Domenicali: Formula 1 Earnings Call Transcript

Stefano Domenicali FIA

Formula One Group (FWONA) CEO Stefano Domenicali on Q1 2021 Results Earnings Call Transcript we found to be an interesting if long read; how F1 is being sold to the shareholders, and some pertinent questions about Lewis Hamilton and the future of F1 beyond his reign.

Company Participants

  • Courtnee Chun – Chief Portfolio Officer
  • Greg Maffei – President and CEO, Liberty Media Corporation
  • Stefano Domenicali – President and CEO
  • Brian Wendling – Chief Principal Officer, Liberty Media Corporation
  • Conference Call Participants
  • Jeff Wlodarczak – at Pivotal Research
  • Bryan Kraft – Deutsche Bank
  • Vijay Jayant – Evercore
  • David Karnovsky – JPMorgan
  • David Beckel – Berenberg
  • David Joyce – Barclays
  • John Tinker – Gabelli
  • Stefano Domenicali

2021 has begun with huge energy and momentum. In the past few weeks, we announced our segment rate in the U.S. in Miami Gardens with a huge and positive reaction from our fans, the teams and all our partners. I think the second wave in the U.S. starting in 2022, provides a great opportunity for our sport and we’ll ensure we continue to increase our strong progress and fund growth there.

Last week, we announced that we will have Saturday 100-kilometer sprint qualifying formats, our three races in 2021, following unanimous support from all the teams.

The events will be exciting for all our fans, provide more on-track action over a race weekend, and give our partners and the team’s greater commercial opportunities. Silverton, one of the venues for the new format already reported a surge in ticket sale following news that they would be hosting one of this event.

We have announced the three years extension of the Japanese Grand Prix. This has always been an important race for Formula One, and we cannot wait for the fans to cheer on their own new pit [Sonoda]. We have extended our partnership with the Canadian Grand Prix by two years.

And welcomed the new announcement last week by Data Bell Media has entered into agreement to acquire the Montreal-based Canadian race promoter Octane Racing Group which is great news for the long-term future and development of the race in Canada.

Formula 1 and COVID-19

While the global situation is still fluid due to COVID-19 pandemic, Formula 1 has shown it is has the ability to overcome the issue thrown us and continue to race safely. Just last week, we provided this to be the case. While we are not able to race in Canada this year, we have secured the replacement race in Turkey at short notice, meaning we have not reduced the number of races in the calendar for 2021.

It is very exciting to see the level of interest from both the new and historic locations to host the Grand Prix, and this gives us a possible option if required for 2021, but also good opportunities for the future. We have had very good conversation with all our promoters.

And all of whom expect the races this season to go ahead as planned. And just this week we have had the confirmation that 1,000 fans will attend here in Barcelona, the Spanish Grand Prix.

And that molecule will work on approximately 40% of the capacity to the Grand Star for the race in two weeks’ time. Alongside the busy start of the year off the track, the racing on the track has been equally exciting and dramatic.

We kicked off our 23 racing season in Bahrain and have had three races to-date, which, with close battles, overtaking and the pack closer together than in the recent years.

With this battle for the Championship playing out this could be a golden year for Formula 1. This season operating in Bahrain did not disappoint with Verstappen security proposition. It was a trailing race between Max and Lewis that was only decided in the final laps.

There were also strong showings by Norris and Perez and the Japanese Yuki Tsunoda scored points in his first F1 race for AlphaTauri. And it looks like, yes, a promising career ahead.

The battle for first continuing to McLaren where Max had an amazing start of the line in the rain and carried through for the win.

Impressive given his start in third, behind his new teammate, Sergio Perez, Lando Norris made up for a mistake in qualifying and secured a spot on the program, showing the continuous strength of McLaren.

It once, again shows, that there is a real battle underway for this year title, and we are on the – only the three races in. The competition for the third is also fierce in the constructor standing. McLaren is making the early pace. But many teams in the midfield have something to prove.

