Specialist
Former executive at Williams Grand Prix Engineering Ltd (Williams Racing)
Agenda
- Formula One (NASDAQ: FWONA) teams' revenue stream analysis and key growth drivers
- Historic PE investment in teams across stake-building vs direct buy-outs and future opportunities
- Concorde Agreement implications, including profitability impacts and potential for new teams to join
- Cost base analysis, CAPEX trends and profitability levers
Questions
1.
Could you outline the cases where PE and credit investors have invested in Formula One teams? For context, we’ve got 33% of McLaren going to an investment group and Williams Racing being taken private.
2.
You mentioned stake-building vs a direct buy-out. I want to draw a parallel to corporations investing in companies, such as Ineos acquiring a 33% stake in Mercedes. How is the strategic rationale for a PE investor different from what corporations are doing when taking stakes in these companies? Mercedes hasn’t put Ineos in its name yet, so what was the rationale there?
3.
When thinking about automobile companies taking stakes, I understand the parent companies have substantial roles when it comes to engine development and other areas, and this is also helpful when we’re looking at the Constructors’ Championship. What is the typical value addition when automobile companies come in to build out their stakes or buy out teams? I want to link this to what we are seeing with Porsche and Aston Martin trying to get more aggressive in this space.
4.
Could you rank the 10 Formula One teams into different tiers based on their profitability? Who is severely loss-making, who is breaking even and who is profitable?
5.
What different business models exist across the Formula One teams? Which model is more appropriate for PE or private capital? You mentioned certain variances in the business models, and that Gene Haas interestingly has a low-cost model. There are also the car manufacturers.
6.
When does the Concorde Agreement come out? The budget is being cut from GBP 145m now to GBP 135m in 2023. A specialist in a previous Forum Interview [see Formula One Group – 2022 Operating Environment Update & Concorde Agreement Evolution – 11 July 2022] said it won’t necessarily level out the playing field for another few years. What were your initial thoughts when this cap came in, and how do you expect it to shift the playing field and make other teams more profitable, if at all?
7.
You outlined the differences between FIA [Fédération Internationale de l'Automobile; International Automobile Federation] regulations and regulations through the Concorde Agreement, but what are potential profitability concerns from a regulatory perspective? On the flip side, could anything indicate a longer-term opportunity for profitability in the teams?
8.
One of the most interesting things about the Concorde Agreement is it increases the number of Grand Prix every year, which naturally boosts the Formula One Group’s overall profitability. Do you therefore anticipate any opportunity for new teams to join in? I believe there’s a USD 200m entry fee, which could be a bit of a deterrent, but what is your take on the ability to add on new teams beyond the current 10?
9.
How is profitability for teams in the Formula Two, Three and E divisions?
10.
How does the ownership structure work across individuals, parent companies and sponsors? How should PE think about the ownership structure of a Formula One team?
11.
You said it doesn’t make a lot of sense to just buy a stake, referring to the private 33% stake investment in McLaren and that there are not many synergies within its portfolio and the value position it can put into McLaren. Why would you suggest a total buy-out vs stake-building over a period of time? What’s the trade-off there for PE?
12.
How are Formula One teams looking at debt issuances, either in terms of a private placement or just issuing credit into the public markets? How are these teams evaluating opportunities from a credit perspective?
13.
I understand there are variances with a Formula One team’s revenue segmentation, but what revenue percentage comes from prize money, sponsorship, partnerships and agreements with the FOM [Formula One Management]? I believe Ferrari has a legacy pay-out.
14.
How is a Formula One team structured from a business or commercial perspective? Is there a commercial division, a media sales division and an FP&A team?
15.
Where are any bottlenecks or potential issues in a Formula One team’s organisational structure that PE could help with?
16.
What does the contract look like when sponsoring Formula One teams? It is a minimum guarantee or revenue share? Is it based on number of years? Could you outline the stickiness of it and the sponsorship churn rate?
17.
When looking at a team’s core cost buckets and P&L, can you outline the components of the COGS and OPEX, and what that looks like as a revenue percentage? Where are we seeing a bloat?
18.
You said PE is great for optimising the cost base, so what should PE be looking at pushing down and where should it perhaps restructure any components?
19.
What major CAPEX buckets exist when running a Formula One team, such as required maintenance and expansionary CAPEX? What could PE do to push down those CAPEX requirements, whether it’s investing in technology, AI or other realms?
20.
Where should PE focus its capital allocation when it’s looking to grow the teams, and where should it reduce the amount of investment?
21.
How should PE look at investments in the teams, given the hype around Formula One will only grow larger? What should we monitor in the teams?
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