In 2017, Formula 1 (F1) underwent a significant transformation when it was acquired by Liberty Media, a move that heralded a new era for the sport. Since then, F1 has not only grown in popularity but has also provided unique investment opportunities for savvy investors. This article delves into the ways you can invest and trade in F1, backed by past performances and key developments, especially focusing on the rise in the United States market.
The Liberty Media Era: A New Dawn for F1
Liberty Media’s acquisition of F1 marked a pivotal moment in the sport’s history. Under the leadership of CEO Stefano Domenicali, F1 has seen exponential growth in viewership and market value. Liberty Media has been particularly focused on expanding F1’s presence in the United States, a market that had remained relatively untapped until recent years. The introduction of the Miami Grand Prix in 2022 and Las Vegas in 2023 and the established race in Austin, Texas, since 2012, are clear indicators of this strategic push.
The success of these initiatives is reflected in the stock performance. According to Domenicali, F1’s tracking stock, FWONA, has doubled in value over the past five years. This surge underscores the increasing interest and investment in F1 as a global sports entertainment brand.
Understanding F1 Investment: The Basics
Investing in F1 isn’t as straightforward as buying shares of a standalone company. Instead, F1 is a part of Liberty Media, which offers three different types of Formula One Group stocks: Series A (FWONA), Series B (FWONB), and Series C (FWONK). Here’s a closer look at each:
Formula One Group Series A (FWONA)
FWONA shares come with voting rights, allowing shareholders to have a say in corporate decisions, including the election of the board of directors and major operational changes. For retail investors, these voting rights may not be a significant factor, but they can be valuable for those looking to be more involved in the strategic direction of the company.
Formula One Group Series B (FWONB)
FWONB shares are unlisted and can only be purchased over the counter (OTC). Each FWONB share carries ten votes, giving holders significant influence. However, 97% of these shares are held by insiders, making them less accessible and more challenging to trade. The OTC market can be riskier and more complex, requiring a higher level of expertise and due diligence.
Formula One Group Series C (FWONK)
FWONK shares are the most accessible for retail investors. These shares do not carry voting rights, making them a more straightforward investment option for those looking to benefit from F1’s financial performance without getting involved in the company’s governance. The accessibility and simplicity of FWONK shares have made them a popular choice among investors.
The American Dream: F1’s Expansion in the US
One of the most notable strategies by Liberty Media has been the expansion of F1 into the American market. Historically, F1 struggled to gain a significant foothold in the US, but recent developments have changed the landscape dramatically.
The Austin, Miami & Las Vegas Grand Prixes
The United States Grand Prix in Austin, Texas, established in 2012, laid the foundation for F1’s resurgence in America. The race has become a staple in the F1 calendar, attracting large crowds and generating substantial economic impact. Building on this success, Liberty Media introduced the Miami Grand Prix in 2022, and the Las Vegas Grand Prix in 2023 further solidifying F1’s presence in the US. These events are not just races; they are massive entertainment spectacles that draw in diverse audiences, boosting F1’s visibility and popularity.
The Role of an American Driver
While the expansion into new markets and the introduction of new races have been crucial, the emergence of an American F1 driver could be a game-changer. The influence of a homegrown star can’t be underestimated. For instance, Christian Pulisic’s transfer to Chelsea led to a surge in his jersey sales in the US, even surpassing those of global superstar Cristiano Ronaldo. A similar phenomenon in F1 could significantly boost the sport’s following and, consequently, the value of associated stocks. American Driver, Liam Lawson is the latest addition but still has to proof his worth.
The Financial Performance: A Look Back
Analysing the financial performance of F1 under Liberty Media provides insights into why it has become an attractive investment. Since becoming a publicly listed entity, F1 has seen its stock value increase substantially. This growth is attributed to several factors:
Revenue Growth
F1’s revenue streams are diverse, including race hosting fees, broadcasting rights, sponsorships, and merchandise sales. Liberty Media’s strategic initiatives, such as expanding the race calendar and enhancing digital content, have significantly increased these revenue streams. The company’s focus on engaging younger audiences through social media and digital platforms has also paid off, attracting new fans and advertisers.
Cost Management
Effective cost management has been another critical factor. Liberty Media has implemented cost cap regulations aimed at reducing the financial burden on teams, ensuring a more competitive and financially stable environment. These measures have not only made the sport more exciting but have also improved the overall financial health of the F1 ecosystem.
Strategic Partnerships
Partnerships with major brands and corporations have played a vital role in F1’s financial success. Collaborations with companies like Amazon Web Services (AWS) and Heineken have not only brought in significant revenue but have also enhanced F1’s technological capabilities and global reach.
Investing in F1-Related Stocks
Another way traders can get involved in F1 this year is by trading stocks that are closely related to the competition. Car manufacturers, sponsors, and other attached stocks may all be catching the eyes of keen investors this racing season. At markets.com, a number of CFDs on F1-related stocks are available to add to your portfolio. However, it is important to note that traders should conduct their own research before making financial decisions, and this article does not constitute investment advice.
One of the most exciting F1-linked stocks right now is Aston Martin. Following a 26% revenue increase in the first week of February 2023 and a third-place finish in the F1 Grand Prix on February 5, Aston Martin’s shares have soared to new heights on the FTSE 250 on February 6. The luxury car maker’s shares rose by as much as 22% on Monday morning, as the company announced that it was on track to generate approximately £2 billion in revenue by 2024/25.
