Imagine a company that owns two of the largest sports franchises in the world. One of them has a growing cash pile. While the other, a newer kid on the block, has grown top line into the triple digits and is starting to inflect into positive cash flow.

“Is this a dream you ask yourself?” No, it’s Formula One Group (FWONA)! And the two franchises are Formula One and MotoGP.

Since Shawn and Daniel have already done some great analysis on sports-related businesses such as Madison Square Garden Sports Co.(MSGS) and Manchester United (MANU), I decided to throw my hat into the ring by discussing Formula One Group.

Formula One Group (which I’ll refer to as F1 Group) is exciting because in the world of sports, it’s difficult to find a publicly traded business that generates ¾ of a billion in cash flow. And even more interestingly, Formula One, the sport, which I’ll be focusing most on today, hosts only 24 races per year, with each race as big as the Super Bowl.

And while Formula One Racing has been around since 1950, its revenue continues to compound in the mid-teens since it was taken over by Liberty Media in 2017. So today, we’re going to unpack why Formula One is an interesting asset, and whether it can continue to compound at rates worthy of The Intrinsic Value Portfolio!

— Kyle

Ever since I got interested in investing, I’ve always enjoyed the idea that we can own businesses we truly love. For me, as a Vancouverite, I’ve always been a fan of the NHL’s Vancouver Canucks and the NBA’s Vancouver Grizzlies (which, it breaks my heart to say, have resided in Memphis for many years now).

As an avid sports fan, I’ve always thought it would be cool to be a partial owner of a team. The problem is that sports teams in North America haven’t historically been a good place to park capital. For instance, the Boston Celtics sold for about $6.1 billion in 2024. According to my research, the Celtics were generating $450 million in sales and about $116 million in operating profit. That means it was sold for 13x revenue and 52x operating income. Woof.

Enter F1 Group, which gives investors a way to own the entire sports of Formula One and MotoGP, with much, much higher cash-flow margins. These two assets are quite formidable. And as a set, they are working out very well, as highlighted by their latest quarter's 59% revenue growth and a 147% increase in cash flow:

Not only are both segments adding revenue, but they’re also growing cash flow. As you can see above, MotoGP has recently transitioned to positive cash flow. Don’t be too confused by the “Adjusted OIBDA” number; replace it with EBITDA, and you'll get the gist!

I want to jump right into the history of Formula One racing, though, to give you a bit of background on why it is where it is today.

On that point, there are many colorful characters inside Formula One. I’m going to keep this section short because the history of F1 could easily take up the entire newsletter, which I won’t do to you! (For a history lesson on F1, I would, however, recommend the book, “The Formula” by Jonathan Clegg and Joshua Robinson).

Bernie Ecclestone is one of the main characters who made F1 into what it is today. He started racing cars and trading spare car parts after World War 2. Following a series of crashes, he called it quits in racing. By 1958, though, he was managing a team of racers in F1. And by the 1970’s, Ecclestone helped bring F1 teams together to form the Constructors’ Championship, which still exists today, and awards the team with the most points at the end of the season.

Eventually, he became so entwined with the teams that he essentially became the business arm of Formula One. Liberty, which initially owned Formula One before being split off, has a lot to thank Bernie for, as he really established F1's business model.

Ecclestone was the first person to help negotiate the Concorde Agreement, contractually committing all F1 Teams to participate in each race. He also ran the administration, setup, and logistics of the F1 races.

One of my favorite Ecclestone stories was the rumor of his involvement in the “Great Train Robbery” in 1963. During the robbery, £2.6 million was stolen from the Royal Mail train. Who knows if there is any truth to the story, but the getaway driver, Roy James, had some sort of affiliation with Bernie. After he was released from prison, Ecclestone gave him a job crafting the F1 trophies!

When Bernie was later asked about his involvement in the robbery, he said, “There wasn't enough money on that train… I could have done something better than that."

In 2017, Liberty Media purchased Formula One Group. At this time, Liberty Media was a complicated business. It was essentially a conglomerate of different assets, many of which had zero synergies. And it stayed that way for several years. To offer you some idea of what Liberty Media looked like, see the graphic below. They have now split off several of their segments to make it easier for investors to understand exactly what they own:

John Malone, who is now Chairman Emeritus of Liberty Media, is no stranger to complicated corporate structures. Malone is one of the most legendary businessmen alive. As CEO of TCI, he generated 33% annual returns for his shareholders over 26 years.

One of John Malone’s contributions (although Charlie Munger would object) was to invent the concept of earnings before interest, taxes, depreciation, and amortization (EBITDA). He created this to better explain the cash-flowing nature of his cable assets to analysts. Since these assets had longer lives than accounting standards allowed, he argued that the income statement didn’t do the best job of explaining how much cash TCI was generating.

