In late 2016, Liberty Media Corporation — Series C Liberty Formula One (NASDAQ:FWONA, NASDAQ:FWONK) became the owner of the Formula One Group, an iconic sports brand known even among people with little interest in the world of racing.
The Formula One Group traded as a tracking stock (FWONA for the A class shares and FWONK for the C class shares) of Liberty Media. While tracking stocks are somewhat of an anomaly in the general investing universe, those familiar with John Malone of Liberty will be nonplussed at the structure.
He and Greg Maffei together control Formula 1, and Malone in particular has an unparalleled track record in cable/media.
This July, Formula 1 announced a partnership with Snap Inc (NYSE:SNAP) whereby fans would have a social media platform to take pictures and videos at Formula 1 events. While protecting television rights has been a longtime Formula 1 concern, they’ve found themselves behind the times. The NFL, MLB and NBA have had a SNAP presence for a while now.
After the Liberty takeover, Formula 1 is pivoting away from shunning fan video uploads to embracing social media.
FWONK Harnesses the Power of Social Media
At the heart of monetizing Formula 1 is increasing its popularity and audience reach. Growing the fan base means that they logically need to make it a compelling experience for new fans, not just the existing base of 400 million unique television viewers.
Partnership with SNAP is a direct attempt to drum up interest and gain new followers by leveraging the “Our Stories” functionality. It’s about fans being able to tell their first-person stories via a social platform to increase the excitement around racing at large and Formula 1’s events specifically. Real-time personalized content is more engaging than a press release, for example, and thus more likely to entice new fans.
What does this mean for Formula 1?
A larger engaged fanbase means new sponsorship opportunities, of which Formula 1 is woefully behind other major sports like baseball. Greg Maffei himself has indicated that increasing revenues from sponsorship is a priority. That of course, depends on the quality of the events and the level of engagement of viewers. Earlier this year, Maffei compared Formula 1’s 19 sponsors to the MLB’s 75 U.S. sponsors.
The deal with SNAP plays to Formula 1’s intention to enhance its digital strategy, which will drive revenues across merchandising as well.
And once Formula 1 has built a strong digital base, there is significant upside in upgrading their OTT platform, increasing quality content and improving penetration rates to match those of other live-entertainment companies.
And SNAP Stock?
The partnership means more stories and in theory more advertising revenues for SNAP. But, it’s not enough to stem the bleeding and turn margins into positive territory. It’s good press for sure, but it doesn’t have the same semi-virtuous cycle at play as with Formula 1.
It won’t result in SNAP being able to immediately close the monetization gap to other social medial platforms like Facebook Inc (NASDAQ:FB). And thus it doesn’t provide a catalyst for SNAP shares to rise meaningfully higher.
Whereas this is part of Formula 1’s very focused execution on its business plan, SNAP makes many seemingly desperate and poorly thought through decisions (recent M&A especially), which serve to drain rather than nourish the already battered company.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.