What next for Formula One? – Liberty Media | Summer Series

Bryce: [00:00:22] Welcome to the Equity Mates Summer Series proudly brought to you by Sharesies over 12 episodes. We're deep diving into some of the most exciting, interesting and well known companies from Australia and the US. Each episode we're also joined by an expert to help us unpack the key metrics the bull case and the bear case for each company. My name is Bryce and as always, I'm joined by my equity buddy Ren. How are you? 

Alec: [00:00:43] I'm very good, Bryce. I'm excited for this episode where deviating slightly from our format here because we just happened to choose potentially the most complex corporate structure on the share market. This was one of our 12 companies. Yes. So we have the expert in the room to help us talk through the whole episode. That's it. The company we're talking about today is Liberty Media. Yeah, but people probably aren't familiar with that name. They might be more familiar with a key asset. They own Formula One. 

Bryce: [00:01:12] Yes. Can't wait to unpack this. Liberty Media owner of Formula One and our expert is none other than Andrew Brown from East 72. Andrew, welcome. 

Andrew: [00:01:20] Thanks, gentlemen. 

Bryce: [00:01:21] So, yes, Ren, as you said, we normally get the expert in at the end, but Andrew is well across this stock, so why not throw him in the deep end from the start? 

Alec: [00:01:30] Andrew has a real niche in incredibly complex corporate structures. Structures or messes? 

Bryce: [00:01:38] Now, as I said, Equity Mates Thomas series is supported by Sharesies a couple of reasons we love Sharesies the platform is easy and approachable, especially with auto invest where you can truly execute dollar cost averaging into Australia, US and New Zealand shares. All markets are available. Pick the order, choose the amount you want to regularly invest and let auto invest. Do the rest. 

Alec: [00:01:59] You could dollar cost averaging to all nine of Liberty Media's coalition you could get to that we'll. 

Bryce: [00:02:05] Get to that use promo code growth when you sign up to the shares this platform for $10 into your account ready to invest promo T&Cs apply or download the app or visit sharesies.com.au While we are licenced, we are not aware of your personal circumstances. All info on this show is for education and entertainment purposes. Any advice is general advice only. How's that for an intro? 

Andrew: [00:02:28] That's pretty good. It's for education purposes, and if you get through this episode, I think you get a degree. 

Bryce: [00:02:36] Now we've been starting the episodes, Andrew, by describing the company in one sentence. We've got our sentence for it, but I'd love to hear you explain it in one sentence. 

Andrew: [00:02:47] Oh, it's the John Malone universe. 

Alec: [00:02:52] I will introduce people to John Malone in a second. 

Bryce: [00:02:54] What's your take on it, Ren? 

Alec: [00:02:56] A media conglomerate that also happens to own the Formula One and a baseball team. 

Bryce: [00:03:01] There you go. Nice. 

Alec: [00:03:03] So let's do you have a crack?

Bryce: [00:03:05] No, we've done this together. 

Alec: [00:03:08] Yeah. Let's meet JohnC. Malone. 

Bryce: [00:03:09] Let's meet John C. Malone. Who is he? 

Andrew: [00:03:11] John C. Malone At 32 years of age, was basically draughted in as a chief operating officer of a heavily indebted cable world cable company called TCI Telecommunications Inc, which was established by a guy called Bob Magnus. And John came in and basically together with Bob, they grew the equity base of TCI by acquisition, by loads and loads and loads of debt through basically the the cable wars, if you want in the US. Bob died eventually, but John obviously became the executive chairman and eventually John sold TCI to Warner, sorry, to AT&T and basically made a whole bunch of money from that transaction. However, if you keep collecting cable companies along the way, you collect some cable companies and a few assets that you don't really want. And so along the way, John got Bob to agree to package them up into a company called Liberty. And you could buy shares in Liberty when it when it actually started. But to do so, you had to give up some of your shares in TCI. Okay. So there's a really complex paper that you can find on the Internet about this, and it actually uses that as an example. And effectively what happened is only about a third of the people, only about a third the entitlements to liberty went to actually floated were actually taken up. So people just weren't interested in what was essentially one of the first crap codes. You know, if you remember BHP spinning out SOUTH32, which is called Crap CO Yeah, it was one of the first crap cars and basically Malone put up next to no money either. So yeah, this guy is entry price to just about everything in his universe is pretty much close to zero. So he's 81 at the moment. By the way, just to give you an idea. 

Bryce: [00:05:12] Net worth of 9 billion in 2021. I that right. 

Alec: [00:05:17] By some estimates, the largest private landowner in. The US. 

Bryce: [00:05:20] All right. Bill Gates Was. 

Alec: [00:05:24] So did I. But they both. 

Bryce: [00:05:25] They both sign a lot. 

Andrew: [00:05:26] There's this. There's a publicly listed company on the pink sheets called Jay Boswell. Boswell are actually the largest landowner in the US, but they're obviously a corporation. Yeah. Yeah. They literally, you know, they grow stuff in as rural culture. 