So it might not surprise you that Formula One Group uses a cash flow proxy metric called operating income before depreciation and amortization, or OIBDA. Here is what I said about OIBDA on my episode with Shawn:

“They’re adding back the usual suspects to operating income: Stock-based compensation, depreciation and amortization, and impairment and acquisition costs. Then they have a specific item for their business in Concorde Incentive payments.

I will say I’m not huge on these adjustments, because as an owner, these all seem like real costs to me. In order to run this business, you will need to continue to compensate talented people, you will continue to build out the capex required to run the business, meaning DA will likely grow, and incentives for Concorde Incentive Payments seem like a payment that happens annually to pay out the teams.

But as long as the banks see this as a proxy for cash flow, then F1 Group will continue using this metric.”

But I don’t want to get too off topic here. While the John Malone angle is interesting, and I would assume he played a big role in the acquisition of Formula One, I don’t think he has much day-to-day involvement with the Formula One Group at this time, as he has many other initiatives to focus on.

Now, let’s get down to business and better understand how F1 Group is generating its revenue.

Formula One Group holds the exclusive rights to the Fédération Internationale de l'Automobile (FIA) and the F1 Championship. The contract for this deal runs until 2110, meaning we have another 84 years before it must be renegotiated. That’s a very long time for the Formula One Group to continue growing this business.

Formula One has three primary revenue streams. The beauty of these three revenue streams is that they are all contract-based, meaning you get a pretty good forecast of what kind of top-line numbers you can expect over the next several years.

As mentioned, F1 Group has the right to host, stage, and promote all F1 events until 2110. This segment makes up 27% of revenue. But F1 Group tends to outsource most of this to other race promoters. The promoters include owners of racing circuits, local and national automobile clubs, special-event coordinators, and even government bodies.

The beauty of race promotions is in the details. The races themselves are all on contracts lasting between three and seven years, providing F1 Group with certainty and giving them the flexibility to add races in other geographies if needed.

To make things even better for F1 Group, the contracts include annual fee escalators tied to CPI.

F1 typically hosts about 24 races per year. But due to the conflict in Iran, two events in Bahrain and Saudi Arabia were canceled and couldn’t be rescheduled. It was also just announced that F1 signed a five-year deal to return to the Turkish Grand Prix. I couldn’t tell whether this will bring the total to 25 races per year or replace an expiring contract, though.

The races are a spectacle, and not cheap to attend. I got an email from AMEX recently, offering me early access to Formula One Las Vegas. Seats ranged in price from $809 to $3,178. But keep in mind, these are the entry-level tickets. F1 has its own hospitality arm called the Paddock, and tickets there will run you about $11k! And there were other packages in the $20k-$30k range.

F1 has been attracting more and more fans, whether they attend live events or simply follow the sport, and they can now access it through the media verticals offered by F1 Group — a segment that comprises 31% of revenue.

Whenever F1 content is broadcast, F1 collects a fee. Content based on races, practices, qualifying sessions, archived footage, or even highlights is included. And these contracts are also multi-year, with an average term of 3-5 years.

The three distribution methods F1 Group focuses on are broadcast TV, pay-per-view, and F1 TV, F1’s app. The F1 app offers features like live streaming of all F1 sessions, on-demand replays, behind-the-scenes content, and in-depth data, all in 4 K.

But where the media rights really shine is in the pricing power of its contracts. For instance, up until 2026, the previous media rights contract in the US was with ESPN, which paid F1 Group $85 million a year. With the recent success of Apple’s F1 movie, Apple decided to take the next contract, this time for $140 million per year — a 68% increase.

Given the premium feel of F1 events, it’s no surprise they have attracted luxury sponsors to support the sport. And with a fan base numbering in the 800 million range, sponsoring events is a big draw for potential advertisers. This sponsorship segment, for reference, makes up about 22% of revenue.

For context, an F1 event features advertisements in multiple ways, such as trackside advertising and race title sponsorships. It’s worth noting that sponsorship can be sport-wide or team-specific. (But I’ll focus only on the sport-wide sponsors.)

The biggest sponsor is Louis Vuitton Moët Hennessy (LVMH), which just signed a 10-year partnership contract with F1 starting in 2025. The deal includes several of LVMH’s iconic brands, such as Louis Vuitton, Moët Hennessy, and TAG Heuer.

This deal is valued at about $1.1 billion dollars ($110m/year). Moët & Chandon Champagne will now be sprayed by podium winners at all F1 events, serving as a great marketing tool for the brand. And the F1 racing clock will be supplied by TAG Heuer.

F1 Group's moats lie in the sports of F1 and MotoGP. F1 has so far shown a very sticky customer base. Whether you look at the business on race attendance, unique web and app users, and social media followers, F1 has been growing at a fast pace.

