Formula One is the world’s most popular motor racing series, and a leading global entertainment property. At CVC’s exit in 2016 the series comprised 22 races across five continents, and delivered 500 million fans globally access to high octane and high tech engineering, wheel to wheel racing, luxury and lifestyle content.
Addressing challenges and creating a strong foundation for growth
In the early 2000s Formula One was in crisis: (i) with the majority owner of Formula One, Kirch Media, experiencing financial challenges (and under direction of its lenders); and (ii) the Formula One (F1) teams feeling under-compensated and alienated by the governance of the sport.
In 2005, CVC used its experience from owning an adjacent motor racing series, Moto GP (1998-2006), to develop a vision for Formula One, to help address the issues and develop the sport to its full potential, for the benefit of F1 fans over the long term.
In early 2006, following a lengthy period of due diligence and negotiation, CVC Funds successfully acquired a majority share in Formula One from a disparate group of shareholders, including the lenders to Kirch Media.
Led by CVC and inspired by a new vision of collaboration and transformation, the stakeholders in Formula One, started to work together on an ambitious plan to transform the sport:
- Building Formula One Group: through the acquisition of the Formula One broadcast and race promotion business ; the subsequent acquisition of the sponsorship and hospitality business; and the GP2 & GP3 support series from others in the sport, to create the ‘Formula One Group’.
- Robust governance structures: formation of a new Board and sub-committees at Formula One, comprising world class independent non-executive directors and team representation, under the leadership of Peter Brabeck-Letmathe as Chair (also Chair at Nestle SA).
- Reset of positive relationship with F1 teams: with better alignment, more transparency, a technical working group to drive innovation for fans, and cost control initiatives to make the model more sustainable for teams over the long term.
Focusing on fan experience, premiumisation & globalisation
Building on these strong foundations for Formula One, achieved in the early years of the investment, CVC then worked with the F1 teams and FIA to focus on improving the product for fans, and drive revenue growth for reinvestment back into the sport.
Key initiatives included:
- The fan experience: introducing new teams & drivers, evolution of technology, interesting track designs, resulting in close racing for fans; partnering with leading broadcasters, such as Sky to drive innovation in media and digital platforms to make Formula One more accessible; increasing the number of races from 16 to 22 per season; further expansion into new markets in Asia and the Americas, to truly globalise the sport.
- Commercial revenue growth: premiumisation of the F1 brand and key products, underpinned by best practice for commercial rights sale. Overall this resulted in c.80% organic revenue growth for Formula One Group over CVC’s ownership period – which was primarily paid to the F1 teams via an increase in the prize fund (up 4x during CVC ownership, from c.$250mn to around $1bn per year).
- Sustainability of the sport: better alignment with the F1 teams, stronger governance procedures; significant revenue growth, and a number of cost control initiatives, which in aggregate, helped Formula One become a more sustainable sport for the teams.
New owner selected to ensure long term success of Formula One
At this stage CVC decided to seek a new owner for Formula One, who could continue to improve the product for F1 fans, with a particular focus on digital platforms and new races in North America (such as Miami, Las Vegas). After considering a broad group of potential owners, CVC reached agreement to sell Formula One to Liberty Media Corporation for more than $8 billion in late 2016. As part of the transaction, CVC agreed to help prepare Liberty to become custodians of the business with recruitment of new management and preparation of a detailed transition plan.