would have liked to see dividends too.

Investment thesis

This weekend 20 eager racecar drivers start their engine of the new season. A season that is getting longer and longer with organizers Formula One Group (FWONA) (FWONK) pushing for more revenues.

In 2023 we will have as many as 23 Grand Prix races starting in Bahrain on Sunday 5th of March 2023 ending not far away from Bahrain in Abu Dhabi in the U.A.E. on the 26th of November 2023.

The Middle East although traditionally not a place with much interest in the sport has become "smitten" with the circus that Formula One has become. FWONA goes where the money is, and that they do have in the Middle East.

It is not only in the Middle East that interest is growing. More importantly, it is gaining momentum in the U.S. We will have as many as 3 races in the U.S. this year, including the inaugural Las Vegas GP.

Interest in the sport is growing globally. Last year's attendance was up 36% over 2019, which was a comparable year. Their fan base is increasingly diverse with new fans being younger, and for what it's worth the share of females within the fan base is now 40% larger than before.

Apart from being a Formula One fan since the 1970s, yes, I am that old, I am also an investor and if I could combine the two it would be perfect.

However, we invest in order to make money - and will investors in FWONA be rewarded?

That is what we try to find out

FY 2022 Financial Results

Liberty Media published their FY 2022 financial results on 1st March 2023,

The F1 operating business is best analyzed on an annual basis given its quarterly variability in the year-over-year race calendar.

Their total revenue in 2022 came in at $2.57 billion which was 20% higher than in 2021. The costs related to this revenue were $1.57 billion. Media rights are the largest source of income. In 2022 it brought in 58.5% of the revenues.

Other F1 revenue grew 63% or $180 million with approximately $110 million of the revenue growth coming from hospitality and experiences and approximately $55 million coming from increased freight.

The net earnings attributable to Liberty stockholders from Formula One common stock was $558 million in 2022. This was a big improvement from the loss of $190 million in 2021.

Since there are multiple classes of shares, we only know that the diluted EPS for series A, B, and C for Formula One common stock was $2.15 in 2022.

Formula One Group had attributed cash, liquid investments, and monetizable public holdings of $1.8 billion at the end of the year, which includes $752 million of cash at Formula One. Total Formula One Group attributed principal amount of debt was $3 billion, and this includes $2.4 billion of debt down at the Formula One level, leaving $565 million at the corporate level.

During Q4, F1 refinanced its term loan and revolver at attractive rates and an extended maturity. Formula One repaid $477 million of its term loan B in connection with this refinancing, using cash on hand. And at year-end, Formula One's $500 million revolver is undrawn.

Their leverage at the end of the year was 2.7 times.

Business development

Saudi Arabia's sovereign wealth fund considered an attempt to buy Formula One from Liberty Media last year for what Bloomberg reported to be a price of over $20 billion. However, Liberty Media were not interested in selling the business, despite having paid just $4.4 billion for the franchise back in 2017.

The share and its price development

We would like to remind our readers that Liberty Media's board of directors in November of 2015 authorized management to pursue a reclassification of the Company's common stock into 3 new tracking stock groups. One of those was designated as the Liberty Formula One common stock. Apart from the Formula One-related profits and losses it also includes all of the businesses, assets, and liabilities of Liberty other than those specifically attributed to the Braves Group or the Liberty SiriusXM Group.

A tracking stock is a type of common stock that the issuing company intends to reflect or "track" the economic performance of a particular business or "group," rather than the economic performance of the company as a whole.

The positive aspect is that they do some share buybacks over the years.

During the year ended December 31, 2022, the Company repurchased 0.7 million shares of Series A Liberty Formula One common stock for aggregate cash consideration of $37 million under the authorized repurchase program. All of these shares were retired and returned to the status of authorized and available for issuance.

Here is how the share price has done over the last one year.

I do not see a dividend payment to shareholders anytime soon. Therefore, the only way you as an investor could get remunerated would be through a higher share price.

We all know that the vagary of the stock market is often not related to the specific well-doing of a particular company, it does become riskier to expect purely that the market will be so efficient that it will provide fair share prices.

At least a yearly dividend would ensure you get paid while you waited for your investment thesis to work out. That is not the case with FWONA.

Conclusion

In my previous article on FWONA, my main concern has been the complex corporate structure that surrounds Liberty Media. The amount of inter-related transactions between the various parts of Liberty Media makes it difficult to track and even more hard to determine if all such dealings are fair to all parties.

We would have preferred if FWONA was a stand-alone corporate entity that could be a Liberty Media subsidiary. A company that would pay dividends to all its shareholders.

As such we abstain from investing in FWONA at this moment and can as such not call it a Buy stance but we would revise our stance from a Sell to a Hold on the basis of improvement results.

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