Alec: [00:05:42] They so there's a story about Malone that we wanted to include because I think it characterises who he is. Former Vice President Al Gore nicknamed him Darth Vader.

Bryce: [00:05:53] Bit of a ruthless businessman. And in 2005, Malone held 32% of News Corp and Rupert. Rupert had concerns he might lose. 

Andrew: [00:06:03] Exactly 19% of the voting stock. Right. And so he nearly had. You got to remember, obviously, that the Murdochs control news through the voting stock they've got next to no non-voting stock. And Malone basically got some 19% of the voting stock and he sort of Rupert wanted him to stall. 

Bryce: [00:06:23] And so I guess why does this all matter? This is the person that owns or controls liberty. 

Alec: [00:06:30] Yeah. And imagine if he controlled News Corp. How is it for the world? 

Bryce: [00:06:35] If he was president. 

Andrew: [00:06:38] Effectively in December 2006, he didn't agree to asset swap where it's kind of, you know, because Murdoch just simply wasn't sleeping at night. So. So he didn't a great asset swap and the News Corp went back. 

Alec: [00:06:50] That story is actually relevant for where we get to today. Oh, yeah. Because as part of the asset swap, it was three way News Corp, Time Warner and Liberty. Yes. And Liberty ended up with one of their key assets that we will touch on in a second, the Atlanta Braves baseball team. 

Andrew: [00:07:06] That is correct. One of the critical things that it also touches on, guys is, is that News Corp is controlled by the Murdochs through a you know, a voting and non-voting share structure. And obviously, all their money is in the voting shares. Some of the liberty combine, which is effectively seven different groupings of companies which are held in nine different structures. Okay, John, control some of those with as little as 2% of the economic value of the company. So I own stock in Liberty Broadband. Okay. Liberty Broadband exists to own 26% of charter communications, which is one of the big cable companies in the US. And John's shareholding is exclusively in the Super Voting B shares, which have ten votes and he has 92% of those but next to nothing else. So he's actual control of the economic equity of liberty. Broadband is 2.1%, but he controls the company and. 

Alec: [00:08:08] Just for people who get lost in that, what that means is that he doesn't have to have that much money, his of his personal correct invested in the company, but he controls the decision making of the company. 

Andrew: [00:08:20] Absolutely right. So you will neither for Facebook or now massive platforms. Obviously, Zuckerberg has super voting shares. It's exactly the same with Alphabet. So Guy and Larry have super voting shares. So it's it's no different except in the liberty groups of companies. There are three sets of shares. There are ordinary shares which are called A-Shares. In each case, they're a super voting shares and they're not very many of those. They're called base shares, and they're usually held by somebody called Malone and then they're a C shares, which usually have the suffix K, so Liberty Broadband Z will be added. K Okay. And then non-voting shares and there and usually scads of those. 

Bryce: [00:09:07] So let's close out the history to get to take it away. So, yes, so you spoke there about the three way asset swap, News Corp, Time Warner and Atlanta Braves. 

Alec: [00:09:16] Yeah, News Corp. Time Warner and Liberty.

Bryce: [00:09:19] And Liberty. Sorry. Then in 2009, Liberty invested 530 million into SiriusXM. Yes. A satellite radio provider. 

Andrew: [00:09:28] Yep. 

Bryce: [00:09:29] To help them avoid bankruptcy.

Alec: [00:09:31] State is important. The depths of the, say, 2009. 

Bryce: [00:09:34] 530 going to and then in 2017 they bought Formula One. Yeah. For 4.6 billion. Yes. Correct. That brings us to today. 

Alec: [00:09:46] So Andrew. Yeah, as succinctly as possible, because it is a complex structure, but how would you sum up Liberty today? 

Andrew: [00:09:54] Liberty Media today. Yeah. Okay. Liberty Media today comprises three businesses. Okay. Which you said a Formula One, the Atlanta Braves and SiriusXM. In the case of Sirius XM. Let's deal with that first. Okay. There's a structure called Liberty, Sirius XM. 

Alec: [00:10:13] Just just quickly, for people who aren't familiar with it, it's a digital satellite, right? 

Andrew: [00:10:17] It's a digital satellite. It's a digital satellite. Radio. What's happened is Liberty have combined their interests in this kind of satellite radio and live events. And so they created a company called Liberty Sirius XM. It's got the three stocks in the voting, the super voting and the non-voting. It has 81% of Sirius XM. Sirius XM is a listed stock in its own right. It controls 33% of Live Nation in Congress ticketing live events. 

Alec: [00:10:49] If people have followed the Taylor Swift controversy, Live Nation owns Ticketmaster and a lot of live venues and stuff like that. 