And it is great to see Ferrari hitting tried again. The spectrum of Formula One is resonated with fans and engagement is very high. To date, we have data for the first races across the 24 principal markets we monitor, and this showed TV viewership growth over both 2020 and 2019, with particular strength in Italy, the Netherlands, France, the U.K., the U.S. and Spain.

On the digital front, unique users for F1 web and app have been up 77% on the equivalent rates in 2020 and social engagement and also increased with over 30 million interaction in both of the first 2 race suite. We continue to grow our social needs following reached 36.5 million after Emilio GP, up from 35 million for the prior year-end.

F1 TV, and OTT Product

F1 TV, our OTT product, has also started the second strongly with the record viewing. Big concurrent view at each race weekend at around 3 times higher than the 2020 season average. And engagement measured by the minutes viewed over the course of the weekend is up more than 60% on the last year.

We launched an update version of the app for the season that provides many additional features, including high bidder quality and allows us to control the viewing experience. This new version also makes it easier to find content in other collection which includes over 2,000 hours of footage and coverage of Air Grand Prix in the last 50 years, along with our latest series, F2, Chasing the Dream.

F1 TV is now available in 188 territories with the premium F1 TV available in 85.Season 3 of Drive to Survive, the boot of March 19 and continues to build mass global popularity for the sport reaching number 1 on Netflix in 27 different countries and also globally. And on all utmost daily basis, we hear an ad about how the show was brought into new non-typical plans.

It was great to revisit the 2020 season and see the back story of the virality of many drivers changes. I do highly recommend Episode 9, which is a terrifying exhilarating and expiring. The show was nominated for a sport Emmy for outstanding series sport documentary and made the short list of the documentary category for the U.K. broadcast awards.

New and extended partnerships

Heading into the season, we have had numerous sponsorship announcement, we were pleased to renew our global partnership with the DHL, a relationship, which now spans across several decades. This extended partnership will include enhanced involvement in F1 e-sports sites and a present of F1 digital channels.

As official partner, we work in June, let’s say, as the mark as a Citi card provider and Ferrari train to the official toast of Formula One. In addition, we announced advisers [indiscernible] and as official supplier and welcome global citizen as charity partner for our We Race as One initiative.

Formula One is getting back again at the level that we really believed is the right one. So the fact that despite the pandemic situation, there are big companies that are willing to engage and be our partner is a great sign of trust of what we are billing as the future.

And we need to expect this approach even stronger in the future.

We continue to engage fans through e-sports and have the very successful series of visual Grand Prix during the off-season.

Current drivers, along with home stars and future prospects competed to win a share of the $100,000 price fronting their charities. As part of the continued effort to improve diversity and inclusion in Formula 1, as part of our We Race as One initiatives, we announced optimal only qualification route for the F1 e-sports series pro championship.

This is our first female-only competition, and we hope it will encourage more drivers from the passionate and the talented feminine rating community with the goal of becoming the first ever female driver to be signed by an official F1 e-sports series.

In closing, Formula one is off to a strong start in 2021. Building off the foundation put in place the last few years. The ecosystem is absolutely strong, and the competition on the track is trading.

I want to thank all the dedicated employees of Formula 1 for their continuous diligence and hard work, and I hope you will watch the Spanish Grand Prix this weekend.

Formula 1 Cost Cap

The cost cap has been one of the most important and significant things that Formula 1  introduced this year. This has had an effect not only because of the savings that the teams will make in the future, but also in the change of mentality that the major team has to apply with the organization to make sure that they can really be effective with a different line of expenditure.

And this is just the first step into a new way of managing sport in Formula One. And I think that if — if I say — if I see what is happening around the world that everyone is focused just on the revenue side, I think the Formula One has just started the path with these on the other way around.

Of course, revenue is crucial. But now we have just taken the first step into the cost cap.

We’re going to take all the cost cap in other areas that are not closed in this moment as we hedge for the future. But we are pretty sure that these are also the comments of the team. This has been a huge step in making sure that the Formula 1 is sustainable for its future.

The future of Formula 1 after Lewis Hamilton

To the question related to the drivers with regard to the Lewis Hamilton. Surely, Lewis Hamilton is a great asset. He is doing an incredible job on the sporting side and in terms of image, he was able to broad the Formula One in other areas that were not really specifically related to Formula One.

