Formula One Group - Earnings Call - Q1 2023

Transcript

Speaker 0

As a reminder, this conference is being recorded, May 5. I would now like to turn the conference over to Shane Kleinstein, Vice President of Investor Relations.

Please go ahead.

Speaker 1

Thank you, and good morning. Before we begin, we'd like to remind everyone that this call includes certain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in Liberty Media's most recent Forms 10 ks and 10 Q filed with the SEC. These forward looking statements speak only as of the date of this call, and Liberty Media expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statement contained herein to reflect any change in Liberty Media's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. On today's call, we will discuss certain non GAAP financial measures for Liberty Media and SiriusXM, including adjusted OIBDA and adjusted EBITDA.

The required definitions and reconciliations for Liberty Media and SiriusXM Schedules one through three can be found at the end of the earnings press release issued today, which is available on Liberty Media's website. Now I'd like to turn the call over to Greg Maffei, Liberty's President and CEO.

Speaker 2

Thank you, Shane, and good morning. Today speaking on the call, we will also have Formula One's President and CEO, Stefano Domenicali and Liberty's Chief Accounting and Principal Financial Officer, Brian Wendley. I'm going to first update you on the split up of the Braze and the creation of the new Liberty Live Tracker. We filed the amended S-four and are pleased with the speed of the SEC review. We believe we are nearing the end of that SEC process, and we are still targeting completion before the end of the second quarter.

Turning first to Liberty SiriusXM. We continued our efforts to delever and simplify the balance sheet there. We raised $575,000,000 of 3.75% LSXM converts, and we used the proceeds to repurchase $7.00 3 principal amount of LSXM debt, including $591,000,000 of the one three eighths basket convert and $112,000,000 of the 22.125% CIRI exchangeables. We also repaid the remaining balance of those in April. That was a reduction in gross debt just over $400,000,000 year to date, including the April activity.

The reclassification of the LSXM tracker without the live stake will simplify our structure further, and we continue to be focused on rationalizing Siri and LSXM structures in the near term. Let me look at SiriusXM itself. As expected, they had a challenging first quarter due to the SAAR and ad market trends. We expect this is the low point of the year on net net self pay net adds due to the lower Q4 trial starts, the seasonal Q1 higher churn and the pullback in marketing as we wait to roll out our new app. Advertising did perform better than expectations, and podcasting continues to be a bright spot.

We saw solid progress in rolling out 360L, our revolutionary new product enhancement, which leverages the best of our content and interactivity. We expect 40 penetration in new car trials by year end 2023. We see a good conversion lift in vehicles with 360L, particularly as consumers are aware of and use advanced features. We did take costs out of the business at SiriusXM with an 8% workforce reduction in March, and we are confident we will see improvement in operating results for the year with likely positive self pay net adds in the back half of the year and the cost savings and ad revenue seasonality benefiting EBITDA. As a result, SiriusXM, on their earnings announcement, raised both EBITDA and free cash flow guidance $50,000,000 each.

We were excited to name Tom Barry as the new CFO. He was previously our Chief Accounting Officer. He's been with SiriusXM since 2009 and has a detailed knowledge of financial and strategic elements of the business. We do wish Sean well in his new role and his success on the course. Turning to Live Nation.

Tremendous quarter, continued growth in live events across all of its segments with a great Q1, as I said, even against a pretty reasonably strong comp last year, though there were some international markets that were not open in the prior period. Ticketing GTV was up 60%. AOI was up a stunning 53% to $320,000,000 and they converted 59% of that AOI into $190,000,000 of free cash flow. We look forward to yet another expected record year at Live with about 90,000,000 tickets sold for Live Nation shows year to date. We expect to manage 600,000,000 tickets globally.

We will host a record number of fans even against a strong 2022 comp, which benefit from rescheduled shows in prior periods. We believe the AOI at Live can compound at double digits for the foreseeable future. On the legislative updates, we continue to make solid progress and hope the market will begin to recognize the momentum there. We continue to gain momentum on the Fair Ticketing Act, and the proposed bill in the Senate called the Ticket Act is actually a significant positive first step towards implementing initiatives we support. Turning now to the Formula One Group.

On the corporate side, we paid $2.00 $2,000,000 of cash to LSXM to settle the intergroup interest in connection with the repurchase of the basket converts. That's an effective buyback of 3,100,000.0 Quanta shares at $65 a share proportionate to the amount of the convert repurchased. The F1 season is back after several weeks off, beginning here with the exciting Miami Race this weekend. I would note we had our first F1 Accelerate conference yesterday. It was successful.

