John Malone’s Liberty Media aims to drive F1 into digital age
In taking over Formula One, John Malone will aim to restart the sport’s stalling fortunes in the digital age.
The billionaire controlling shareholder of Liberty Media, the US group, struck a complex deal to take over the racing competition on Wednesday night, signalling an intent to rejuvenate F1 for younger, digital audiences while attempting to boost interest in markets such as the US.
The deal could be a major turning point for the sport, which has been owned by private equity group CVC Capital Partners for over a decade. It remains popular with millions of racing fans — in particular in key markets in Europe — but has faced criticism for failing to modernise amid a long-term decline in its global audience.
Mr Malone will not be a back seat owner. According to documents seen by the Financial Times and presented to investors on Wednesday, the 75-year-old businessman nicknamed the “Cable Cowboy” will personally own 3 per cent of the sport’s new parent company.
This will make Mr Malone a larger shareholder than F1’s long-time chief executive Bernie Ecclestone, who will own just 2 per cent under the new structure. Mr Ecclestone’s family trust, Bambino Holdings, will also reduce its shareholding to 5.4 per cent.
Liberty Media has agreed a two stage deal with CVC, F1’s biggest shareholder, taking an initial 18.7 per cent stake in the sport for $746m. Once the deal is approved by regulators and the sport’s governing body, Liberty will pay a total of $4.4bn in cash and shares for the business as well as assume debt to give F1 an overall enterprise value of $8bn.
Liberty will end up with a stake in the new holding company of about 35 per cent, with the remainder controlled by CVC and other existing F1 shareholders.
Chase Carey, the former executive vice-chairman of Rupert Murdoch’s 21st Century Fox, has been appointed F1’s chairman, replacing Peter Brabeck-Letmanthe, the chairman of Nestlé.
There are several immediate challenges for Mr Carey, not least the need to build a working relationship with Mr Ecclestone, who remains F1’s chief executive and who built the sport from one of niche interest into a global television phenomenon.
Key to this success was selling the series as a package to broadcasters around the world, while suffusing the sport with a glamorous image that drew elite sponsors and new audiences. However, TV numbers have fallen in key markets such as the UK as the sport has moved to pay-TV broadcasters.
Mr Carey is seen to have the expertise and connections from his time at Fox to strike deals with online media channels, and gain greater exposure in markets where F1 has a relatively small following.
This could include creating services that would allow fans to watch races streamed to mobile devices, for example, in a move that would break the sport’s reliance on television broadcasting revenues and European audiences.
“Give it all the credit for what’s been built, [but] there’s an opportunity to take F1 to another level,” said Mr Carey, adding that there is an “untapped digital market [that] F1 has only scratched the surface on.”
By bringing F1 into his global media empire, Mr Malone can also seek to draw more subscribers to Liberty’s cable services and television channels, which are facing their own challenges from newer digital streaming services. Ownership of exclusive content is crucial in this battle for subscribers.
Traditional media companies face growing competition from digital players such as Facebook, YouTube and Twitter, which means it has become increasingly important to own valuable sports rights assets that attract drive big audiences.
“There are very few assets in sport that you can own end to end,” said Mark Oliver, chief executive of sports media consultancy Oliver & Ohlbaum.
But, as Mr Oliver adds, F1 is “also profitable and throws off a lot of cash” which means that the business is valuable in its own right.
Broadcasting revenues account for up to 35 per cent of F1’s annual revenues of more than $1.8bn. Race promotion accounts for another third, 15 per cent comes from advertising and sponsorship, with the rest made up from hospitality, TV production, licensing and other sources.
According to the internal documents, F1 has negotiated long-term deals worth $9.3bn through to 2026 — a five times increase on the existing level of revenue.
“Sponsorship and digital can be pushed a lot harder,” adds Mr Oliver. “The new management team will really be looking to exploit these areas.”
Key to F1’s past success has been the ability to sell to sponsors the opportunity to reach one of the most loyal, global followings in sports with races in 21 different countries.
And analysts say that if the racing competition can crack the US — where audiences remain muted in spite of decades of races in the country given the popularity of Nascar — then Liberty stands to make even further inroads with sponsors and broadcasters.
Liberty Media’s understanding of the US sports market — it owns the Atlanta Braves baseball team — and live events through its 34 per cent stake in the music promoter Live Nation could further help the sport grow in the US.
“There are things we can learn from the American way, particularly in the digital side and things that have worked here but not there,” said Robert Fearney, deputy team principal for the Force India F1 team.
The deal has risks. F1 carries $3.6bn of net debt and, according to analysts at Citi, long terms profits and revenues could come under pressure from teams demanding a larger slice of the pie.
In a note, Citi said: “The bottom line is this: we don’t like this transaction. Formula One seems more like a trophy asset to us. But, it’s not an asset that confers significant financial or strategic benefits.”
But the danger to Mr Malone and his Liberty empire was that after 10 years of CVC in F1’s driving seat, another media company might have overtaken the media group to snap up the sport.
“Ultimately if you are a media company, it’s better you own it rather than someone else,” said Mr Oliver.