But Formula One itself is strong, strong and — drivers changes are always in a place where one day they may retire. I don’t know what Lewis was doing.

We are talking with him, but of course, now he’s focused on his actual season. He’s fully boosted to make sure that he’ll be the only driver that is going to win the eight titles in the history of Formula 1. But Formula 1 is solid, robust.

And for sure, whatever will be the decision of Lewis, Formula 1 will react and we’ll move forward.

The good news is that Lewis, as we all hope, will stay, will have an incredible season in front of him with the new cars, with the new challenge. And for sure, this will maybe very interesting of him.

If he will decide a different way around, I mean, the good news is that in Formula One, we have so many good drivers today, but at least the challenge will be even stronger.

Therefore, of course, whatever will be the decision of Lewis, we will respect it, but Formula 1 is really solid and strong.

Formula 1 in American and US drivers

With regard to Miami with the American drivers, it is important, the answer for me is very clearly yes. We have — we are working with teams try to understand what is really the possibility for American driver to come to the attention of Formula 1 team in the short term.

This could come. I don’t see that being very pragmatic and realistic coming in the next two, three years, but maybe after, yes.

I know that our team is watching the good drivers, that if they’ll ready will be a big boost for the American fans, because as we know, faces drivers, they put the enthusiasm passion that people want to see these guys.

And therefore, the hope that we have is that very, very soon, we have American drivers competing again, so the others in the Formula One channel.

I think that the good news is that we are talking about another race in U.S. Miami with different culture, with different scenario, with different way that we’re going to structure the shore of it.

And incredible news that in just couple of weeks after our announcement, the attention with regard to this event is really massive. And the expectation of getting at the level that we want.

And this is the reason why we are building a good series of communication, good series of program in terms of communication with the American community because we want to maximize everything out of it.

And I cannot anticipate, for example, one thing that it would be fantastic. We’re going to share with the state of Miami Gardens and with Miami Dolphins, the races in Monaco because they want to start leaving the atmosphere.

And this will provide us the right platform in order to be ready, to make sure that the value that we’re going to generate from U.S. will be even higher. And that’s really the fundamental strategical thinking BI and the fact that we’re going to have to raise in the United States.

Formula 1 without fans

We have a situation that is evolving with regard to the attendances of the people on track. Greg [Maffei] has already mentioned, the things that we need to monitor race by race, case by case.

Of course, the more we going ahead and the more it’s likely that the opening up to the fans will not have a direct effect on the revenues.

But we have also content that we cannot get into details where we don’t expect that the attendance of the people has no influence on what would be the effect on our earnings. So this is really a mixed situation, but we need to evolve and manage it.

Impact of Disney TV channel closures in Asia on Formula 1

We have, of course, an agreement in place [with Disney]. So we are expecting for that to be totally enforced. So we don’t see that as a problem.

We see actually a big opportunity to the growth of the TV and the engagement figure in that part of the world to find other solution that we are working on, of course. But on this year financially, we don’t expect anything that would happen.

A better show has better engagement and better entertainment for the people, there’s no doubt. But I think is — that is one element. The other element is the fact that we really are engaging with more people that loved Formula One.

Therefore, the fact that we are able to attract other people through different way of languages that we’re not used to use before, I think it’s also helping the fact that the viewership and the engagement in any case.

We’re talking about not only the TV, we are talking about social media platform and other element of OTT is showing that there is a lot of attention, there’s a lot of interest for sure. What is happening on the track is very, very important. There’s no doubt about it. And this is for sure a good sign for us.

Formula 1 beyond 2021

Teams are already working on new cars and new regulation. And the train has already left the station. So we are very pleased because we are convinced that this year is already a great season, but next year with the changes that has been planned will be another great opportunity to showcase what is Formula One in terms of the ability of always keeping the attention at the center.

And therefore, there are no other things about checking everything in terms of all the states to make sure that the changes will be massive because next year will highlight the possibility to have a bigger fight, not only two or three drivers, but even more, and that’s the objective.