This business summit brought together leaders in sports, tech and media, and we expect we'll have further iterations of that in the future. We announced format tweaks to Sprint events, now a stand alone event with separate points and no impact to the grid on the GP itself. I also expect we'll see continued improvements in this format and three full days resulting in three full days of on track excitement. We continue to see growth in the sport. The Baku Sprint weekend TV audience was up 7% versus the twenty twenty two GP in part due to the sprints.

Continuing from here in Miami, we see growth in The U. S. Fandom on full display. The Saudi GP was on ESPN and cable's most live GP on record to date. US social media followers were up dramatically, 43% in the first quarter versus the prior year.

And The U. S. Is now Formula One's biggest audience across Instagram, YouTube, TikTok and Snapchat. Quick update on Vegas. We completed the Wave one and two ticket sales with strong demand.

The final Wave three sales are expected later this spring. We remain confident in our sponsorship pipeline with many big deals already announced. We most recently added Virgin at Hard Rock. The construction of the Paddock Building itself is over 60% complete. CapEx is running in line with expectations, modestly exceeding our original cost of land purchase.

Reiterating the race specific economics for year one, We expect total revenues will approach $500,000,000 and we do expect it will be a top five race in profit economics. On the balance sheet, F1 leverage at quarter end was 2.2x. This will trigger a 25 basis point permanent reduction in the margin on our existing term loan B regardless of future leverage ratios. Turning to Braves. Great start to the season.

Twenty two and ten, best record in the NLF and leading the NL East by six games. Ronald Acuna Jr. Was named NL player of the month for April. He led the Major League Baseball in stone bases and runs. We had the largest home opener crowd in Truist Park history.

We've seen incredible ticket demand for season to date. We stopped selling season ticket sales for the first time in franchise history and started a waitlist before opening day. We expect to sell out over half the games this season. Baseball is clearly benefiting from MLB's rule changes. Games have more action and less downtime.

Across Major League Baseball, you've seen stolen base attempts up over 30 versus last year to the highest rate since 2012. Games are about thirty minutes shorter versus last year and dropping below three hours. Looking at the Braves themselves and innovations there, we already plan to implement a new POS system this year to enhance our fan experience, and this will help mitigate any impact to concessions from shorter gains. And we are actually seeing favorable trends in concessions year to date. Let me turn it over to Brian for more on our financial results.

Speaker 3

Thanks, Greg, and good morning, everyone. At quarter end, Liberty SiriusXM Group had attributed cash and liquid investments of approximately $377,000,000 which excludes $53,000,000 of cash held directly at SiriusXM. There's also $1,500,000,000 of undrawn margin loan capacity at parent level related to our SiriusXM and Live Nation margin loans. As of May 4, the value of our SiriusXM stock held by LSXM was $11,500,000,000 and the value of the Live Nation stock was $4,700,000,000 We have $2,700,000,000 in principal amount of debt against these holdings or $2,400,000,000 pro form a for the additional paydown that occurred after the quarter. Total Liberty SiriusXM Group attributed principal amount of debt is $13,000,000,000 which includes 9,600,000,000.0 directly at the Sirius level.

In March, Liberty SiriusXM Group issued $575,000,000 aggregate principal amount of $3.75 LSXMA convertible notes due 2028. We used the net proceeds of this offering to repurchase $591,000,000 principal amount of the 1.375 cash convertible notes and $112,000,000 of the 2.125 CRE exchangeable debentures. In addition to the proceeds raised from the new convertible, LSXM used cash on hand, including $39,000,000 from the proportional net settlement of the bond hedge and warrant and cash received from Formula One Group to retire 3,100,000 F1A intergroup interest shares underlying the corresponding portion of the convertible repurchase. Subsequent to quarter end, Liberty SiriusXM settled the remaining 2.125% CRE exchangeable for $275,000,000 at the April put call date. There's approximately 199,000,000 remaining on the 1.375 cash convertible notes, which mature in October.

All remaining intergroup interests are expected to be settled and extinguished in connection with the Braves spin off. And additional information regarding the intergroup interest is available in our press release and as well as the S-four that was filed with the SEC. Formula One Group had attributed cash, liquid investment and monetizable public holdings of $1,800,000,000 at quarter end, which includes $1,000,000,000 of cash at the Formula One level. Formula One Group purchased $129,000,000 of exchange traded funds in the first quarter, which we expect to attribute to the Liberty Live Group tracking stock in connection with the announced reclassification of the trackers. Total Formula One Group attributed principal amount of debt was $3,000,000,000 which includes 2,400,000,000 of debt at F1, leaving $538,000,000 at the corporate level.

