Is Liberty’s F1 deal consolidating too much control?

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Liberty Media chairman John Malone REUTERS/Rick Wilking/Files (UNITED STATES)

I’ve been watching the Liberty Media acquisition of Formula 1 for a while now and with all of the upside discussion between Chase Carey and the teams and the goodwill and positive feelings about Liberty’s approach to market, more races, different business model et. al. I am also watching the EU’s response to the FIA’s stake in the sale and potential gains north of $40m as well as the UK’s Competition and Markets Authority (CMA) as pointed out by Forbes.

A few thoughts that come to mind

If you juxtapose this possible buyout with the AT&T/Time Warner buyout talks, there are some interesting parallels regarding the move from major distributors of wireless and wired services to become the holding companies of the premium content for those distribution models. In particular there was some talk of denying the Time Warner deal as it would be too much consolidated power in one group.

The fact is, the bundled services are slowly waning and as people cut cords and look for À la carte services, it has shifted the sands of the content creators and service or distribution providers. The future money is on the content creators with the focus on those who offer not only wireless but wired service solutions as well. This is what makes the AT&T deal such a massive opportunity. If you look at HBO versus Netflix, the latter has 20x more resources and capital than the former. Did you ever think you would see a day when HBO fell from grace this far and Netflix become the content kings?

Think of Amazon with their massive spend on Jeremy Clarkson’s new show the Grand tour. They all know that content is king and distribution un-bundled is the future. As owners of Liberty Global and Liberty Media, John Malone stands to acquire a massive content creator in Formula 1 and as partial owners of ITV and other distribution services, this would consolidate the content. Would that be a good thing or a bad thing? You could ask the same question of the AT&T/Time Warner deal?

As Forbes points out:

“The problem here could be that the billionaire John Malone owns the majority of Liberty Media and sister company Liberty Global. Liberty Global owns 9.9% of British broadcaster ITV, which formerly screened F1. Likewise, Liberty Global owns television network Virgin Media, has a 50% stake in former F1 production company owner All3Media and 24.5% of electric racing series Formula E alongside co-investor Discovery Communications.

In turn, Discovery owns broadcaster Eurosport and is connected to Mr Malone as 29% of its voting rights are owned by him. It doesn’t even stop there as Eurosport also promotes the World Touring Car Championship. The CMA may be concerned that Mr Malone could withdraw, or threaten to withdraw, his backing of the companies he invests in if they don’t support F1.

The authorities in Austria are looking at the takeover as the combination of F1 and Liberty passes key revenue thresholds. Crucially, it generates more than $33 million (€30 million) in annual revenue from Austria, has a worldwide total of more than $326 million (€300 million) and has at least two companies in its group which each make revenue of more than $5.4 million (€5 million) every year.”

You can start to see the implications of this consolidation of content across wireless and wired distribution services and the power that gives Liberty’s holding companies. That’s not a knock on the concept, if you’re Liberty, you’re liking the move as it would be a positive move for the balance sheet.

If you are really in to the entire situation, you might watch this video where Malone speaks of F1 in the last part of the interview but watch the full session because you’ll get an idea of what is important in broadcast and content and then be able to piece together what they are trying to do with F1. Very revealing.

There is also the issue of the EU complaint by teams (Force India and Sauber) over the prize money distribution and how it is not equitable and favors the big teams. To be honest, I am starting to believe that this is a straw man argument but one that is still very important for the health of the grid. Fact is, if you took $980 million and simply divided it equally, the cash would be washed through the balance sheets of these small teams, who do not manufacture their own power units or many of the components they use, leaving what? Higher salaries, possibly less pay-driver money and more money spent on motorhomes, wind tunnel work and CFD. To what ends? Would this put these small teams at the front of the grid? Ferrari, Mercedes and Renault have the resources of an entire company behind them.

Interesting times indeed but my hunch is the deal will go through and I am thinking very positively about it indeed. Liberty has already made some comments that seem to be on the right path and I will be very intrigued to see how they handle the FIA. I think this is a much bigger issue than what is being reported.

I have read several stories regarding Liberty’s interactions with the teams and commercial rights holders but not a lot of information about any meetings with the FIA. As the legal regulatory body and sanctioning body of racing in Europe, I think this will be an interesting time for Jean Todt. I think I know how Max Mosley would have approached this but very intrigued to see how Jean manages it all.

Hat Tip: Forbes and @bfklin 

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Tickled Pink
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Tickled Pink

Entering a business deal with Malone is like playing chess with a grand
master — not only are you going to lose, but it’s going to take years
for you to figure out just how early and thoroughly you were
outmaneuvered.

Rapierman
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Rapierman

In thinking about these buyouts, mergers, etc., the question in my mind is always the same since it forms the basis of anti-trust law: Does the consumer still have enough of a choice that his freedom is not threatened? Free trade only works when there are a myriad of choices and none of them are trying to limit anything in order to create an unfair advantage. Choice is what drives it all.

I don’t know where Liberty Media stands in the grand scheme of things, so I can’t really say if this is either beneficial or detrimental.

FryDaddy
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FryDaddy

His overarch was almost exactly what I heard in another industry in the late 1990s, when technological innovation drove consolidation in the grocery industry. The net result was a shift of power from grocery stores (distribution) to manufacturers. Kroger thrived by growing faster quicker, and by running their own manufacturing. As the time, IIRC, Kroger made 14% of everything they sold and around half of their private label products. Today, they manufacture 40% of the products that bear a Kroger brand. This relative stagnation probably represents a huge increase in revenue for the manufacturing content side as the total sales… Read more »

Member

Content will always be king, it is the method of delivery that changes. It seems that Liberty has its fingers in many, many pies here in the USA and abroad. It all makes for a tangled web almost impossible for bureaucrats here and Europe attempt to legislate. In the USA, the regulatory agencies will simply rubber-stamp the deal regardless of its impact on competition or impact on customers