Liberty Media Corp. (FWONA, Financial) (6.9% of Sequoia’s capital at year-end, -10% total stock return in 2022)
Shares of Liberty Media, the holding company through which we own the Formula One motorsport league, declined this year, though by significantly less than the S&P 500 Index. Business performance was superb. For full-year 2022, Liberty Media’s revenues are expected to be up almost 20%, with profits up even more. This robust growth is the result of a continued recovery from pandemic-related disruptions, but even after adjusting for this recovery the business grew nicely. Versus 2019, Liberty Media’s revenues and per share earnings power are expected to have compounded at annual rates of approximately 7% and 23%, respectively.
Formula One has for decades been the pinnacle of global motorsport, but under previous management it suffered from internecine fissures and short-sighted strategy that were negatively impacting the sport and the business. 2022 saw the full implementation of a new Concorde Agreement signed in 2020. The Concorde Agreement lays out the key economic, technical and sporting terms on which the teams participate, and this most recent one realigns the teams and the league in a manner that should pay off for all parties involved. The new Concorde Agreement has already had some positive impact on the sport and the business, and we believe the majority of the benefits have yet to be realized.
Already, the sport is healthier than it has been for a long time. TV viewership was up globally again this year, which helped Formula One secure a round of richer broadcast deals in Europe as well as in the US, where the new deal with ESPN/ABC is rumored to be almost 10x more remunerative than the last one. In 2022, US TV viewership was up almost 30% over last year, building on the momentum of previous years and driven by the latest season of Netflix’s Drive to Survive series and the calendar’s new Miami race. Liberty Media plans to add a third US race in 2023, in Las Vegas. Instead of relying on a promoter as it typically does, Liberty Media will run the Las Vegas race itself, which will require significant investment but should generate an attractive return.
Enticed by the growth and strength of the fan base, new sponsors are clamoring to sign up. This year saw a number of high-profile wins including Salesforce and Lenovo, as well as an expanded relationship with Amazon Web Services. Further, we are now seeing multiple well-funded and highly respected parties seeking to enter the sport, by either buying into an existing team or bringing a new team to the grid. Audi will partner with Team Sauber in 2026, and a duo consisting of General Motors and Andretti Motorsport has publicly announced its desire to enter the sport, while Porsche and Ford are both rumored to be exploring a possible entry.
At the current share price, Liberty Media is trading for approximately 30x expected per share earnings power for 2023 and a high-twenties multiple of expected free cash flow for 2023. We consider this a reasonable price for an impossible-to-replicate global sports league that is in undeniably rude health and that should drive mid-teens or better earnings growth for the next several years.
From Ruane Cunniff (Trades, Portfolio)'s Sequoia Fund fourth-quarter 2022 letter.