F1's $500,000,000 revolvers undrawn and their leverage ratio at quarter end is 2.2x, which will trigger a 25 basis point reduction in the margin on the Term Loan B debt. Looking quickly at the F1 operating business. Given quarterly variability, we remind you to look at this business on a full year basis. But that being said, let's take a quick look at the quarter. Our race count in the first quarter was consistent year over year with two races.

Primary revenue grew with increases across race promotion, media rights and sponsorship. Other F1 revenue decreased in the first quarter, primarily due to easing of freight cost inflation versus the prior year, which was partially offset by growth in Paddock Club attendance. On the cost side, our team payments grew in the first quarter due to the pro rata recognition of increased payments for the year. Reminder that other costs of revenue F1 revenue and SG and A are best viewed as a percent of total revenue. Other costs of revenue benefited from the easing of the freight inflation.

This was largely offset by increased hospitality costs and higher commission and partner servicing costs paid to related to the growth in the primary F1 revenue streams. On SG and A, the first quarter included $6,000,000 of costs from the Las Vegas Grand Prix. Looking at Vegas, nearly all of LVGP's revenue and costs will be recognized in the fourth quarter when the race takes place, just a reminder on that. The Paddock Club building is progressing on schedule. In the first quarter, we incurred approximately $53,000,000 of corporate level capital expenditures related to Las Vegas.

We will not be providing a forward looking allocation between the F1 OpCo and the Formula One corporate CapEx. LVGP will pay rent and other fees out of F1 OpCo to Formula One corporate for use of the building during the race period, which will show up in our financial statements as revenue at the corporate level in the fourth quarter, but will eliminate consolidation. Finally, at the Brace Group at quarter end, they had attributed cash and liquid investments of $215,000,000 which excludes $30,000,000 of restricted cash. Brace Group had attributed principal amount of debt of $542,000,000 Liberty and our consolidated subsidiaries are in compliance with their debt covenants at quarter end. And with that, I'll turn it over to Stefano to discuss Formula One.

Speaker 4

Thanks, Brian. Good morning from Miami. We are thrilled to be back for our second Miami Grand Prix where the excitement in the city is as vibrant as year one. This year event feature on expanded paddock now located inside the Dolphin Stadium and upgraded paddock club and a fully track. We are four races into our record 23 race calendar.

While Rebull has dominated the race to date, it is still very early in the season and the races have been packed with excitement and drama. Alonso Alonso fans have had much to cheer about with Aston Martin's recent performance. Alonso first place finish in Saudi Arabia marked his 100 podium, making him one of only six drivers in F1 history to claim this feat. The Australian Grand Prix featured three red flags, adding even more complexity to Thai strategy and ended with only 12 of 20 drivers crossing the finish line. The new sprint format was unanimously approved by the teams F1 and FIA in advance of Pekka.

We all believe that the new format is the right one for our fans and the sport and increase the level of intensity and action across the weekend. Starting this season at the six sprint events, all three days of the weekend will be packed with on track excitement. The Saturday sprint shootout is a shorter qualifying session to determine the sprint grid later that day. This makes the sprint standalone event with no bearing on the Grand Prix allowing drivers to fight more aggressively without fear to raise the implication. Formula One is engaging with our fans across platform.

Global audiences exceed 70,000,000 viewers for the first two races of the season with significant increases in key markets across Europe and North America. In The U. S, the South Arabian Grand Prix brought 1,520,000 viewers, marking ESPN and cable's most viewed Grand Prix on record. Across our digital channels, F1 reached 62,900,000 social media followers as of Q1, up 31% year over year. Our f1.com website and F1 apps have launched additional content including a new what is F1 section dedicated to new fans with videos and beginners guide to the sport.

Crowds continue to flock to our races globally. The vast majority of events are sold out for the 2023 season. Bahrain set its new record with nearly a 100,000 fans over the weekend. Melbourne topped last year record as the largest weekend sporting event in the recent Australian history. We welcomed 445,000 fans over the course of the weekend, up from 420,000 the prior year.