Andrew: [00:10:58] That's right. 33% of them. That, of course, is a listed company in its own right as well. Yeah. So bluntly, Liberty, Sirius XM. Yeah, it's a bit of a useless structure. It's just the hold. It's a special purpose vehicle holding structure, you know, further loan interests in those two countries. And what's coming up is, of course, you know, obviously life's a bit boring and John's world at the moment. So he's going to separate out the Live Nation bit from the SiriusXM bit and create three new A in that case is. 

Alec: [00:11:36] Now just for the world as it is today. There are three stock tickers for Liberty, SiriusXM that that first. 

Alec: [00:11:45] Structure that Andrew just spoke about tickers like miss are there the a-shares that have one vote. Yeah six and they the base shares that have ten votes. Good luck getting your hands on those but they are listed. They are. And then like six m.k, which are the C shares with zero votes. Yeah. At some point I'm going to ask Andrew why he doesn't call it assets and say, but let's not derail the explanation of what liberty is like.

Andrew: [00:12:12] So that's when that question is, I don't know. But in exchange for that, I will give you a very interesting fact, which I think is interesting to your audience. The shares have a vote, obviously, and you would think they would be worth more than the C shares, which don't have a vote virtually across the whole liberty structure. The shares traded at a premium to the iShares was up because there's many more of them and they're much more liquid. I can type. So liquidity often trumps the value of a vote in a structure that's controlled by some other voting. 

Alec: [00:12:50] Yeah. So for people wondering, it means if you're a big shareholder and you want to get out quickly because Malone's lost his mind. Yeah, it's a lot easier to get out of, say, than it is.

Andrew: [00:13:00] I absolutely. And that is that is relevant in Formula One when we get to it. Okay. Very relevant. 

Alec: [00:13:05] Well, so let's put let's say Formula One to us. Absolutely. So the first of the three key divisions, key structures, Sirius XM, and then we've got the second one, Batra. 

Andrew: [00:13:16] The Atlanta Braves, the Atlanta Braves, obviously, baseball team, you can track baseball team values very easily. Forbes magazine every year does values of each of the sporting teams in the four major American sports. I track them fairly religiously, but not in baseball. Track them in basketball because I have stock in any listed basketball company, which is Madison Square Garden Sports here, and the appalling New York Knicks. So and those valuations actually are way better than you might imagine. They're really good. They tend to be, if anything, a little bit conservative. 

Alec: [00:13:59] By really good, you mean really accurate? 

Andrew: [00:14:01] Yeah. Yeah, they're quite accurate. If they're not accurate, it's because they understate rather than what you would expect, which would be the other way around. And the Braves trade when you include their debt, the Braves trade roughly at around the Forbes value of the Braves, which is which is basically just over what is about 2.7 billion. Okay. The Braves is not just the baseball team, it is the stadium. And there's some quite significant surplus property which is being redeveloped around it. So as much as anything else, because the Braves, yeah, they're probably a very successful team, you know, they won the last, I think, you know, three of the last four seasons. So they're very successful. They sell out most of the games. But to be blunt to me as an investor, it's not that appealing. Okay. Yeah, we're not really sat here in the middle of Sydney going, Oh, I'll just see the Braves game last night. No, no, yeah, we didn't. Whereas, you know, if I say to you in the middle of Sydney, did you see the Manchester United game last night? You go, Oh yeah, it wasn't that fantastic, you know, what are they going to sell? Harry Maguire, you know, you know, and you talk about it. So baseball gets great in America. But it to me it's just a domestic market with some growth obviously in the Hispanic world. 

Alec: [00:15:16] Yeah. And Asia and I think in Asia. 

Andrew: [00:15:19] Big in baseball, in Japan and everything else. But yeah, because of time differences and things like that. Unless there's a Japanese born player, you know, it's not the great big global sport. 

Alec: [00:15:32] So if baseball doesn't get you off as an investor, is it the redevelopment of downtown Atlanta that's getting you up in the morning? 

Andrew: [00:15:40] No. it's the big issue Ren is that in the case of the Braves, they're trading around the Forbes valuation, whereas then, for example, Madison Square Garden Sports and they do not own the stadium because that's in a separate vehicle that's controlled by the Dolan family, all these things. But all these sports things are all controlled by family. When you add together the value of the Knicks, which despite the fact they're so hopeless, they're now only the second most valuable team in baseball. They've been overtaken by the Golden State Warriors. 

Alec: [00:16:12] It's it's good to be in New York. 

Andrew: [00:16:14] It's good to even yourself. And for years and years and years, forever, the new Rangers have been the most valuable team in hockey. And together they trade at roughly a 50% discount to the addition of the Forbes valuations. Oh, well, and there's very little debt or net debt in the structure. Please bear in mind, sports teams are really hard to get a handle on the balance sheet because of things like corporate boxes, commercial revenues, you know, when does that money come in? You know, if it all comes in on the 1st of July and you look at the balance sheet on the 2nd of July, you'll look at all. Last a year, guys, sorry. So there are things like that. So they're trading at a big discount. And I think eventually the Dolans will sell. So, you know, I think there's some potential upside there. 

