U.S. media company Liberty Media has confirmed that it is buying the racing business Formula 1 for $4.4 billion. Liberty Media is buying the stake from the private equity firm CVC Capital. It deal values the company at $8 billion, but that includes $4.1 billion worth of F1's current debt.
While Formula 1 racing has never managed to break wide into the U.S. mainstream, it is wildly successful overseas. It generates about $2 billion in revenue annually from advertising, from fees paid by the tracks themselves and other marketing ventures. The money is split 50/50 with the racing teams. but that still leaves an impressive revenue stream for the owners.
As to why Liberty Media is making this deal, aside from the money, Formula 1 sports is seen as somewhat old-fashioned in the way they market themselves and the way in which they distribute their races. They've relied on traditional broadcast partners for distribution and the sport's digital footprint is almost non-existent. All of this makes for a potentially impressive upside for Liberty Media.
There are a couple of challenges awaiting the new owners of Formula 1. Bernie Ecclestone had been the chairman of Formula 1 for nearly 40 years. But he is 85-years-old and there had no obvious successor waiting in the wings. As part of the deal, Liberty announced Ecclestone will remain as chief executive and will remain at Formula 1 for the next three years. But Chase Carey, vice-chairman of 21st Century Fox, will become the new chairman.
The other problem is a legacy related to CVC Capital's decade-long stake in the company. While Formula One has enjoyed a growth in global popularity and an expansion in races and profits in recent years, CVC has also been criticized for taking money out of the company instead of investing it in the future of Formula 1. The sport also faces rising costs to teams and a format which has led to predictable races and some lackluster finishes. Formula 1 also has struggled to find a younger audience, particularly when compared to some other global sports.
The sale has to be approved by the European Commission (the executive arm of the European Union) as well as the F1's regulator the FIA, which owns a 1 percent stake in the sport worth around $100 million. That F1A stake might prove to be a stumbling block, since regulators look suspiciously on any deal in which a party needed to approve the deal can only make money when the deal is approved. In this case, FIA is unable to sell its stake until CVC Capital successfully sells its part of the company.