It is a bit difficult to connect the dots when it comes to Formula 1’s current state of the union. News stories suggesting Liberty Media could be divesting their ownership in part or in full, the discussions over the 2020 regulation changes and Concorde Agreement negotiations and reduced team payouts have all added to a vaporous cloud of hints, allegations and innuendos.
The reality is, we only definitively know what the series shares and this week they released their financial report for 2018. It’s not a positive report from my perspective but I’m sure the series has other thoughts and they surely have a deeper understand of their position.
Over the years the teams have relied more and more on the F1 prize money payout. The total payments to the 10 teams dropped to $913 million (£686 million) from $919 million in 2017 and $966 million in 2016.
The loss is on the back of increased annual revenue. Formula One Group reported an increase in annual revenues to $1,827 million—up $44 million from a previous $1,783 million—the operating loss grew from $37 million to $68 million.
The challenge in a 21-race schedule is that Formula One revenue from race promotion fees, broadcasting fees and advertising and sponsorship remained flat.
“Race promotion revenue increased modestly primarily due to contractual increases in race promotion fees, as well as a contract amendment for one event,” Liberty said.
“This contract amendment was neutral for total Primary F1 revenue.
“In addition, race promotion revenue in 2018 was impacted by the calendar variance, with the non-occurrence of the Malaysian Grand Prix in 2018 not fully offset by the return of two European races in France and Germany.”
One of the key areas Liberty Media said was ripe for growth was advertising and sponsorship but those two areas actually decreased in 2018. That isn’t good. F1 said the increase in revenue was from higher logistics revenue, digital media and TV production related revenue as well as fan engagement activities.
This leaves the cost category as the reason for the overall operating loss.
“Cost of F1 revenue increased primarily due to logistics and travel expense, higher costs associated with providing the chassis and component parts to F2 and GP3 teams, digital media development and spend on fan engagement, which more than offset reduced team payments,”
F1 boss, Chase Carey said:
“For 2019, the drivers of revenue are clear, cost growth will abate and we expect leverage to decline significantly,”.
“We remain firm in our commitment to growing this business in creating value for the long term for the teams, our partners, Formula One and our shareholders.”
Liberty CEO Greg Maffei added:
“We are very pleased with the progress that Formula One has made over the last two years. We are confident the tremendous potential still exists,” he said. “We are committed to the F1 business.”
Meanwhile, reports have been floating around that Liberty Media is looking to sell part or all of its ownership interest. It is difficult to know which story to believe but as of now, Liberty says it is committed to its growth but if I’m honest, I’d says that too even if I was trying to find a buyer.