Formula One Group Stock

Formula One Group engages in the motorsports business worldwide. The company is a subsidiary of Liberty Media Corporation.

The company holds the exclusive commercial rights with respect to the FIA Formula One World Championship (the ‘World Championship’), an annual, approximately nine-month long, motor race-based competition in which teams (the ‘Teams’) compete for the Constructors’ Championship and drivers compete for the Drivers’ Championship. The World Championship, which has been held every year and takes place on high profile iconic circuits, is a global series with a varying number of events (Events) taking place in different countries around the world each season.

The company is responsible for the commercial exploitation and development of the World Championship, in the course of which it coordinates and transacts with the Fédération Internationale de l’Automobile (FIA), the governing body and regulator of world motor sport, the Teams, the race promoters that stage Events, various media organizations worldwide, as well as advertisers and sponsors. The company also performs activities related to critical components of the World Championship, including filming and providing technical support at Events, production of the international television feed and logistics related to the transport of its and the Teams’ equipment, ensuring high quality and reducing delivery risk around the World Championship. Additionally, the company, pursuant to other agreements with the FIA, holds the exclusive right to promote and commercially exploit F2 and F3 through 2041.

The company also generates revenue from a variety of other sources, including the operation of the Formula 1 Paddock Club hospitality program (the ‘Paddock Club’), freight, logistical and travel related services for the Teams and other third parties, the F2 and F3 race series, which run principally as support races during Event weekends, various television production and post-production activities, digital and social media activities, other events (such as fan festivals and business forums), and revenue from other licensing of the commercial rights associated with the Formula 1 brand.

The company recognizes the majority of its revenue and expenses in connection with Events that take place in different countries around the world, generally between March and December each year. As a result, the revenue and expenses recognized by the company are generally lower during the first quarter (year ended December 2021) as compared to the rest of the quarters throughout the year. However, due to the delayed start of the 2020 Formula 1 race calendar, with the first Event not taking place until July 2020, the revenue and expenses recognized by the company were significantly lower during the first and second quarters of 2020 as compared to the third and fourth quarters. The seasonality of its revenue and expenses was more normal in 2021.

Primary Revenue

The company derives its primary revenue from the commercial exploitation and development of the World Championship through a combination of entering into race promotion, broadcasting and sponsorship arrangements.

Race Promotion

The company grants to race promoters the rights to host, stage and promote each Event pursuant to contracts that typically have an initial term of three to seven years. For established Events, the duration of subsequent renewals is more variable according to local market conditions. These contracts may allow for flat fees over the term, but more typically they include annual fee escalators over the life of the contract, which are typically based on annual movement in a selected consumer price index or fixed percentages of up to 5% per year. Race promotion revenue was significantly lower in 2020 as a result of the reduced calendar and one-time revised fee arrangements, as most Events were closed to fans, generating very different economics for the promoters.

Race promoters are generally circuit owners, local and national automobile clubs, special event organizers or governmental bodies. Race promoters generate revenue from ticket sales and sometimes from concessions, secondary hospitality offerings (other than the Paddock Club), local sponsorship opportunities and on-site activations. Tickets are sold by the promoters for the entire Event weekend or individual days.

Media Rights

The company licenses rights to broadcast Events on television and other media platforms in specified countries or regions and in specified languages. These may also include rights to broadcast the race, practice and qualifying sessions, interactive television/digital services, repeat broadcasts and highlights. Contracts with broadcasters, which the company refers to as television rights agreements (TRAs), typically have a term of three to five years. While annual fees from broadcasters may stay constant, they often increase each year during the term of the TRA by varying amounts. The company’s media rights revenue is primarily generated from:

Free-to-air television broadcasts, which are received by the end user without charge (other than any television license fee), and non-premium cable, satellite and other broadcasts, which are received as part of a subscriber’s basic package (together, ‘free-to-air television’); premium and pay-per-view cable and satellite broadcasts, where the subscriber pays a premium fee to receive programming on a package or per-event basis (pay television); and subscription revenue from the company’s own direct-to-consumer over-the-top broadcast product F1TV. In 2021, the company had 11 free-to-air television agreements, 13 pay television agreements and 31 agreements, including multi-territory agreements, covering both free-to-air and pay television. The company’s key broadcasters include Sky (pay television) in the United Kingdom, Sky Deutschland (pay television) in Germany, Sky Italia (pay television) in Italy, Movistar and DAZN (pay television) in Spain, Fox Sports/ESPN (pay television) in Pan Latin America, Canal+ (pay television) in France, Bandeirantes (free-to-air and pay television) in Brazil, ESPN and ESPN Deportes (pay television) in the United States, Fox Sports (pay television) in Pan Asia (until the end of September 2021, replaced by three free-to-air and pay television agreements and seven pay television agreements) and MBC (free-to-air and pay television) in the Middle East and North Africa.