This also marks a new record this century for Formula One in terms of total race weekend attendance. Turning to recent updates on our commercial agreements. On race promotion, we extended our Austrian Grand Prix through 2027 following last year's sold out crowd of 303,000 fans. This year event will mark our tenth anniversary since F1 returned to Spielberg. We also announced the extension of the Azerbaijan Grand Prix through 2026.

On Meteorite, we entered into a multiyear extension of our partnership with ESPN to broadcast F1 channel in Latin America and in The Caribbean. ESPN will provide live coverage of over half of the races with the full season available on the streaming service Star Plus. ESPN has continued to develop dedicated content across web and social platforms, allowing us to expand our global reach and attract an increasingly diverse fan base. Our Pro and Access product continue to see solid subscriber growth this season. On sponsorship, we made the Liquid Moil an official partner.

Our enhanced agreement includes truck signage at the three races and virtual branding at 15 races, demonstrating the opportunity for digital ad insertion within the broadcast feed. We first welcomed Liquem Oil as a regional sponsor in 2019, grew our relations to official sponsor in 2020 and now official party in 2023. We continue to demonstrate growing value to our partners. We were thrilled to announce Parliament Plus as an official partner following our successful sport and entertainment collaboration last season. Our new multi year agreement will feature their popular seniors at Fan Zone on trackside display and in digital placement.

This week, we announced Puma as official provider of F1 sporting apparel in a new multi years partnership and we extended our agreement with MSC Cruises as global partner throughout 2026. As part of the extension, MSC will bring a unique hospitality experience. Our sponsorship pipeline remains strong. Drive to Survive returned for its fifth season in February. Avid, casual and new fans alike continue to be drawn to the cities.

The latest season didn't disappoint. On April 14, we celebrate the topping out of our Las Vegas Grand Prix paddock building by placing a symbolic concrete barrier on top of the structure. We are very pleased with our progress. The efficiency of this project is a function of the incredible collaboration between the Las Vegas Grand Prix team, our talented design and construction crew and local officials. We thank them all for their support.

The paddle building spans 1,000 feet long, 100 feet wide and three stories tall with a rooftop deck. It will be the largest paddle building on the race calendar and will host the largest paddle club. On the roof, we have a 28,000 square foot LED screen in the shape of our F1 logo that provides unparalleled branding opportunities. When you fly over Las Vegas, you will know that F1 has established a permanent home in The U. S.

We can monetize the LED screen and display third party branding in the future years. The building itself has advanced AV capabilities, temporary walls between thin garages and additional features ensures ample flexibility to convert the entire space for a broad range of year round users. Future year round activation are under development and we hope to have more to share in the coming months. I encourage you to visit the Las Vegas Grand Prix website for the time lapse video of the extraordinary construction progress. Our truck resurfaces of Las Vegas roads began last month, and the second phase is scheduled for July.

Once complete, this truck service can last six to ten years. The team also recently announced addition to the sponsorship lineup. Virgin Hotel Las Vegas was named an event partner and will have entitlement to the East Harmon Fun Zone. Hard Rock International was named a presenting pardon and will build a grandstand in front of the mirage on the strip. In March, we announced an event partnership with Switch, the technology infrastructure company who will supply LVGP with its sustainable goals and establish a very common conscious practice for the race weekend and beyond.

Finally, touching on our broader F1 sustainability and inclusion effort. The European Union recently recognized the role that sustainable fuel needs to play part of the automotive solution alongside electric vehicles up to 2,035. This cement the future of sustainable fuels following F1 extensive work with policymakers. Our F2 and F3 cars are running 55% sustainable fuel this season. Current F1 cars are running 10% sustainable fuels and we are on track to introduce 100% advanced sustainable fuels in 2026.

The F1 Academy, our new all female series began its season in Austria last weekend following two testing sessions in Barcelona and Pordecard in France. Congratulations to Marta Garcia from Prema Racing on winning two of the three races on opening weekend with just zero point three seconds separating her and the second place finisher the third race. The season will have seven race weekends with the final race alongside us in Austin in October. I'm pleased to say that in 2024 season, we'll have all F1 Academy races join F1 weekends. The creation of F1 Academy is an important step forward towards increasing opportunity for female participation in motorsport.

It is the start of a journey and we hope it will be inspirational for young female drivers aspiring to reach professional motorsport who now have the F1 Academy to aim for. I believe we are creating the best possible structure to find and nurture female talent, including those already in the cities and those yet to come through from the grassroots level. We are looking forward to the season. Yesterday, F1 partnered with custom events from Wall Street Journal to host our first F1 Accelerate Summit. We brought together trailblazer from the worlds of sport, entertainment and business to discuss how they can make a significant impact on the future of technology, performance, diversity and sustainability, not only in their own business, but across industry and culture.

