|Liberty F1 boss Chase Carey|
Liberty Media Corporation today reported fourth quarter and year end 2017 results. F1 Highlights include:
Attributed to Formula One Group
- Repaid $400 million of first lien term loan and reduced margin on remaining balance from 3.00% to 2.50% in January 2018
- 2017 season audience figures increased across TV and digital platforms; Formula 1 (“F1") was fastest growing sports brand on social media platforms
- Announced several broadcast agreements, including RTL agreement in Germany, Movistar in Spain, Fox Sports in Latin America and Sky Italia in Italy
- 2018 F1 season kicks off March 25th in Melbourne; 21 Grands Prix in 2018 season
The following table provides the financial results attributed to the Formula One Group for the fourth quarter and full year 2017. Approximately $13 million and $49 million of corporate level selling, general and administrative expense (including stock-based compensation expense) was allocated to the Formula One Group in the fourth quarter and full year 2017, respectively.
“The 2017 season was successful in increasing viewers across TV and digital platforms," said Chase Carey, Formula 1 Chairman and CEO. “In 2018, we continue to focus on fan engagement through increasing carriage on linear and digital platforms, enhancing the race excitement, hosting more F1 Live events and collaborating with our partners. We look forward to the start of the season later this month in Melbourne."
Three months ended Twelve months ended December 31, December 31, 2016 2017 2016 2017 amounts in millions amounts in millions Formula One Group Revenue Formula 1 $ NA $ 570 $ NA $ 1,783 Total Formula One Group $ — $ 570 $ — $ 1,783 Operating Income (Loss) Formula 1 $ NA $ 39 $ NA $ 17 Corporate and other (17 ) (15 ) 443 (57 ) Total Formula One Group $ (17 ) $ 24 $ 443 $ (40 ) Adjusted OIBDA Formula 1 $ NA $ 150 $ NA $ 438 Corporate and other (13 ) (12 ) (45 ) (41 ) Total Formula One Group $ (13 ) $ 138 $ (45 ) $ 397
Liberty completed the acquisition of F1 on January 23, 2017. For comparison and discussion purposes, the pro forma results of F1 are presented below for the three and twelve months ended December 31, 2017 and 2016, inclusive of purchase accounting adjustments, as if the acquisition of F1 occurred on January 1, 2016. The financial information below is presented for illustrative purposes only and does not purport to represent the actual results of F1 had the business combination occurred on January 1, 2016, or to project the results of operations of Liberty for any future periods.
Pro Forma F1 Operating Results
Three months ended Twelve months ended December 31, December 31, 2016 2017 % Change 2016 2017 % Change (unaudited) (unaudited) amounts in USD millions amounts in USD millions Primary Formula 1 revenue $ 459 $ 447 (3 ) % $ 1,502 $ 1,483 (1 ) % Other Formula 1 revenue 120 123 2 % 294 301 2 % Total Formula 1 revenue $ 579 $ 570 (2 ) % $ 1,796 $ 1,784 (1 ) % Operating expenses
(excluding stock-based compensation
Team payments (275 ) (269 ) 2 % (966 ) (919 ) 5 % Other cost of Formula 1 revenue (99 ) (114 ) (15 ) % (290 ) (302 ) (4 ) % Cost of Formula 1 revenue $ (374 ) $ (383 ) (2 ) % $ (1,256 ) $ (1,221 ) 3 % Selling, general and admin expenses (16 ) (37 ) (131 ) % (90 ) (125 ) (39 ) % Adjusted OIBDA $ 189 $ 150 (21 ) % $ 450 $ 438 (3 ) % Stock-based compensation — (3 ) — — (24 ) — Depreciation and Amortization (108 ) (114 ) (6 ) % (403 ) (451 ) (12 ) % Operating income (loss) $ 81 33 (59 ) % $ 47 (37 ) (179 ) % Number of races in period 6 6 21 20
Pro Forma F1 Revenue Breakdown
Twelve months ended December 31, 2016 2017 % Change Promotion revenue 36.4 % 34.1 % (7 ) % Broadcast revenue 32.7 % 33.7 % 3 % Advertising and sponsorship revenue 14.6 % 15.3 % 4 % Primary Formula 1 revenue 83.7 % 83.1 % (1 ) % Other Formula 1 revenue 16.3 % 16.9 % 2 % Total Formula 1 revenue 100.0 % 100.0 % (1 ) %
Note: Percentages may not sum due to rounding.
