Liberty Formula One | Examining Potential Catalysts and Answering the Red Bull Dominance Question

We’re updating our model for Liberty Formula One, incorporating scheduling changes and extending our estimates to 2025. Below we walk through our forecasts and highlight potential catalysts. Given inbound questions, we also provide our view on the current F1 product, and read-through to sentiment and long-term financials. Overall, we remain Overweight on FWONK, seeing high visibility into strong FCF/share growth with several potential points of upside, including from Las Vegas, increased capital returns, incremental sponsor deals, Race Promotion and Media Rights renewals, and more favorable economic splits in the next Concorde Agreement. We also continue to like the F1 story relative to other parts of our coverage, which are more exposed to economic or industry specific headwinds.

We reduce our 2023 F1 operating EBITDA to $758m (from $771m), primarily to reflect the cancellation of the Emilia Romagna GP due to flooding. We expect Formula 1 as a result did not receive a race fee – which we estimate at $25m – along with Paddock Club sales. Partly offsetting this, we’ve raised Media Rights revenue on more favorable FX (Euro and Pound), and to more fully account for recent sponsor renewals (MSC Cruises, Heineken). With 6 races in Q2’23 relative to 7 in the prior year period, along with higher SG&A for the Las Vegas GP, we expect adj. EBITDA in the quarter of $137m to be down y/y.

Our 2024 F1 operating EBITDA is largely unchanged at $860m (+13% y/y). We expect growth next year to be driven by: 1) the return of the Emilia Romagna and China GPs; 2) increased sales for the Las Vegas GP - primarily on pricing – against limited expense growth as year 1 costs are lapped; 3) contract escalators for Media Rights and Sponsorship, along with new partners, some of which have already been announced such as Puma; and 4) new Media Rights agreements in Spain (assume a 1.25x step-up in AAV) and the MENA region (1.33x step-up). For 2025, we estimate a more modest EBITDA increase to $922m (+7%), though see risk to upside. Our out-year forecast has a stable mix of 24 races, contractual growth at Media Rights and Sponsorships, a limited number of incremental sponsors, and the benefit of a more material step-up in average annual value (+1.5x) for a new media agreement in France with Canal+.

FWONK’s core asset, Formula 1, stands to benefit from several tailwinds, including inflation in sports media rights, a potentially longer race calendar, and better monetization of sponsorship, hospitality, merchandising, and digital. Management has also secured broad support from the race teams for structural changes likely to improve the on-track product and raise the sport’s brand value. Following a reattribution of assets/ liabilities among Liberty Media tracking stocks, FWON operates as an F1 pure-play with ample liquidity to deploy toward capital returns and/or adjacent assets.

We establish a Dec 2024 price target of $86 (vs. a Dec 23 price target of $78 prior). To derive our PT, we continue to apply a 25x multiple, now against our 2025E FWONK LFCF, and then add in the market value of the company’s equity positions and cash. A 25x multiple is a slight discount to current forward valuation, though roughly in-line to where the stock has traded over the prior six months. Our valuation equates to a ~23x multiple on our 2025E adj. EBITDA. We believe a premium multiple relative to other Live Entertainment stocks is appropriate given the racing series multi-year contracted revenue stream (which provides greater visibility) and greater free cash flow conversion.