Despite facing challenges such as cost inflation, delivery delays, and supply chain bottlenecks in the post-pandemic world, Aston Martin’s sales have continued to surge, with 80% of its current GT/Sports range sold out for 2023 ahead of upcoming launches. The company attributes this success to its “ultra luxury” strategy, which has resulted in high demand across its portfolio. Although Aston Martin reported a full-year loss of £118 million, up from £74.3 million year-on-year, it remains optimistic about its future prospects.
Red Bull, known primarily for its energy drinks, is another exciting opportunity for F1 investors. Red Bull Racing has been a dominant force in F1, with its team winning multiple championships. The success of Red Bull Racing has not only elevated the brand’s visibility but has also contributed positively to its financial performance.
Red Bull’s financial success is evident in its steady revenue growth and market expansion. In 2022, Red Bull reported a revenue increase of 10%, driven by strong sales of its energy drinks and its sports marketing initiatives, including F1. The company’s innovative marketing strategies and sponsorship deals have solidified its position as a leading brand in the energy drink market.
Red Bull’s stock is traded under the symbol RB on the Vienna Stock Exchange. Investors looking to capitalize on the brand’s success in F1 and its robust financial performance might find Red Bull an attractive addition to their portfolio. The company’s commitment to innovation and its strong presence in the global market make it a compelling investment option.
Another F1-attached stock that is getting attention is Ferrari. Morgan Stanley recently announced that Ferrari has replaced Tesla as its top stock pick among automakers. The investment bank believes that Ferrari investors have been underestimating the company’s potential in the electric vehicle (EV) market. According to Morgan Stanley, Ferrari’s highly predictable business model and unmatched brand make it an attractive investment opportunity.
As a result, the bank sees a 14% upside in Ferrari stock and has raised its price target to $310 per share.
Ferrari has been expanding its lineup with new models, including hybrid vehicles, and plans to introduce its first all-electric vehicle by 2025. Morgan Stanley believes that Ferrari’s move into the EV market will be a significant growth driver for the company. The investment bank also sees Ferrari as a safer investment than Tesla due to its more predictable earnings and strong brand recognition.
The company’s success in F1 has been mirrored by its strong financial performance. Pirelli’s stock has risen over 30% between September 2022 and March 2023, indicating a positive market sentiment towards the company’s future prospects.
Furthermore, Pirelli’s net profit increased by over 35% in 2022 to an impressive €435.9 million, with revenues estimated between €6.6 and €6.8 billion for this year.
Pirelli, a multinational company based in Milan, Italy, is a leading manufacturer of high-performance tires for cars, motorcycles, and bicycles. Founded in 1872, the company has a rich history of innovation and technological advancements in tire design, which has enabled it to establish itself as a market leader in the automotive industry. Although its F1 partnership may end after 2024, with a longstanding relationship to racing it would not be a surprise if the contract was extended – giving Pirelli more exposure in the coming years.
Risks and Considerations
While investing in F1 offers exciting opportunities, it’s essential to be aware of the inherent risks. The stock market is volatile, and factors such as economic downturns, changes in consumer behaviour, and geopolitical events can impact stock performance. Additionally, the success of F1’s expansion strategies, particularly in the US, is not guaranteed and hinges on various external factors.
Investors should conduct thorough research and consider their risk tolerance before investing. Diversification is key; investing solely in F1 stocks could be risky, so it’s wise to include a mix of assets in your portfolio to mitigate potential losses.
How to Get Started
If you’re interested in investing in F1, here are some steps to get you started:
1. Research and Education: Understand the different types of F1 stocks available and their respective characteristics. Familiarize yourself with the broader financial market and investment principles.
2. Choose a Brokerage: Select a reputable brokerage that is regulated and licensed that offers a platform with access to FWONA, FWONB, and FWONK stocks. Ensure the platform provides the necessary tools and resources for informed decision-making. Diversit-e Smart Trade College partnered with a regulated & licensed preferred Broker and offers assistance and mentoring on how to start this journey.
3. Analyse Financials: Review Liberty Media’s financial statements, annual reports, and market performance. Pay attention to revenue trends, profit margins, and strategic initiatives.
4. Monitor Market Trends: Stay updated with news and developments in the F1 world, including race results, regulatory changes, and market expansion efforts. This information can impact stock performance and help you make informed investment decisions.
5. Diversify Your Portfolio: While F1 stocks can be an exciting addition to your portfolio, ensure you diversify your investments across different sectors and asset classes to manage risk effectively.
Conclusion
Investing in Formula 1 offers a unique opportunity to be part of one of the world’s most thrilling sports. Under Liberty Media’s ownership, F1 has expanded its global footprint, particularly in the lucrative US market, driving significant growth in stock value. By understanding the different types of F1 stocks and staying informed about market trends and developments, you can make informed investment decisions. However, it’s crucial to approach this investment with a clear understanding of the risks involved and a well-diversified portfolio strategy. Past performance does not guarantee future growth. This article is based on the opinion of the author and is not financial or investment advice. Always consult a regulated and licensed Financial Service Provider (FSP) before making any investments. Never trade with money you cannot afford to lose.
Author: Francois Oosthuizen