We welcome familiar faces from the F1 grid and management alongside Marquis Ford figures including Maria Sharapova and Liz Leibond. Jay Leno was our host as business executives, traveled from across the country including Jerry Bruckheimer, Joe Kosinski, Maverick Carter, Sarah Hardin and Burg Magnus. We hope to continue leverage F1 brands to drive innovation and commercial success for the sporting and entertainment worlds. It is an exciting time for Moab, on the track and in the commercial operation. Our unusual early season spring break didn't have a mandatory shutdown like summer break, meaning teams were hard at work with their cars upgrade.

I believe competition will intensify as the season progresses. Miami closed out the first doubleheader of the season before we head to Europe for the first triple header. There is plenty of action to come. Avanti Tutai, full speed ahead. And now I will turn the call back over to Greg.

Thank you. Ciao.

Speaker 2

Thank you, Stefano, and thank you, Brian. And to our listening audience, we appreciate your continued support of and interest in Liberty Media. We hope you will all turn in to see the Miami Grand Prix this weekend and the start of our brave series against the Orioles tonight. And with that, operator, I'd like to open the line for questions.

Speaker 0

Thank you. The floor is now open for questions. The first question is coming from David Karnovsky of JPMorgan. Please go ahead.

Speaker 5

Thanks. Stefano, just on the new Sprint format, I'm interested to know what the response has been from your partners on the promotion side. How are they thinking about the potential lift to their own ticket sales? And then what's the process you have to determine what GPs get that format? And is that something you can build into your contracts?

Speaker 6

Well, thanks, David. Of course, we did that thing in accordance with the teams and with the FAA because, as you know, our idea is to make sure that during the racing weekend, there is always action on the track. Actually, the result of the first one of this year has been very encouraging. And every one of our partners, promoter, media partners and also team are very positive about that. Of course, there is something that we want to take as a lesson learned to see at the end of summer if there is something that we can learn to do even something better.

But in the general term, the first we we can of the spring format has been great. And I think that as always, when you want to do something different in a very standardized ecosystem, the reaction of the, let's say, the traditional fans is the one that needs to be awaited for longer term. But normally, with the new fans, we've we've seen a very, very positive reaction. Promotor was pushing for that. And I would say the real thing is that we don't want to go in a situation where in the future, we're gonna have all the races with the spring format.

We want to keep a limited number of it, maybe one third of the calendar number, and create something special with regard to the competition that we can give sporting value with with trophies and and, of course, commercial opportunity to these things. But I think that's the right way to go. And if I may summarize another thing that I think is important, I see a big trend today about the sport not to be stable, let's say, not to to stay consistent with your regulation. I was just following what the baseball date. They're just following what the NBA has done.

So that means that the all the professional sport needs to listen to the request and to the new input that the fans, promoters, and partners are asking to have more excitement around the games. So positive and looking forward to keep working on this project.

Speaker 5

Okay. And then you've called out F1 TV in your releases for a few quarters now. Just wanted to see if you could update us on the product, where you see it in terms of the growth trajectory. And then just for Brian, to the extent someone buys an annual plan at the start of the season, is that all booked in the first quarter with the partner cost? Or is that proportional to the races?

Speaker 6

So if I may, the first part of it, f one t d is really working very well. You know that we are not providing any numbers on that. But what I can tell you in terms of quality, in terms of product, and in terms of attention is also an opportunity to select new markets where there is not really a strong broadcaster provider, and we are doing that with certain countries, and the effect is very good. We have a new plan also to update some of the content that we want to give to our fans. And as I said, after a couple of years of very high investment, now we are paying back what has been a great decision taken a couple of years ago.

Ryan, you want to progress with the other question?

Speaker 3

Yes. David, on your second question, it's proportional over the season.

Speaker 5

Great. Thank you.

Speaker 0

Thank you. The next question is coming from Brian Kraft of Deutsche Bank. Please go ahead.

Speaker 7

Hi, good morning. Greg, I wanted to ask you, how should we think about the capital needs of the Liberty Live tracker, both initially and over time, particularly as the business side of Liberty Live evolves and begins to invest in owning and operating venues? I assume that's still part of the plan. And it seems like it's capital intensive. So just wanted to understand how you might go about funding those endeavors.

