At the beginning of last year, COVID-19 hit the whole sports industry pretty hard. Many professional leagues across the globe were forced to suspend their seasons and numerous events were cancelled. Formula One was no exception – Indeed, the delayed start of the 2020 season, which got suspended in March after the cancellation of the Australian GP, and the impossibility to host events with spectators, severely reduced F1’s revenues.
The absence of paying spectators, however, is not the only reason of the lower earnings. Indeed, according to the financial reports posted by Liberty Media, the dramatic drop of US$877M in revenues with respect to 2019, must be traced to the lower broadcasting and sponsorships fees.
Liberty noted: "Race promotion revenue decreased as fans were prohibited from attending all but three races, which led to one-time changes in the contractual terms of the originally scheduled races that remained on the 2020 calendar and limited revenue generated from the replacement races that were added."
Advertising and sponsorship revenues shares over total income remained mostly unchanged, however, some contracts got cancelled, as some title sponsors retired their participation to events, while others had to be renegotiated throughout the season.
Liberty explained: "Advertising and sponsorship fees declined driven by one-time changes in sponsorship contracts due to the cancellation of races to which contracted sponsorship inventory specifically related and the limited activities at the races, including hospitality."
Formula One was praised for being able to successfully run the season, albeit in a shortened version, despite the unprecedented health circumstances. Nevertheless, the redesigned schedule has had serious financial effects – with a reduction in revenues of 44% compared to the previous accounting period.
Broadcasting fees represent the primary source of income for Liberty. Based on actual contracts, the minimum number of races for broadcasters to pay the full contracted amount is 15 races per season. – In 2020, 17 races were hosted.
Even in passing the threshold meant that television broadcast deals were honoured, Liberty has admitted that there was a payment reduction in some cases.
"Broadcast revenue decreased as the altered schedule triggered lower fees pursuant to the contractual terms of certain broadcast agreements, as well as other one-time contract negotiations that took place in 2020."
Overall revenue fell flat from US$2022M in 2019 to $1145m last season, and the humble US$17M profits registered in 2019 turned into an operating loss of $386m in 2020 after the teams were paid.
"Team payments decreased in the full year [from $1012M in 2019 to just $711m in 2020] driven by the contraction in F1 revenue and the associated impact on the calculation of variable elements of team payments”, Liberty explained.
In addition to that, teams were recognized a compensation for the increased number of races back-to-back – The series paid out US$441 million to teams, up from US$335 million in Q3-2019.
While F1 posted record operating losses due to the pandemic, in their financial statements Liberty Media recognized some encouraging signs – indeed, operating costs decreased too, due to the shorter schedule and the reduced number of flyaway races.
"Costs decreased in the fourth quarter and full-year due to lower hospitality and lower freight costs from fewer, logistically cheaper races."
"We suffered a lot by not having in-person fans at events," Greg Maffei, Liberty Media chief executive, said during an earnings call.
"I give credit to our management team for making the great adjustment as they did to sustain the business and keep fans' interest high.
Despite the financial accounts of Liberty Media, newly-appointed CEO Stefano Domenicali was moderately optimistic for the foreseeable future – in fact, despite the reduction of revenues caused by the pandemic, data shown a 36% increase in social media following and a rise in average TV viewership.
In addition to that, F1 already announced a 23-race calendar for 2021, including a return to the Americas and southeast Asia and the addition of a highly-debated Saudi Arabian GP, which race promoters has so far indicated is going ahead regardless of the health crisis.
“I can’t express enough my excitement for all the opportunities Formula 1 has in front of us”, Domenicali concluded.