Unlike many other sports, F1 has done a really good job of showcasing the sport in a different light to attract new fans. In 2019, Netflix debuted its F1 show, Drive to Survive. The show doesn’t only showcase the drivers, but also the people behind the scenes. The team, the engineers, the owners.

What I never really understood about F1 was just how much of a team sport it really is. When I think about a sports team in the NBA or the NFL, I don’t think too much about the people in the background helping the players get better and stay injury-free. And even though I underrate them, they are there and impactful.

But on an F1 Team, you might have over a thousand team members helping just two racers get to the podium! Not only do you have the racers and the people servicing the cars during the race, but you also have the backend, simulation, and manufacturing teams. And F1 is a sport that’s heavily reliant on technology.

One small technological advantage can mean a team gets boosted up to first place.

I don’t want to get too off track, but the point is that F1 has monetized the brand by creating content based around the entire team, not just the drivers.

Yet, the real competitive advantages I see in the business lie in the cornered resource of F1’s contract. Nobody can take this away from F1 Group; they own it until 2110, unless they decide to sell it down the road. The only real market-share takers are going to be other sports or media “vehicles” that will take eyes off F1 and onto other things (such as Instagram or TikTok).

The other strong competitive advantage F1 has is its Brand. F1 now has an over 75-year track record to draw from. They have a storied past, with fans who stick around for decades. They’re also associated with quality and prestige. This is a characteristic that F1 has fought hard to build and maintain. Because of the strength of its brand, it’s able to attract high-net-worth individuals willing to plop down $25k per ticket to an F1 event.

There’s a strong chance F1 Group will continue to grow both F1 and Moto GP, but the key questions are:

To address that, I should mention that, at the end of 2025, Liberty Live Nation, formerly part of Liberty Media, was spun off, creating the Formula One Group Entity we see today, consisting of F1 and MotoGP.

So the numbers for both entities, combined, are harder to get at. But here is what we do know. According to the company's 2025 investor presentation, F1 Group has grown across the board, with live attendance up 48% since 2017.

Formula One is the crown jewel in the group. Pretty much everything they’re currently doing is working here, and they’re doing an excellent job of monetizing their growing audience.

They’re adding new partners annually, too. In 2026, they’ll add Apple TV, Globo, and IFEMA Madrid, further building the media rights and advertising segment.

And not only has F1 Group created value for itself, having tripled F1’s enterprise value since 2017, but it’s also provided value to its partners. Primarily, I’m talking about the F1 Teams. The teams are valuable stand-alone assets in their own right (F1 Group does not own individual teams), and F1 Group highlighted that they’ve increased the value of the average F1 team by 4x between 2017 and 2023!

The average valuation of an F1 team in 2026 is approximately $3 billion. But certain teams are worth more. For instance, Ferrari is reportedly worth ~$7.1 billion, Mercedes ~$6.4 billion, and McLaren ~$5.2 billion. The fact that F1 Group has worked with teams to add value to all parties bodes very well for the continued partnership between the teams and F1 Group.

Partly due to increased exposure to the sport and partly due to the rise of team values, a new team, Cadillac, was added for the 2026 season, bringing the total to 11 teams.

My assumption is that F1 Group will continue to grow, but it doesn’t appear to be a business with massive economies of scale. If we go back to 2017, when F1 was acquired by Liberty Media, cash flow margins have remained relatively stable at around 25%. Going forward, I would expect more of the same.

I haven’t discussed MotoGP much today because, as of now, it’s barely contributing to cash flow. But it’s definitely a growth lever, and probably one that offers more relative upside than F1. MotoGP was purchased for $4.2 billion for an 84% stake. The post-synergy multiples for this business were 14x revenue and 42x cash flow, making this a very pricey acquisition.

However, F1 Group clearly thinks it can run the F1 playbook with MotoGP to increase the top and bottom lines, bringing them somewhat in line with F1. They’ve mentioned four key areas to build up MotoGP:

Basically, they need to get MotoGP to a level close to F1 in terms of media rights, race promotion, and sponsorship.

And if you squint hard enough, they’re doing things right. In the latest quarter, they reported 40% revenue growth and 60% cash flow growth. The cash flow represents only about 9% of consolidated cash flow, but its faster growth rate than revenue speaks to the business's operating leverage, currently sporting 19% margins (modestly lower than F1’s 25% margins).

I’m a big fan of looking at a business's capital efficiency, but given that F1 Group’s historical numbers are impossible to come by without adding NOPAT and invested capital from assets that are no longer part of the entity, you can’t get an accurate number. We’ll need to check in here after a few years, once we have a longer track record of metrics from only F1 and Moto GP.

The numbers I was able to come up with were a return on invested capital (ROIC) of 2.5%. But part of the split-off of Liberty Live Nation meant that debt was placed on F1 Group’s balance sheet, which doesn’t necessarily affect the capital efficiency of the updated F1 Group. So I think we also have to wait on these numbers to get a more useful metric to assess management’s capital allocation skills.