Thanks,

Speaker 2

Brian, for the question. As we've outlined, we expect to capitalize Liberty Live with a decent amount of cash. But candidly, to the degree we go out and do something large there, we'll have to find other sources of capital, other sources of cash capital. So I don't think it will be a massive generator of cash, as you would expect, looking what's in the asset base there. But we have some ideas that involve leveraging Liberty Live itself, not reliance as much on other trackers, if that's your fear, Brian.

Speaker 7

Yeah. That was the nature of the question. Thank you.

Speaker 2

I asked you couple might have read that subtext a little bit.

Speaker 7

Well, a lot of people are asking about it. So, you know, I think it's good to get the message out it

Speaker 2

straight upfront. You get to ask it straight upfront.

Speaker 7

If I could ask you also maybe related on the F1 side. I mean it seems like what you're doing in Vegas is really exciting. Do you see other opportunities to invest in F1's business by taking on the promoter role in other markets and investing in facilities to drive that longer term growth?

Speaker 2

Look, I think Vegas was unique in the opportunity and also the geography and a bunch of other factors, made it the place where we should be the promoter first. We'll we'll try not to have too much hubris and assume that we need to prove we can be a good promoter first. I don't look at a lot of other places where it's as obvious. I have mentioned in the past that I do think in some cases, some of our partners in the promoter space are not necessarily as capital rich as Formula One. And so there may be opportunities for us to participate alongside them, maybe not in a full co promotion role, but to take elements of the chain of value being created and further for both of our benefits.

So we'll certainly look at that and talk to partners to the degree that's available. And if

Speaker 6

I may add another comment, Greg, that a direct qualitative effect is that with this investment, we are pushing also up the quality of the promoters that are already very important for us in 04/2001. So now the game is to have unique events that are working very, very well, of course, commercially viable. But I would say that direct effect will give even to the system an uplift in the qualitative approach of every Grand Prix.

Speaker 7

Great. Thanks, Greg. Thanks, Stefano. Appreciate it.

Speaker 0

Thank you. The next question is coming from Vijay Janant of Evercore. Please go ahead.

Speaker 2

Hi, good morning. I have

Speaker 8

a couple on Formula One. So Greg, the $112,000,000 of team payments in the quarter implies a little less than, I think, 1,300,000,000.0 for the year. Can you sort of talk about how team payments are being communicated to the team, given the fact that this year you have something sort of different with the Vegas rates that is not sort of contractual? And is that something we should look at as a proxy on what you're sort of thinking on the full year EBITDA number? And second, obviously, the free cash flow was very, very strong at Formula One's quarter, and I'm assuming that had to do with ticket sales for, I think, way one and way two on Viggs.

Any way you can help us think about what sort of the underlying free cash flow is excluding the ticket sales, if possible?

Speaker 2

So I'll comment on the first and second. And if, Brian, you want to add anything on the free cash flow when I'm done, that would be great. Looking at the team payments, I think if you look at our history, we try to manage that conservatively, particularly in the first quarter of the year. And as you rightly note, probably even more conservatively this year, given we've added some volatility to payroll or rather to the potential in, by having Vegas. We think it's positive volatility.

It's going to be a great event, but it is unknown. It is not as well, experienced as some of the other events that we have. So I think you should look at that as a conservative proxy for how we expect the year will go. The last thing we want to do is have teams overspending in anticipation of monies that don't show up towards the end of the year. On the free cash flow, you rightly note, because of the Wave one and two sales, a lot of cash has been brought to us.

It's deferred collection, but it's generated in that free cash flow line. So it has probably overstated the true impact of the operating business for Q1, but we do expect to recognize that as free cash flow as the year progresses. I don't know, Brian, if you want to comment or can comment a little on a more normalized level without providing Vijay too much clarity because, gosh knows, we want him to do some real work.

Speaker 3

Yes. I mean to help the efforts, I guess, I would say, if you look at our tracking stock schedules, you can see the deferred revenue as of 03/31/2023. And you can go back and look at the you look at our first quarter from last year, you can see the deferred revenue related to Formula One at 2022. It's up roughly $130,000,000 give or take. And you could think of that largely being related to VEGAS, although there are other puts and takes.

Speaker 6

Ed, if I may add one comment. Sorry, Brian.

Speaker 2

No, go ahead. Stefano, please ask. Sorry. No, Vijay.