Bryce: [00:17:00] Right. So to recap, we have Sirius XM. Yep, three listed. Yeah, Braves. Braves three listed. Batra A, BTR, B, and I should say B, I pay eight, a, B and bath eight. K. Which then leaves us with one, the third major division.

Andrew: [00:17:21] Formula One formula what? Not to put it too bluntly, in terms of many businesses that you see listed and I'm going to put valuation apart here because I will touch on that. This is serious sex on wheels. There's no other. 

Alec: [00:17:40] So you been watching Drive to Survive?

Andrew: [00:17:43] Absolutely. I've been a Formula One fan on and off ever since I was, you know, a kid. And I saw I can remember Jackie Stewart and Graham Hill and, you know, and. 

Andrew: [00:17:55] Guys have never heard of. Yeah. And the ones that were died and the ones who died before you were alive. Yeah. So Formula One is really, really attractive. And I want to lay out, if I can, a thesis about sports and investing in sport. And you can apply this to a sports team if you wish.

Alec: [00:18:16] Just just so people understand before you lay out that face, as Tom came to hear it, Formula One, you know, with the brave who are talking about owning a particular team with Formula One, they actually are in the sport. 

Andrew: [00:18:28] There are only two listed sports in the world. 

Alec: [00:18:32] Don't tell us the second one when we get to listed sports. 

Andrew: [00:18:35] Sports. 

Alec: [00:18:37] Is it like a mainstream sport? Like would we or is it going to be like.

Andrew: [00:18:41] That's what you're all. It depends. What you're asking. 

Alec: [00:18:44] I know what it is. I You want to try and guess chess better. So just so you own the sport Formula One. Yeah. And again, as with the other two three tracking stocks. Yeah. Fw0 and ifw0 and Bay and f0n correct. 

Bryce: [00:19:05] So just to summarise here, what we're saying is you can't buy just stock in liberty. You have to be buying into the business units. That's the first thing to consider. Yeah. To make it even more confusing, they are about to change it up again. They're going to be spinning off the Atlanta Braves out of liberty and create a new tracking stock love tracking stocks for their 35% ownership of Live Nation. 

Alec: [00:19:30] That Sirius XM business, which owned Live Nation will have Live Nation stripped from. It'll have its own set of tracking stock. 

Andrew: [00:19:38] What's important, okay, is the Braves are going to become a company in their own right. 

Alec: [00:19:43] So you roll they'll roll those three different tracking stocks into just one normal.

Andrew: [00:19:47] They'll be one normal company, but it'll still have differential voting stock. Right. Can I just make sure you people understand the difference between a company and a track, a stock place? Okay. A tracker stock is something that's listed on the stock exchange that is designed to give people it invest in a tracker stock, effectively the economic outcome of that part of the business of the conglomerate. Okay. So in this case, Liberty Media. If Liberty Media goes broke, you can. Can't sit there and say, Oh, but I own shares in the Atlanta Braves. They haven't gone broke. STEF Okay. The actual legal entity is called Liberty Media. Okay. You are just kidding. You are just getting a stop that tracks. Hence the name the performance of Atlanta Braves Formula One or, you know, Liberty, Sirius XM. [00:20:44][57.0]

Alec: [00:20:45] And I think for most investors, listing, you invest in companies for the economic interest. So it doesn't affect us. But if we if Bryce and I decide to become corporate writers and do leveraged buyouts, then all of a sudden the fact that it's just a tracking stock means. 

Andrew: [00:21:00] You've got a. 

Alec: [00:21:01] Problem. South Korea is going to end before it starts. 

Andrew: [00:21:04] Right. And so you understand that if you go on, if you go to the SEC website or you go to the corporate website and you download the results for any given quarter, you will see that, you know, you only want the Formula One results, but you're going to get the results of the other company, of the other track stocks, whether you like it or not. Yeah I kind of balance sheets all meshed in together as well. Know the liabilities are all liberty media liabilities but then they have some separate bonds for Formula One and things like that. They do do a good job of effectively busting it out so you can get a good idea of what's going on.

Bryce: [00:21:39] Now we are going to just focus the remaining part of this episode on Formula One, the six on wheels, as Andrew explains it. But just a reminder that you can access US stock market Australian and New Zealand markets on the shares this platform with no investment minimum. Use promo code grow when you sign up to the shares this platform for $10 in your account ready to invest. All investing involves risk. This is not a recommendation and you should perform your own research and agencies apply. Now, we're going to take a quick break. And on the other side, we're going to start with Andrew's thesis on investing in sports and then do a deep dive on Formula One. 

Bryce: [00:22:24] Alrgiht, Ren well, sports investing. 

Alec: [00:22:27] Sports investing. Now, we've spoken recently on the podcast about Andrew's investor letter, a 72 investor letter where he wrote about Manchester United. 

