Is Superb On-Track Action Papering Over F1’s Financial Cracks?

Garry Sloanon March 30, 2021

BAHRAIN INTERNATIONAL CIRCUIT, BAHRAIN - MARCH 28: Max Verstappen, Red Bull Racing RB16B during the Bahrain GP at Bahrain International Circuit on Sunday March 28, 2021 in Sakhir, Bahrain. (Photo by Andy Hone / LAT Images)

The 2021 FORMULA 1 season got underway with a cracker but with it, all the uncertainty off the track in the Covid-19 world remains.

Liberty Media may well have had a rebrand introducing a new logo and F1 theme written by Hollywood composer Bryan Tyler, but it cannot gloss over the hard financial reality.

In 2020, annual revenues fell 44 per cent year on year to $1.1billion, resulting in an operating loss of $386 million. The group took big hits on its other businesses with the Atlanta Braves baseball team and concert promoter Live Nation posting losses.

Not helping is Liberty’s $3.7 billion of debt sitting on its balance sheet.

As a third wave of Covid-19 spreads throughout Europe the upcoming Imola race must be a concern and the news that international spectators will not be allowed to attend the Olympic Games held this summer in Japan must have left Liberty worried.

Putting a brave face on the development, Liberty president Greg Maffei told Wall Street analysts, “I think one of the things about being part of the Liberty group is we have the ability to hopefully look ahead and be thoughtful with the benefit of our operating companies.”

The problem is Liberty is banking literally on spectators returning to races and race promoter fees returning to ‘normal’ not to mention a full race calendar.

Backtracking Maffei claimed Liberty were not in the crystal ball business and commented, “We’re not here to make a forecast, in part because some of this is still up in the air, floating around. It’ll definitely be impacted, the amounts to which we’ll see.”

So, Liberty may need to raise cash.

CEO Stefano Domenicali told Servus TV, “There is great interest in Formula 1 from the financial market. Many investors are knocking on our door. That’s a good sign.”

Liberty may turn to the world’s sovereign wealth funds like it did last April when Saudi Arabia’s sovereign wealth fund took a 5.7% stake in Liberty’s Live Nation business.

The world sports empires which have a combined value in excess of $100 billion are attractive to the wealth funds, none more so than Liberty which holds the No.1 position with a valuation of $13 billion (this includes their stakes in Drone Racing League and Ball Arena).

The top 10 sovereign wealth funds globally include China which runs four separate funds, Singapore, Kuwait, Qatar, Saudi Arabia, and Abu Dhabi.

It is no coincidence these wealth funds host races with Kuwait and Qatar waiting in the wings, and let us not forget the wealth funds out of the top 10 – Bahrain and the United Arab Emirates, who have interests in F1.

The wealth funds have trillions of dollars looking for a home so when China and the Middle Eastern countries face human rights criticism but have the cash you can see Liberty’s dilemma.

Bucking the trend is the world’s largest sovereign wealth fund, although it is actually a government pension fund. Step forward Norway with its 1.3 trillion-dollar fund which owns approximately 1.5% of all equities in the world.

Their portfolio includes $30 billion invested in sports-related companies.

The Norwegian’s originally invested in F1 when CVC capital partners owned the business, paying out $300 million for a 4% stake back in 2012.

It was not a harmonious relationship and the Norwegian’s were incensed when the then CEO Bernie Ecclestone faced a trial for bribery.

Yngve Slyngstad, Chief Executive of the fund, launched an attack on Ecclestone telling Norwegian newspaper Dagens Naeringsliv, he wished Mr Ecclestone had been “formally suspended” from his role as executive ahead of his forthcoming trial for bribery.

“We are of course not happy with the situation that has arisen. What’s especially unfortunate are the corruption charges.”

The Norwegians remained invested with F1 but now seem to have had a change of heart and last month reduced their holdings by 20% now holding 1.27% of F1 worth about £155m.

So as the world grapples with the ongoing pandemic, F1 may need to access the resources of the sovereign wealth funds aligning them even closer with some questionable regimes.

On a footnote, Liberty’s owner John Malone may decide to be an individual wealth fund having seen his fortune rise during 2020 from $5.8 billion to $8.1billion!

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