Speaker 6

I just want to add two comments that I think is important to consider and to remember. That at the end of the day, it's important to remember the team the teams are benefiting for what we are doing so far. I mean, invest in Vegas for them is a is an an incredible opportunity and directly also for them to develop this their their business. And then directly, this will get our proposition even stronger as an ecosystem in 04/2001. So I think that it's really something that as well as mentioning, we have a prudential approach that gives you the magnitude of what we need to do and need to deliver at this cost that would be very, very important for all of us.

PJ.

Speaker 8

Thank you.

Speaker 0

Thank you. The next question is coming from Peter Supino of Wolfe Research. Please go ahead.

Speaker 9

Hey, good morning and thanks. On the Concorde agreement, Greg, I wondered or Greg or Stefano, I wondered if you could comment on how you'd like investors to think about the timing of that renegotiation? And then a second question, Greg, if you would talk about Live Nation, your view of both the risks posed by the DOJ investigation and then separately, the bear case that the business ought to slow down a lot in 2024 after this post pandemic surge of supply.

Speaker 2

Look. We have several years left to run on the Concord agreement, but I think there's a consensus among the teams and the FIA and ourselves that now might be a good time to try and strike while the iron is hot and renew and extend the Concord agreement. There's certainly no obligation to do that, and there's certainly no risk if that doesn't get done. As you may recall, we went right to the end. And historically, in many cases, the teams have operated without a Concord agreement.

They've basically done a handshake and then completed the the deal post the period when the Concord new Concord agreement was supposed to start. Our hope is that this time we'll be able to change that dynamic, in part because of the way that Chase and Stefano have changed the dynamic with the teams in particular. I hope we have a more positive relationship, and everybody sees the benefit of going early and providing certainty for all involved. Dafna, what would you add?

Speaker 6

Nothing because I think that you synthetized perfectly the situation. And I think that will be our strategy now.

Speaker 2

On Live Nation, I would not say it's a DOJ investigation. You could always say that. But, look, we've had a DOJ consent decree and monitor now for several years, and it was renewed. And there is a hotline that anybody can report what they perceive as violations of that consent decree. And the DOJ has to monitor who is investigating continuously perceived or alleged violations of the consent decree.

There obviously is another track, which is legislative potential, and we've talked about some of those. I mentioned the couple of bills that are being considered. I'm not sure those bills will get done. But in the main, we view those bills as positive. And frankly, I think anything that moves forward and ends the negative speculation about the regulatory side is positive because we do not perceive it nearly as big a risk as the market perceives it to be.

On business itself, hard to project what the consumer will do when you can imagine recession scenarios and the like, But we see none of that. We see strong demand, and we see it going forward with upcoming tours. And our expectations, as I noted, are the business is going to continue to grow.

Speaker 0

The next question is coming from Steven Lasich of Goldman Sachs.

Speaker 10

Maybe one on F1 sponsorship for Stefano. It seems like you're finding a fair amount of success in stepping up some sponsors into more comprehensive packages. You had Paramount plus MSC and Liquid Moly this past quarter. I was wondering if you can maybe talk about this more, how much opportunity you think there is as you look out across your sponsorship portfolio to step more sponsors up? And if there's any constraints, especially with there being 10 global partners already that could limit this?

Speaker 6

Well, thanks, Tim, for the question. I think that we always need to look behind to understand what we are doing today. I mean we were talking about only four official partners just two years ago. Now we are heading to 10 official partner plus an incredible group of technical partners that are part of our family. I think that our main goal is to, for sure, to connect with the potential business partners that are interesting for to develop this together.

But in any case, we don't have to overcrowd our group in order to offer what they need, and it's up to us to to prepare for them different packages with different countries, with different experience, with different opportunities. This is what we are doing. And the fact that we are so strong in this moment, that the pipeline is still very solid also for the future, is giving us the creativity to work on the digital landscape, to to to have different proposition, different markets, for example, as a as a a as one opportunity that we have today, or including other categories that are interested to come back in 04/2001. So I would say now the real thing is not to work only on the of anymore, but making sure that each of them receives the right qualitative answer to their question. And the other thing that I think is really relevant, that gives in another way the fact that we receive this on on the sustainability platform because no one will invest today in a business that is not credible on this landscape.

Therefore, that is another push that we received from our partners to make sure that our goals with the sustainability in that company TRI 2030 has been achieved. So it's, let's say, a constructive push that we are working together in order to be stronger stronger together.