Bryce: [00:22:36] Yeah, the value player. 

Alec: [00:22:37] Yeah, people can find that on his website if they want to write about it. So, Andrew, you're deeply in the world of sports investing. Before the break, you taste us that you have a thesis. So let's start this apply. 

Andrew: [00:22:48] I mean, the best thing to invest in is the sport itself, okay? Rather than individual sports team, you know, because if you invest dimension ideas and they get relegated, you know, it's an existential threat. Okay. Whereas if you are able to invest in the English Premier League, it doesn't matter who's in it. So the sports themselves, there's a six point circle in my mind about investing in sports. So the first is the intrinsic attraction of watching brilliant practitioners. Okay, so it doesn't matter. It's a Federer, Woods, Massie, Lewis, Hamilton, Real Madrid, whoever it is, there's an intrinsic attraction of seeing people do things that you simply can't do. Okay. The second is, what does that do? Think it creates a passion in you for either the person or of course, much better sometimes the team. And so what you've got to have is you've got to have competition so that messy can show you just how good Messi is and Real Madrid can show you just how good Real Madrid are. So you must have the best, compete against the best. You cannot have Mercedes competing against Ford Fiestas and on another circuit Ferrari competing against little minis. Okay. You've got to have Mercedes and Ferrari together. Yeah. Okay. So it means you've got to have the competition glued together, which is the third aspect of that. When you do that, you get passion, you get competition and you get debate. That's sports. And we'll come on to sports content in a minute. Sports content is much more than showing the race and showing the game. Okay, it's about Cuba. Okay. There are 24 hour a day sports, Juba, radio stations, these heaps of them in America and and TV these days talksport in the UK which which is owned by News Corp, you know. So there's you know, now, of course, there's podcasts galore. Okay. And what you've got to have you got to have lots of others. You've got to have lots of ways that people can interact with the sport. You know, where it's a simple phone in you know sites sell Maguire you know or what's Ricardo doing okay or something more. And so what Formula One used to be like before it was acquired by Liberty Media, was it? It was closed. Yeah. There was no interaction with the drivers. You didn't know whether you know Driver X-Y-Z was, was highly amusing with a wonderful personality, you know, or a sort of chess playing automaton, you know, just you had no idea and Netflix blew that apart. 

Alec: [00:25:48] Yeah. You had no interaction with them at all. So it was hard to show like highlights and stuff on social media. 

Andrew: [00:25:54] Yeah, that's true. Yeah, this sort of knew the drivers because of the nature of the sport. They've got to be competitive. They've got to be, you know, light on the edge. And so it's got to give them different personalities. But, you know, you had no idea that Daniel Ricciardo and Max Verstappen lived on completely different planets and therefore it was inevitable one of them was going to leave Red Bull four years ago. Yeah, yeah. And it wasn't going to be Verstappen.

Alec: [00:26:20] And that was by design, because the Capri Liberty owner, Bernie Ecclestone. Correct. Wanted it that way.

Andrew: [00:26:26] Absolutely. The forcing thing because of that, because of the competition. So because of the attraction of the practitioners, because of the fact they're in a key competition, because this passion and other content, the media rights become worth a fortune. Yeah. Okay. The media rights actually show the races and show the game become worth a fortune. And it's quite funny for most sports and in fact, for most sports teams, by and large, the money they get from TV and related is around about 40% of the revenue of the eyes is a club or the sport. Now the media rights are so intrinsic to Formula One in two respects Formula One under Bernie Ecclestone until and he went through some private equity partners as well which we. To go into the story there. But forever in Formula One, it was going to split up. The teams were going to go their separate ways, a little bit like the English Premier League. What happened there in the late eighties, early nineties, the teams said to the football league, get lost. We're going to set up Brian League now. And the league football league had no answer to that and its two teams decided to go. You are not going to watch lousy little cars, you want to see Ferraris and whatever. And so what's happened is the Formula One teams get 50% of the TV money channels directly through. 

Bryce: [00:27:56] Avon's Formula. 

Andrew: [00:27:57] One. It's a 50% split, goes to the teams, but the teams get a disproportionate share of that because that goes into that's the prise money effectively. Okay, so there's, there's base fees, but effectively the teams get half the media money. Okay. And then they also get other money as well. But they actually pay some fees back to Formula One as well, which I'll explain how that works. So that's really important. So the more the meteorites. Yeah. And they usually sell by country. Yeah. And the biggest rights are in Europe. Okay. Historically, UK, Germany, places like that. But guess what, like every other sport that didn't originate in America, guess where the biggest new market is? America. Americans have decided there's more to the world than they're for sports. And this, yeah, the two sports they're into big time are English, Premier League football and Formula One. 

Alec: [00:28:54] To give people an idea of just how profound the US growth is. Yeah, so since Liberty took over about five years ago now, four years ago, half of us fans started following F1 over the past four years. 

Andrew: [00:29:11] Absolutely.

