Liberty Media’s Formula 1 (ticker: FWONA) is currently on track to renew its U.S. broadcasting deal with ESPN, securing itself a higher-priced television contract that runs through to 2025, according to sources.
Analysts weren’t surprised and had expected the company to negotiate a favourable deal with ESPN through to 2025, which has now been valued between $75 million to $90 million a year- a figure that’s much higher than the $5 million a year contract that was previously on the table. Even with this news, rumour has it that the figure is still below the offers of several tech giants.
Although investors weren’t surprised by the enthusiasm showed for the company, they admit to having wanted an even bigger deal than what’s currently on the table. Formula’s 1 tracking stock, a class of common stock that tracks the performance of a specific business segment, dropped 1.3% to $57.36 on Monday.
“We had anticipated the price could register as high as $100M, although we saw ESPN as the frontrunner given its sports distribution and marketing advantages,” said Benchmark analyst Matthew Harrigan.
Tech heavy-weights like Amazon.com (ticker: AMZN) and Netflix (ticker: NFLX) were expected to also declare their bids for the rights as they seek to expand into live sports. This started a bidding war, driving up the price for the broadcasting rights. In fact, over the weekend, it was reported that Disney (ticker: DIS), Apple (ticker: AAPL) and Amazon had all sent in their bids to become new broadcast rights owners for the NFL’s Sunday Ticket package.
Even with this stellar list of competitors, ESPN may still be the best bet for Formula 1 in the long run. While ESPN might have some leeway to place some of its races on ESPN+ streaming services, the majority of the coverage will most likely still air on linear networks, which is extremely important for Formula 1’s marketing exposure.
Harrigan remains optimistic about the tracking stock and decided to stick to his Buy rating and a price target of $73, given that the significantly higher-priced TV contract created higher visibility. A further justification for his sentiments is the belief that the price increase will flow into adjusted operating income before depreciation and amortization growth.