Sponsorship

The company sells Event-based sponsorship in the form of trackside advertising and race title sponsorship packages. In addition, sponsors can acquire status as a Global Partner of the company and/or Official Supplier to the company. These advertiser and sponsor contracts typically have a term of three to five years (but may on occasion be of longer duration). Payments often increase each year based on a fixed amount, a fixed percentage or in accordance with the United States or European consumer price index or another agreed metric. Sponsorship revenue was significantly lower in 2020 as a result of certain Events not taking place and revised fee arrangements, as rights under certain contracts could not be fully serviced due to the effects of the COVID-19 (a novel coronavirus outbreak) pandemic.

Other Revenue

The remainder of the company’s revenue is typically generated from a variety of other sources, including facilitating the shipment of cars and equipment to and from events outside of Europe, revenue from the sale of tickets to the Formula One Paddock Club at most Events, support races at Events, various television production activities and other ancillary operations.

FIA and the Teams

The company’ business is built on a number of key relationships—those with the FIA, the Teams and the company’s principal commercial partners.

FIA

The FIA is the governing body for world motor sport and as such, is solely responsible for regulating the sporting, technical and safety aspects of the World Championship, including race circuits to be used by race promotors, through the FIA’s F1 Commission and World Motor Sport Council. The FIA regulates all international motor sports, with the World Championship being the most prominent. The FIA owns the World Championship and has granted the company the exclusive commercial rights to the World Championship until the end of 2110 under the 100-Year Agreements. In addition, the FIA, through its World Motor Sport Council, approves the calendar for the World Championship each year based on the agreed race promotor contracts for the coming season. Under the 100-Year Agreements, the company is only permitted to enter into race promotion contracts that are substantially in the form agreed between the company and the FIA.

Teams

The Teams are the participants in the World Championship and its Events, competing for the annual Constructors’ Championship, and their drivers compete for the annual Drivers’ Championship. There were 10 Teams competing in the 2021 World Championship. To be eligible to compete, a Team is responsible for the design and manufacturing of certain key parts of its cars, including the chassis. The Teams are supplied race engines by one of Ferrari, Mercedes or Renault.

Drivers

The company encourages the development of drivers from other strategic markets. F2 and F3 provide the training ground and stepping stones to the company for these drivers. All drivers are employed or contracted by the Teams and have no contractual relationship with the company.

Key Commercial Agreements

100-Year Agreements

Under the 100-Year Agreements entered into by the company and the FIA in 2001, the company was granted an exclusive license with respect to all of the commercial rights to the World Championship, including its trademarks. This license, which took effect on January 1, 2011 and expires on December 31, 2110, maintains its exclusive commercial rights to the World Championship, which the company held under previous agreements with the FIA.

The 100-Year Agreements also provide that the company may appoint a representative to the FIA, subject to the FIA’s approval, and that person will be a member of the FIA’s F1 Commission and World Motor Sport Council. The FIA may terminate the 100-Year Agreements and the company’s exclusive license upon a change of control of the company, unless either the FIA previously approved the transaction or the transaction falls within one of a number of exceptions. The company obtained the FIA’s approval of its acquisition by Liberty in January 2017 under the 100-Year Agreements.

Concorde Agreement

In August 2020, the company, the FIA and the Teams entered into the 2021 Concorde Agreement, securing the commitment of the Teams to continue participating in the World Championship from January 1, 2021 until December 31, 2025, and governing the relationship between the parties during that period.

Circuit Rights Agreements

Under circuit rights agreements, the company acquires from race promoters certain rights to commercially exploit at the Events, including the rights to sell trackside advertising and title sponsorship, the right to sell Paddock Club hospitality (other than at three Events) and commercial use of the name of the Event and circuit. Circuit rights agreements typically have a term that is tied to the relevant race promoter contract.

Intellectual Property

The company is the registered owner of a portfolio of trade mark registrations and applications, including for the F1 logo, the World Championship logo (which is used only in sporting contexts), ‘Formula One’, ‘Formula 1’, ‘F1’, and ‘Grand Prix’ when used in connection with any of the aforementioned and most of the official Event titles where they are capable of registration.

Strategy

The key elements of the company’s strategy include continuing to seek and identify opportunities to expand and develop the Event calendar and bring Events to attractive and/or strategically important new markets outside of Europe, which typically have higher race promotion fees, while continuing to build on the foundation of the sport in Europe; developing sponsorship revenue, including increasing sales of Event-based packages and under the Global Partner program, and exploring opportunities in underexploited product categories; capturing opportunities created by media’s evolution, including the growth of social media and the development of the company’s digital media assets; building up the entertainment experience for fans and engaging with new fans on a global basis to further drive race attendance and television viewership; improving the on-track competitive balance of the World Championship and the long term financial stability of the participating Teams; and improving the environmental sustainability of Formula One and its related activities, targeting a net zero carbon footprint by 2030 and sustainable race events by 2025, and building on the company’s initiatives to fight inequality and improve the diversity and opportunity in the company at all levels.

Competition

The company competes for media rights and advertising revenue with other global and regional Tier 1 sports, including the Olympic Games, FIFA World Cup, Champions League and Premier League. Within national markets, the company competes with local racing events, such as the Indianapolis 500 race and NASCAR in the United States.

History

Formula One Group was founded in 1950.