Alec: [00:29:12] Yes. That's from Liberty presentation. Yeah. And just over the last year between 2021 and 2022, the average US viewership per Grand Prix. Yeah. Up 28%. 

Andrew: [00:29:24] Absolutely. 

Alec: [00:29:25] So like the US is just booming for Formula One, right. 

Bryce: [00:29:28] Stoked for Formula One. Yeah. For the market. 

Andrew: [00:29:31] This is really crucial. I'll finish the two points off because they're going to wind into crew. How crucial that is the fifth point I had. So the fourth point is the media rights. The fifth point is because the media rights are so big then that attracts everybody else. It attracts. Yeah. You want merch? Yeah. Because you see it on TV. You want to walk around the streets with a Daniel Accardo McLaren or you did at the Australian Grand Prix, you was for only $70 and you know, 70 bike, baseball hat, you know, the other stuff and it's the commercial deals. So if there's a lot of kids walking around with hats or shirts, you want your name on the shirt, your business. So that's why Teamviewer, for example, which is a German company, pays ridiculous amounts of its revenue to Manchester United. So have Teamviewer is the main law, you know, as the main sponsorship logo? I mean, you know, so this stuff attracts merch and commercial arrangements, which is really important to Formula One. The six thing that Formula One has that virtually no other sport has which which is the real 6 to 6 on wheels. It's technology, okay? It's tech because this feeds real innovation. You buy a Ferrari when you're two year wait is over. Its technology that's being developed on the race tracks of the world, it's the same with Mercedes. It's the same with Honda. Don't forget, because there's so many Honda powered engines, even though they don't run a works team. Okay, so F1 has that extra thing, which makes it even more valuable because people are paying, you know, hundreds of thousands of dollars for, you know, motor cars to put in a garage that are tried and tested. So for the US revenue base, this just gets this because it's important to see how it's changed and why it's a much better sport than it ever was under the clutches of Ecclestone. Okay, so 37% of the revenue comes from meteorites. Okay, that's going to keep growing. 30% comes from rice promotion. So when Melbourne has the Australian Grand Prix, Melbourne pays Formula One to put on the Grand Prix. Okay, now it obviously gets ticket sales and things like that. It doesn't get all the commercial, okay, it gets most of it, but it has to pay a large amount of money to F1 to actually put the sport on. And what Ecclestone was doing was he was selling the Rice promotions to basically places like Azerbaijan, Dubai, UAE, Saudi Arabia, in other words, are places where the fans don't really. On a guy. There aren't a lot of fans, but there are governments and commercial enterprises who've got tons and tons of money. It got so bad that the two, probably the two most prestigious Grand Prix sorry, two of the three most prestigious grand prise on the circuit nearly got eliminated.

Alec: [00:32:35] Because they just wouldn't pay. 

Andrew: [00:32:36] Yeah, which was, which was the British Grand Prix Silverstone and the French Grand Prix at Circuit Paul Ricard. And that actually dropped off the calendar and Monaco went close. Which is the blue ribbon. Even though it's the worst race, it's the blue ribbon event. 16% comes from advertising and sponsorship. You know, it's a Formula One itself, not the teams, but of F1 itself. And the rest is what's called other, which is 17% of the revenue. And that includes things like I've described F1 as it is the biggest circus in the world, it's the biggest travelling circus in the world. If you ever win in F1 race, you know why? You know it's huge. Okay. And how do you think all this stuff gets there? Yes. Formula One. Get it there for you, the team. But you got to pay for them to fry your cars and your pits and your gear. Okay. So F1 is a real moat. Okay, there's a moat because the teams are locked in till 2110. There's a 90 year deal. Okay. And when you go getting half the TV rights and the stuff put on for you, you are not going to leave. 

Alec: [00:33:53] When you say it's a 90 year deal, is it that the revenue split is 90 years old like Ferrari, not the front up for the next 90 years? [00:34:00][7.1]:34:00] Not that Ferrari have to front up, but the F1 have got a front up the stuff, a Ferrari as well. Now it's not to say that they might not be a recutting of bits of the deal. This is actually called Concorde eight. This is the eighth Concorde between F1 and the teams. You know, from basically about the late eighties. F1 started properly in 1974. Okay. If I can give you an idea as well, just to give you an idea, what's this thing worth? Formula One's equity. There's we talked A, B and K shares. There's 24 million shares, 2.4 million B shares, which have ten votes, and there's 207 million non-voting shares. So the 234 million in total shares, the equity values, about 14 billion US, the net debt, so only about 1.4 billion. So the enterprise value is about 15 and a half billion. These guys bought the business for 4.4 billion in 2017, but there was 4 billion plus of debt as well. Right? So the enterprise value is about 8.4 billion. So the IVA is about doubled. Well, the operating profit that's before interest payments, depreciation and everything else, and it is a pretty good proxy for the cash flow, the gross cash flow, the operating profit this year will be about 575 million USD. And so the shares trade at 28 times enterprise value to operating profit. Okay. So that is up there with luxury goods companies. It's up there with in fact, it's more than Ferrari itself. It's not quite as much as certain sporting teams, you know, some sporting teams more expensive than that because they are easy to transfer. 

