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| After years of speculation, Formula One is finally being sold. The global racing series will be purchased by billionaire John Malone’s Liberty Media for $8 billion. |
Formula One has long been the subject of transaction rumors. In 2012 a planned IPO in Singapore was put on hold because of shaky market conditions, and a year later reports suggested an imminent market float would value the series at $12 billion. Yet those plans never came to fruition, and sale rumors have followed the race series ever since. Last year Stephen Ross, the billionaire owner of the NFL’s Miami Dolphins, was reportedly close to making an offer that would value the series at $8.5 billion, but once again a deal never materialized.
It seems that the rumor mill can finally close up shop. Liberty Media has announced that it will initially purchase an 18.7% minority stake for $746 million in cash, and then later complete its acquisition of the global racing series by paying a total $4.4 billion in cash and stock in a deal that, with debt, values the company at $8 billion.
Liberty, a media company based in Colorado, also owns the MLB’s Atlanta Braves. Formula One is currently controlled by top shareholder CVC Capital Partners, which initially bought into the series for just $2 billion back in 2006. The investment firm owns 35% of Formula One parent company Delta Topco. Current Formula One investors will continue to own 65% of the series via their Liberty stock.
But though CVC stands to make a windfall on its investment - it sold 21% of the race series for $1.6 billion in 2012 and has collected billions more in profits and dividends – it also hasn’t put the race series in a great position. CVC loaded Formula One with more than $4 billion of debt while pocketing dividends, and moving telecasts to subscription networks has greatly diminished global viewership. Not to mention that billionaire Bernie Ecclestone remains the face of the sport – and even appears to be staying in charge after the sale – despite his many legal entanglements.
Last year our annual story on F1 team valuations focused on the series’ recent struggles, ultimately concluding that F1 was leaving billions of dollars on the table thanks to decisions that have diminished fan interest and created vast financial inequalities among the teams. Those struggles appear to be reflected in the purchase price. A 2012 sale of F1 equity valued the series at $9.1 billion, meaning 12% of that value has eroded over the last four years.
Determining exact series revenues can be difficult, since Formula One is actually comprised of a network of various multi-national companies (see our story from last year for a more detailed breakdown). But Formula One World Championship, the company that owns and sells F1′s commercial rights, is the main revenue generator and in 2014 reported income of $1.35 billion. The other notable revenue streams are the series’ marketing and hospitality businesses, which generated an additional $430 million. Using that $1.8 billion total, F1 would appear to have traded at roughly 4.5-times revenue.
A few months ago UFC sold for $4 billion, or half of Formula One’s enterprise value. But the fight promotion is generating some $600 million per year, meaning it traded at nearly seven times revenue. Manchester United, which is publicly listed on the New York Stock Exchange, currently has an enterprise value that’s more than five times revenue.
But Liberty clearly sees an opportunity to turn things around with the lagging race series, and it is already identifying potential growth opportunities. On a recent conference call, Liberty CEO Greg Maffeireportedly named digital operations as an area in need of improvement, and also mentioned video games, virtual reality, added promotional activity and even an expanded race schedule as ways to improve the sport’s business.
Forbes
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