UBS Equity Research has initiated coverage on Liberty Formula One (FWONK) with a Neutral rating and a price target of $85. The lead analyst, Ryan Gravett, highlights several factors contributing to his cautious stance, including decelerating growth, lack of significant catalysts, and a premium valuation compared to other players in the sports media space.
Here’s a closer look at the key takeaways from the initiation:
1. Decelerating Growth for Formula One
Over the last few years, Formula One (F1) has enjoyed impressive growth, especially in the post-COVID era from 2022 to 2024. EBITDA growth during this period was around 20% annually, fueled by key factors such as:
- The introduction of U.S. media rights (from virtually zero),
- Expansion of the race calendar,
- Maximizing sponsorship opportunities,
- Improved operating leverage on team payments.
However, Gravett believes this rapid growth is now behind us, projecting a deceleration to around 12% going forward. With the most significant growth drivers already realized, the future looks less bullish in comparison to the recent past.
2. Limited Catalysts on the Horizon
One of the central concerns Gravett raises is the lack of strong catalysts to drive future growth. While some attention is being given to the upcoming renewal of U.S. media rights, he doesn’t expect this to have a major impact on revenue.
- U.S. TV ratings have only increased by low single digits (LSD) under the current contract, compared to a 70% rise during the previous deal.
- Gravett forecasts just a 1.6x annual average value (AAV) increase, which would only contribute about 100 basis points (bp) to overall growth. This is a far cry from the 400 bp boost seen during the last renewal cycle.
On the cost side, Gravett notes that the operating leverage on team payments will also decline. Coming out of COVID, F1 provided minimum payment guarantees to teams, allowing the sport to keep a higher share of profits as certain profitability thresholds were met. However, with these thresholds now achieved, there will be a more balanced profit split between F1 and the teams, further slowing EBITDA growth.
3. TKO Preferred Over FWONK in Sports Media
While Liberty Formula One is still a solid player in the sports media landscape, Gravett sees more attractive opportunities elsewhere—specifically, in TKO Holdings, which houses WWE and UFC assets. His reasoning is based on the expectation of accelerating growth for TKO, particularly due to the upcoming renewal of U.S. media rights for the UFC.
Key differentiators include:
- UFC’s U.S. rights represent over 20% of revenues compared to just 3% for F1, making the renewal a much more significant growth driver.
- He predicts that this renewal could drive accelerating EBITDA growth for TKO, from 13% currently to 19% in 2026.
- Gravett is also more optimistic than consensus on the UFC renewal step-up, forecasting a 1.8x AAV increase compared to the Street’s 1.6x. He believes the market underestimates Disney’s strong monetization of UFC’s pay-per-view rights, giving UFC a stronger negotiating position.
For context, a mere 0.1x increase in AAV for UFC represents around $5 of per share value for TKO, further solidifying its more favorable growth trajectory.
Final Thoughts
Liberty Formula One remains a major player in the sports media landscape, but UBS’s Neutral rating reflects concerns about slowing growth, limited upside from U.S. media rights, and increasing cost pressures. With TKO offering a more promising growth outlook, especially as the UFC prepares for its media rights renewal, Gravett suggests that investors might find better value and stronger growth potential in TKO over FWONK.
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