Alec: [00:35:58] Yeah, you can't. 

Andrew: [00:35:59] Transfer Formula One to a sort of Middle Eastern potentate that easily because you've got a drag. You've got to drag ten or 12 teams along with you. The upside is, by the way, you've probably all aware of the fact that Audi and Push are going to join for F1. New team, $200 million. How interesting to get in. Well, okay. For a new team, worth it. So you better have back its wealth. You've got to have backers. You've got to have backers. So the way I look at it, I think it is one of the greatest businesses on earth. Because I think now what Chase Carey, who is X News Corp, has run Formula One effectively as the kind of executive chairman. Okay. They've done is they've locked the teams in. Yeah. WWE by contrast. Yeah. There are competing wrestling circuits now, you know, because it makes a lot of money is controlled by Vince McMahon. Vince is not on the board anymore because it's got a new girlfriend and bought her presence with the company's money. I'm not saying that wrestling is easy to replicate, but it's not hard to try and replicate formula for. Okay. And as long as the teams are happy, they're not going to try and go on their own. 

Alec: [00:37:20] So, Andrew, I think you've articulated the bull case. Yeah. What? What's the bear case? What? Why would this not be? Why would this not work out? Why would this be a good investment?

Andrew: [00:37:32] The most obvious bear case is that the stock is pretty expensive. Yeah, if, you know, if you've been to a Formula One event, you know, you really have to save up to go. Yeah. Yeah. Ticket prices are expensive. The city that it's held in, if it's held in a city like Melbourne. I went to the Australian Grand Prix this year, so the tickets were 500 bucks and we didn't stay in a hotel. I stayed with friends because hotel rooms were like, you know, sort of a grand a night for nothing. Air fares were really, really expensive. So it is a sport where if people don't have any money, you will simply sit and watch on television like you will not attend the track. And if so, if people don't attend the track and the attendances go down and this is what happened with Melbourne, don't forget people got bored with F1 because the same guy won every year for a while, which was Michael Schumacher, and then obviously Hamilton went on a burn and people got bored with it. And so what you need is competition and that's what livery have introduced. You know, some might say it's more than competition, it's expensive. And and so in a recession, you won't go you will watch on television, and there's only certain people will be able to go. So that's number one. So it could impact on the ability that cities have. At the moment. That doesn't seem to be happening because the biggest problem Formula One have is that they've got 25 events already and the drivers are sort of saying no more. You know, it's like a lot of sports. The participants are kind of, you know, to be blunt, they've really tired. You know, 25 Grand Prix is in 52 weeks, you know, and the travel around the world is brutal. So that's the biggest issue there. They can't you know, they can't put 40 Grand Prix on in a year. That's got to do it. There's no issue from the manufacturers because, you know, one of the big things that's happened on the stock market in recent years is you got the spin of Ferrari out of Fiat Chrysler, and that's been a one the stock Porsches now spun out of Volkswagen. There's rumours Lamborghini will spin out of Volkswagen as well. So if you get high end car manufacturers and we're in an environment where sorry, like it or not, the rich get richer and the poor get poorer in a recession with inflation, you know, you the poor like may have to spend more money on bread, cheese and baked beans, you know, whereas, you know, the rich who rent me my house and sell me my food, you know, basically get more money. And so these people comply and I've got more money to play with. Plus, obviously, you've got more places in the world that have got, you know, hydrocarbons to sell to other people and lithium and other things. So the mine threat is just really a really, really deep recession and that the car companies themselves can, you know, really invest in it because the amount of money they invest in this is just huge, you know, as you all know. So they're the biggest threats. I think it's showed that it's not necessarily a it's not necessarily just a sort of good time economy sport because of the interest and because it's got new markets. It's the biggest growth option to it is those new markets. It's China where it's not huge. You got one Chinese Jaguar driving jacket in you. And, you know, the more this really gets into to Asia, you've got one Japanese driver and it's about that. 

Alec: [00:40:54] Let me put one thing to you. When we're talking bear case, are we at peak F1 because we're at peak drive to survive and those new US fans will leave all those people that decided to go back to Melbourne. We'll get sick of drive to survive by season. I now walk away. Has it been a sugar hit for a sport that wasn't fundamentally capturing people's attention five years ago? 

Andrew: [00:41:19] It's been a sugar hit. Yes, because it's brought out the personalities. If Max Verstappen wins every race for the next five years, you will not be watching Formula One. Okay. And unfortunately, that's what was going on and has gone on in the past. Okay. The highs in Formula One in the 1960s and the 1970s in the old structure was because it was really competitive. Different drivers won each different race. Okay. The thing that will kill it is if somebody has got the best car and remember we're talking about competing technology technologically. Yeah. So there's a chance that Bryce has got the best car and he's going to beat you up the ride every day. Ren. And then, you know, then you come and see one of my Techo friends and the reverse happens.