Speaker 10

Great. And then maybe one for Greg. Could you just update us on the way you're thinking about capital allocation at Formula One now that you hit the trigger on your term loan this quarter? Should we expect this to give you some more flexibility from this point going forward to ramp leverage back to more historical levels? Well,

Speaker 2

thank you, Stephen. I think, look, we are pleased to have triggered the reduction. Honestly, that's a nice benefit, but it has not been what's driving our thinking about capital allocation. We are looking for and believe we will find attractive opportunities for our cash and our generate cash flow generation. I've talked about some of those in the past, including the Vegas effort, which I think is going to generate a good return ancillary businesses around which are synergistic and around our existing business and the potential for return of capital versus share repurchase.

As I would as I noted, we effectively did that this quarter for just over 3,000,000 shares through the intergroup interest settlement. So I I expect you'll see us look at all of the alternatives above. And again, it was nice to click off the 25 bp reduction, but that wasn't what drove our thinking. It's really the strength of the business, which is generating the capital.

Speaker 10

Thanks, Greg.

Speaker 0

Thank you. The next question is coming from David Joyce of Seaport Research Partners. Please go ahead.

Speaker 11

Thank you. Couple of questions. First on Formula one, what's the current view of Formula one, the league and FIA and the F1 teams related to potential addition of more teams? What are the gating factors from here? And then secondly, if you could provide any update on your views of what's happening with the regional sports network as it pertains to Atlanta Braves?

Thanks.

Speaker 2

I'll let Stefano handle the first part, and I'll handle the RSN question.

Speaker 6

Thank you, Greg. I mean, with regard to a situation of a new team potentially entering or interesting for one, no, as always said, there are someone that is quite vocal, some others are quite silent. As you may know, David, there is a process in place that has been activated by the regulator to see and to collect the interest of other partners to depart from 01/2001. The first step will be finished, I think, within the May. And then there will be the analysis done properly, checking the technical feasibility, the financial feasibility.

And then we're going to have the discussion to see if any kind of potential enter will fit into the equation of creating more value And that's something that we're

Speaker 8

to take the decision at

Speaker 6

the right time within the end of the year. That's the plan. But of course, that is once again showing the growth of Formula One. I mean, just a couple of years ago, the value of the team was very small, actually, almost none. Today, the value of the franchise is very high.

So we have the duty to protect the business and making the right decision. And this is something we're going to

Speaker 2

do within the acquisition. And regarding the RSNs, look, obviously, it's a difficult situation given Diamond's filing. That having been said, we continue to receive payments from our SportsSouth contract. That is not true for some other RSNs out there. My understanding is three or four have not received payments from Diamond.

And that, I think, reflects the fundamental strength of the territory we have and the strength of the interest in the Braves such that our understanding is we have a profitable RSN, so it's unlikely that Diamond will view us as an executory contract, which they wish to reject. Even if they were to reject it, which, again, don't expect, I think there are other alternatives we could construct in the marketplace that would enable us to get paid and have our products shown to our fans, which is really the most important thing. And we're certainly prepared if we have to, to go out and exercise those alternatives.

Speaker 11

Thanks, Greg and Stephane.

Speaker 0

Thank you. The next question is coming from Matthew Harrigan of Benchmark Company. Please go ahead.

Speaker 9

Thank you. Live Nation among its other merits absolute home run acquisition of HOCESA, Mexico and Colombia, think they said that, and Asia were like 50% of AOI growth in the quarter year over year. I mean do you see very many other targets out there to expand internationally as the music business is just now unbelievably globalized given the cross market appeal of artists, as Michael Lapino talked about yesterday? Thank

Speaker 2

you, Matthew. You're right. OCESA is a great deal, and it's nice that Alejandro Silberon's business, who's also our partner in the Formula One Mexico City Grand Prix, is acting so successfully. There are other targets out there, probably not as many with the scale of OCESA that we could get done because of potential regulatory issues. But Live Nation has a long history of successfully adding primarily promoters into the fold, usually in some form of a partnership agreement where the management stays involved, but we take some ownership interest as well.

And I expect you'll continue to see that either in venues or promoter relationships where we continue to take advantage of the strength of our business and our ability to try and offer both fans and artists a global product. And the more we can fill in our global footprint, the better for both of them.

Speaker 6

Thanks, Greg.

Speaker 2

Operator, I think we're done. And to our listening audience, again, thank you for your interest in the Liberty Media companies. We look forward to speaking with you next quarter, if not sooner, and have a great weekend.

Speaker 0

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.