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Liberty states F1 commitment as losses increase

US mass-media company Liberty Media has reiterated its commitment to Formula One after posting a significant increase in operating losses, despite a rise in revenues for the motor-racing championship.

Liberty Media released its financial results for 2018 yesterday (Thursday), with Formula One Group forming one of its three core business units alongside satellite radio company SiriusXM and the holding group for Major League Baseball’s Atlanta Braves.

For the period ending December 31, 2018, Liberty said Formula One Group secured $1.827bn (€1.6bn) in revenue, a two-per-cent rise year-on-year. The Formula One Group posted an operating loss of $40m for the first full year of its stewardship under Liberty Media, and this increased to $110m for the second year.

Liberty primarily blamed the loss on increased costs as the business continued to invest. It went on to cite logistics and travel expenses, 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. These reduced for the second year in a row from $919m to $913m. Teams were paid $966m in 2016.

Liberty added that selling, general and administrative expenses increased primarily as a result of increased marketing and research costs and increased bad debt expenses due to “payments issues” with two commercial partners.

Formula One Group’s revenue for 2018 broke down into a marginal gain in primary revenue, from $1.483bn to $1.487bn. Other revenues increased by 13 per cent to $340m. Primary F1 revenue represents the majority of F1’s revenue and is derived from race promotion fees, broadcasting fees and advertising and sponsorship fees. For 2018, these revenue streams comprised 33.8 per cent, 33.1 per cent and 14.6 per cent, respectively, of total F1 revenue.

For the full year, primary F1 revenue was essentially flat. Race promotion revenue increased modestly primarily due to contractual increases in race promotion fees, as well as a contract amendment for one event that provided for an increase in promotion revenue which was fully offset by a reduction in advertising revenue related to that event.

In addition, race promotion revenue in 2018 was impacted by the make up of the calendar, with the end of the Malaysian Grand Prix in 2018 not fully offset by the return of two European races in France and Germany.

Liberty said broadcast revenue was essentially flat for 2018 as contractual rate increases and favourable foreign currency movements were offset by the early termination of one contract with a “failing” broadcast rights broker. Advertising and sponsorship revenue also decreased for the full year.

The Australian Grand Prix opens the 2019 F1 season on March 15-17. In recent weeks, reports have again questioned Liberty’s long-term commitment to the sport, but both Formula One Group’s executive chairman Chase Carey and Liberty Media’s president and chief executive, Greg Maffei, have rejected any talk of a wavering in the company’s stance.

Speaking on a conference call for the financial results, 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.”

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. We are committed to the F1 business.”