When it was announced Liberty Media had agreed to acquire Formula One back in September 2016, there was a concern among purists that the American mass media conglomerate would alienate the fan base and destroy the sport in its attempt to maximize revenues. But nearly five years later, FWONK shares are up more than 113% and the open-wheel racing circuit is thriving—particularly in the U.S., where television viewership figures have risen significantly from 2019 (+36% through the first nine races of the season). “It’s a turnaround story,” Hedgeye Risk Management partner Andrew Freedman said. “The brand was mismanaged under prior ownership. Liberty has come in, gotten [the sport] back on track with a more contemporary approach, and now the set-up over the next 3-5 years is pretty attractive.”
Our Take: Circuit of the Americas boss Bobby Epstein disputed Freedman’s contention that the F1 ship needed to be turned around. “I think they had a base to build upon,” he said. But the Austin track promoter agreed the sport has made significant strides under Liberty ownership. “They have made some really good decisions that have led to some really great outcomes—not least amongst those was the  hiring of the new CEO Stefano [Domenicali],” he said.
Hedgeye is bullish on Formula One over the next half-decade in large part because domestic viewership figures are rising. That may seem odd considering the sport has always taken a backseat in this country. But as Freedman explained, the U.S. market provides F1 with the “biggest incremental monetization opportunity, from a sponsorship, advertising and broadcast rights [perspective]. And if viewership is going up, monetization will ultimately follow.” FWONK shares are +11% since the 2021 season opened, indicating investors may be starting to “see the puzzle pieces coming together,” he said.
When F1 signed its existing U.S. broadcast deal with ESPN, “there really wasn’t much there [in terms of viewership],” Freedman said (which helps to explain how the network reportedly managed to get the rights without paying a rights fee; Sean Bratches’ relationship with the Worldwide Leader likely didn’t hurt, either). But with the sport averaging 933,000 viewers per race through the first nine this season and Miami joining Austin on the circuit in 2022 (which should further boost interest stateside), it is in a much better negotiating position now (the current pact expires in 15 months).
Freedman is convinced with ratings on par with Sunday/Monday/Wednesday Night Baseball (think: about 930,000 viewers), F1 is in for a significant U.S. rights revenue increase (it is believed the sport is currently bringing in less than $30 million/year in its rev-share agreement with ESPN). “Could they get $100 million in rights revenue [annually] in the U.S. over the next three years? It certainly would not be crazy. And then you can start thinking about streaming rights as well,” the Hedgeye partner said. For perspective, a deal worth $100 million would increase F1 broadcast revenues by between 10-15% (they generated $768 million in 2019).
Sports media consultant Ed Desser acknowledged that upwards of 1 million viewers per race is “around the level that would get the sport noticed. Those are decent numbers, for sure.” But the former longtime NBA league office executive doesn’t see F1 commanding significant rates. “The problem is [rights owners] need real competitive bidding in order to [maximize] rights fees, and you’ve got networks who are currently in the mode of trying to save up money to pay for the things they’ve already bought,” he said. “While the big properties will continue to have bidders, the smaller properties will increasingly see time buy/rev-share kind of deals; and I’m not sure F1 has crossed into the pantheon of rights fee properties.” Remember, the sport’s international schedule also means that few races air live in prime time.
In addition to U.S. broadcast rights, Freedman pointed to the potential upside in advertising and sponsorship revenue (both stateside and abroad). “If you look at the number of advertisers and amount of [sponsorship] inventory F1 has relative to other premium sports, [there is room for growth],” he said. A recently signed $100 million global partnership deal with Crypto.com—as well as pacts with Drive Coffee (official coffee provider) and Herjavec Group (official cybersecurity services provider)—support that narrative. Licensing and e-commerce are other avenues currently viewed as under-monetized by F1.
F1 shareholders would also benefit from the emergence of an American driver. As Freedman noted, Lewis Hamilton’s success in the sport has resulted in a “meaningful step up” in the value of U.K. broadcast rights. “We’ve seen in countries where the team is doing well and they have a [local] driver, viewership tends to go up,” he said.
While there is no hard evidence to support the notion that the Netflix docuseries Drive to Survive is the catalyst for ratings growth (Netflix has not released any viewership data), Epstein—and many others—believe the show, which debuted in 2019, “has sent [the sport’s popularity] into the stratosphere.” Freedman noted that relaxed social media guidelines (for both teams and drivers) has also been instrumental in helping the sport build virality and cultural zeitgeist. “You have to be able to reach [the fans] where they are—and that is on social media,” he said.
Hard evidence or not, it is fair to assume more sports leagues will try to replicate F1’s Netflix success with non-live, behind-the-scenes content. “Content is a great driver of cultural brand awareness and acquisition,” Freedman said, noting the surge in interest around chess following the release of The Queen’s Gambit. But that does not mean all leagues are going to see their audience grow by more than one-third in two years. Remember, F1 was starting from a much lower baseline than any of the big four sports.