And before we talk valuation, I want to discuss the risks here. The biggest risk is probably in the current contract they have with the FIA and the teams, called the Concorde Agreement.

The contract for the next five years has already been signed and will start in 2026, running until 2030. Team payments are a massive part of F1 Group’s expenses, but obviously have to be paid in order for F1 Group to generate any revenue. Team payments for the latest quarter were $184 million. Annualized, these payments will be somewhere in the $1.35 billion range.

Additionally, on their latest earnings report, they mentioned this regarding team payments:

This means teams are getting paid a higher proportionate share of revenue because of the two canceled races — money coming straight out of F1 Group’s pocket.

Other risks are geopolitical in nature. I mentioned that two races had already been canceled due to the conflict in Iran. There are two more events in the Middle East in late 2026 that could theoretically be canceled as well. Since F1 has already discussed possible alternate locations, I assume they will have these covered, but given the exposure to the Middle East, this will be a constant risk. Estimates of lost revenue from these two races range from $100 million to $200 million.

The elephant in the room, speaking of risk, is F1 Group’s debt, which stands at $5 billion, while annualized EBITDA sits around $724m. This is a debt-to-cash-flow of 6.9x, which is quite high. In my investing checklist, I specifically look for 3x or lower, so a business being double that is concerning to me.

But we do have to make a few adjustments. F1 Group currently holds about $1.4 billion in cash, bringing net debt down to $3.6 billion. This means their real debt-to-cash-flow is 5x. Still too high for my liking, but perhaps we see continued deleveraging. Part of me wonders if this is just a pipe dream, though, because many Liberty businesses carry substantial debt.

One thing I can say for sure is that Formula One Group’s shares aren’t cheap. They’re currently trading at an EV/EBITDA of 24x, 52x earnings, and 5x sales. So no matter whether you use earnings, cash flow, or sales, this business is trading at a premium.

But this valuation premium accounts for the growth Formula One Group has shown in the past, as well as its ability to reliably generate cash flow. So, let’s dive into a few scenarios to see what this business could be worth.

For the bear thesis, we assume that fan growth decreases substantially. I’m hesitant to say the fan base will decline given recent history, but I’m tempering growth expectations to the low single digits. Team payments increase as a percent of revenue, as teams gain bargaining power over F1.

The media rights segments underperform, as renewals see lower price increases. New sponsorship also dries up due to global economic weakness. Due to ongoing global conflicts, we also see disruptions to their races. And as for the MotoGP acquisitions, they don’t pan out as initially thought.

This results in a revenue growth CAGR of 8%. Given some of the weaknesses in revenue generation and fixed costs, such as team payments, margins compress to about 24%. I also assume that debt reduction will not materialize, as F1 Group’s cash flow doesn’t grow at its historical pace, and principal debt reduction isn’t prioritized. I’m also assuming they don’t make any splashy acquisitions, which would drastically increase their enterprise value.

Under this assumption, I get a value of about $66 with a 13x EV/EBITDA multiple. With a 20% margin of safety, we get a price of $53. This yields an expected return of -12%.

For the base case, I’m using numbers that are more in line with Formula One Group’s historical growth, which, as you can imagine, will be higher than the revenue growth used for the bear case.

Assumptions tied to the fundamentals of the business include a stabilizing of bargaining power between the teams and F1. This allows F1 Group to continue paying prize fund fees, but not at a significantly different rate than we currently see.

Next up are media rights, which we see continued growth. Growth in these segments is in the mid-single digits, as F1 continues to add new partners to contracts. As the sport grows, they continue to see additional sponsorship opportunities, with some longer-term contracts similar to the one they made with LVMH. And then, looking at MotoGP, we see it as a success, improving top-line growth and becoming a more meaningful contributor to cash flow. I also assume no more race disruptions and a stabilization of about 24 races per year.

I assign a revenue growth rate of about 12%, slightly lower than F1’s historical rate. I assume EBITDA margins inch upwards with the new contribution from MotoGP. This gives me a 2030 price of $172, on a 23x EV/EBITDA multiple. With a 20% margin of safety, we get expected returns around 14%

The returns on this business are decent if you agree with my assumptions, around 9% with the margin of safety. But if you think the bear case is less likely and the bull case is more likely, you can adjust the model, and you’d be able to come up with different numbers offering better returns. I’ll leave that for you to decide!

But I’m comfortable with my assumptions. Perhaps as time goes on, if I follow the business a little more closely, I’ll start making some adjustments to the probabilities, which could also change expected returns.

But until then, this isn’t a bet that Shawn, Daniel, and I are willing to take. We feel the businesses in our Portfolio are a little easier to understand and forecast!

"You can borrow money against a growing cash-flow stream, and as long as your growth rate's faster than your cost of money, it's a wonderful business.”

— John Malone

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