Primary F1 revenue represents the majority of F1's revenue and is derived from (i) race promotion fees, (ii) broadcasting fees and (iii) advertising and sponsorship fees. F1 held 20 races in the 2017 season compared to 21 in the 2016 season.
Race promotion revenue decreased in the fourth quarter, primarily due to legacy contractual terms of one Grand Prix event, which provided for a one time material step down in the promotion fee effective after the 2016 season and carrying through the remaining term of the contract through 2020. This agreement was entered into by previous management and is atypical and not reflective of terms carried in F1's other promotion agreements. For the full year 2017, race promotion revenue decreased due to one less event being held, the aforementioned reduction in one promotion fee, as well as a contract amendment discussed in the second quarter that provided for a decrease in promotion revenue which was partly offset by the impact of increases in other revenue streams. The reduction in race promotion revenue for the fourth quarter and full year was partially offset by the impact of other contractual increases.
Broadcast revenue increased in the fourth quarter and full year 2017 due to the impact of certain contractual rate increases. The increase in the fourth quarter was also driven by the pro-rata recognition of broadcast revenue across the season, as 6/20 of the full year fees were recognized compared to 6/21 in the prior year. The increase in the full year was partially offset by the adverse impact of weaker prevailing foreign currency exchange rates used to translate a small number of Pound and Euro-denominated contracts into US dollars.
Advertising and sponsorship revenue decreased in the fourth quarter primarily due to the prior year recognition of a proportion of two non-renewed sponsorship agreements, partially offset by revenue from one new sponsorship contract. For the full year, advertising and sponsorship revenue increased as higher fees and growth in certain contractual arrangements plus revenue from new sponsors more than offset the aforementioned two non-renewed agreements.
Other F1 revenue increased modestly in the fourth quarter and full year 2017, primarily due to higher logistics and digital media revenue, contributions from broadcasting in Ultra High-Definition and higher hospitality revenue, partially offset by lower spend by competing teams in the GP3 series due to it being the second year of the GP3 vehicle cycle.
Operating income decreased in the fourth quarter and operating loss increased for the full year 2017. Adjusted OIBDA decreased in the fourth quarter and full year 2017 primarily due to the aforementioned reduction in revenue and increased costs. Cost of F1 revenue increased primarily due to spend on fan engagement, filming in Ultra High-Definition and higher freight costs, which more than offset reduced team payments. Selling, general and administrative expense also increased for the fourth quarter and full year 2017 as a result of additional headcount and new corporate offices. Additionally, stock-based compensation increased related to awards granted to members of F1 management.
On January 22, 2018, Liberty provided revised expectations regarding certain F1 tax considerations. Liberty now expects a mid- to -high-single-digit effective cash tax rate on UK EBITDA for the F1 business. This update is due to the cumulative impact of changes in UK tax law, conclusions reached by Her Majesty's Revenue and Customs regarding the future treatment under UK tax law of certain historic transactions and the effects of an F1 corporate restructuring in the fourth quarter of 2017. F1's adjusted OIBDA (as reported) less stock-based compensation is a reasonable proxy for UK EBITDA for this purpose.
F1's total net debt to covenant OIBDA ratio, as defined in F1's credit facilities for covenant calculations, was approximately 7.1x as of December 31, 2017, as compared to a maximum allowable leverage ratio of 8.75x.
The businesses and assets attributed to the Formula One Group consist of all of Liberty Media's businesses and assets other than those attributed to the Liberty SiriusXM Group and the Braves Group, including Liberty Media's subsidiary F1, its interest in Live Nation, minority equity investments and an intergroup interest in the Braves Group. There are approximately 9.1 million notional shares of the Braves Group underlying the Formula One Group's 15.1% intergroup interest as of January 31, 2018.