Bryce: [00:42:05] I also think that Drive to survive was an entry point. But now, like, I watch the actual season, so I don't need to watch. 

Alec: [00:42:13] I'm just. I'm just playing devil's advocate. Yeah. Yeah, but. To be fair, there are people that don't watch Formula One because they don't want it to ruin their drive to survive. But they're probably ones that also buy merch and stuff. Yeah. 

Andrew: [00:42:25] Yeah. The key is, like any sport, you've got to have personalities in a sport. You can't just have automatons. You've got to have personalities. I mean, what's what's been the you know, let's look at it. Take another sport. What's been the base you know the biggest to buy in. Yeah and talking point in football you know for the last four months. Yeah. It's Cristiano Ronaldo. Yeah. Yeah. This sort of, you know, miserable 37 year old, you know, he's way past his peak now and can't cope with it. And yeah, it's just fill column inches and podcast minutes galore. And as long as you've got talking points and F1 is now open to those talking points, we know Verstappen is dedicated and possibly not the most interesting personality, but there's a million other really interesting personalities in Formula One, not least, of course, the team owners. Mm hmm. You know, you're the team owners. They like the coaches. You know, they're you know, you talk about coaches and football and these are the coaches. 

Bryce: [00:43:26] So to close out, where do you expect Formula One/Liberty to be in ten years? 

Andrew: [00:43:34] Oh, okay. 

Alec: [00:43:34] And there's probably a key question. That is Formula One, even under liberty in ten years. 

Andrew: [00:43:39] I would expect Liberty to sell Formula One at some stage in the next ten years because, you know, John Malone's in his early eighties. Malone has had his toughest year, I think, in terms of critique from stock market analysts. Most of the stocks in his empire have gone down and not gone down a little bit. They've gone down a lot. Yeah, Liberty Broadband is down, you know, 50 to 60%, for example, which is just a leverage plan charter and a lot of the other things. Liberty, TripAdvisor, there's a lot more people kind of questioning why do we need all these things? Why do we need this structure? What's it for? John This is stuck in the 1980s, mate, and yeah, and now he's playing around again with the Liberty Media's structure. So I would expect in ten years that Mr. Malone may not be on the planet. You know, I hope he is, but he may not be a be nice. He wants to actuarially he's less likely to be. And I think even though he's got a real lieutenant in Greg Murphy, who runs a lot of that, you know, individual things and effect of the liberty structure. I think the somebody will come along because you know top line sport is so sexy as an investment if you can lock it in that someone will come along and they may not necessarily be, you know, it could be private equity again, you know, private equity getting into football clubs. Obviously, the Middle East are getting into a lot of different sports, not least football clubs, because they're Madden football. I got a ton of money and, you know, they feel it may assist their reputations a little. So two Premier League teams are owned by Middle East and sovereign wealth funds, effectively Newcastle and Manchester City. So there's plenty of buyers with money there and they like Formula One. There are Formula One grand prise, I think there are four in the Middle Eastern region. Yeah. So I think you get a chance to sell at some stage. 

Alec: [00:45:29] Okay. If he does sell and you own let's say you own the Formula One, DFW and he sells, do you get is it like if a company that you own get sold like, well, you get some of that economic benefit. 

Andrew: [00:45:42] You should get some of that economic benefit because quite clearly I have too much money, you know, coming into, you know, the central structure. So, yes, you would.

Alec: [00:45:50] Get that kind of shit. Yeah, that's. 

Andrew: [00:45:51] Probably I just want to point out one thing I think is we said we said that sometimes the non-voting shares traded a premium to the voting shares because a lot more of them. That's very much the case is Formula One. A couple of days before this is broadcast, the shares traded at 54. They've got a vote and the non-voting shares traded at 61. So big premium. Yeah, that's big for him. So pretty obviously. I think, you know, number one, if you were to buy this security because you think, you know, what we've said, you know, just tells you it's a hell of a business and you're a little less price sensitive. You do have to be a genuine long term investor. So the earnings catch up a little bit with what I think is a high valuation, but one that might be justified because it's a monopoly. And if you did, you probably better off buying the H's. 

Alec: [00:46:38] Well, obviously not advise not advise Andrew's opinion. Yeah. Or here to learn. Yeah hopefully it was informative. 

Bryce: [00:46:46] So it's a thank you to shares is for supporting equity might some a series head to shares is secondary you or download the shares is up but Andrew thank you so much for coming in talking us through the media. We really appreciate your time as always. And thank you very much. 

Andrew: [00:47:02] My total pleasure. One of the most exciting bits of the stock market is sports listed. Yes, teams on the market. 

Alec: [00:47:10] Fascinating. Yeah, yeah. Thanks, Andrew.