Liberty media owned Formula One Group has posted an operating loss of $40 million for the financial year ending 31st December 2017, the first year after it took the reins of the world’s most popular motorsport property.
Liberty Media Corporation has announced the financial results of 2017 of its three business concerns: satellite radio company SiriusXM, Formula One Group and Braves Group- Holding company of Major League Baseball Franchisee Atlanta Braves.
Formula One group reported a total revenue of $1.78 billion and $17m profit. The profit was however overshadowed by $57m costs under ‘corporate and others’ head.
Greg Maffei, Liberty Media President and CEO, said: “SiriusXM delivered another outstanding year of results and continues to innovate with the launch of 360L. When Liberty completed its purchase of F1 last January, we knew the business would require investment to achieve its full potential. Chase Carey and team made great progress on their strategic goals and we look forward to more in 2018,” said Greg Maffei, Liberty Media President and CEO.”
“The Atlanta Braves increased revenue in 2017 by an astounding 47%, demonstrating the appeal of the new SunTrust Park and Battery Atlanta.”
Chase Carey, Formula 1 Chairman and CEO, said: “The 2017 season was successful in increasing viewers across TV and digital platforms. In 2018, we continue to focus on fan engagement through increasing carriage on linear and digital platforms, enhancing the race excitement, hosting more F1 Live events and collaborating with our partners. We look forward to the start of the season later this month in Melbourne.”
Liberty completed the acquisition of F1 on January 23, 2017 with the change of control of Delta Topco, F1 Group’s holding company and commercial right holders of F1, from private equity firm CVC Capital Partners.
Formula One has attributed majority of its revenue ($1.4 billion) from race promotion fees, broadcasting fees and advertising and sponsorship fees. F1 held 20 races in the 2017 season compared to 21 in the 2016 season.
Race promotions revenue accounted 34.1% of the total revenue with 7% from 2016. This was primarily due to one less event being held, the aforementioned reduction in one promotion fee, as well as a contract amendment discussed in the second quarter that provided for a decrease in promotion revenue which was partly offset by the impact of increases in other revenue streams. The reduction in race promotion revenue for the fourth quarter and full year was partially offset by the impact of other contractual increases.
Broadcast revenue (33.7% of the total) increased in the 4th quarter and full year 2017 (3% increase from 2016) due to the impact of certain contractual rate increases. The increase in the fourth quarter was also driven by the pro-rata recognition of broadcast revenue across the season, as 6/20 of the full year fees were recognized compared to 6/21 in the prior year. The increase in the full year was partially offset by the adverse impact of weaker prevailing foreign currency exchange rates used to translate a small number of Pound and Euro-denominated contracts into US dollars.
Revenue from advertising and sponsorship (15.3% of the total) saw 4% increase from 2016. Decrease in the 4th quarter was primarily due to the prior year recognition of a proportion of two non-renewed sponsorship agreements, partially offset by revenue from one new sponsorship contract. For the full year, advertising and sponsorship revenue increased as higher fees and growth in certain contractual arrangements plus revenue from new sponsors more than offset the aforementioned two non-renewed agreements.
Other F1 revenue increased modestly in the fourth quarter and full year 2017, primarily due to higher logistics and digital media revenue, contributions from broadcasting in Ultra High-Definition and higher hospitality revenue, partially offset by lower spend by competing teams in the GP3 series due to it being the second year of the GP3 vehicle cycle.
Operating income decreased in the fourth quarter and operating loss increased for the full year 2017. Adjusted OIBDA decreased in the fourth quarter and full year 2017 primarily due to the aforementioned reduction in revenue and increased costs. Cost of F1 revenue increased primarily due to spend on fan engagement, filming in Ultra High-Definition and higher freight costs, which more than offset reduced team payments. Selling, general and administrative expense also increased for the fourth quarter and full year 2017 as a result of additional headcount and new corporate offices. Additionally, stock-based compensation increased related to awards granted to members of F1 management.
On January 22, 2018, Liberty provided revised expectations regarding certain F1 tax considerations. Liberty now expects a mid- to -high-single-digit effective cash tax rate on UK EBITDA for the F1 business. This update is due to the cumulative impact of changes in UK tax law, conclusions reached by Her Majesty’s Revenue and Customs regarding the future treatment under UK tax law of certain historic transactions and the effects of an F1 corporate restructuring in the fourth quarter of 2017. F1’s adjusted OIBDA (as reported) less stock-based compensation is a reasonable proxy for UK EBITDA for this purpose.
F1’s total net debt to covenant OIBDA ratio, as defined in F1’s credit facilities for covenant calculations, was approximately 7.1x as of December 31, 2017, as compared to a maximum allowable leverage ratio of 8.75x.