1. The announcement
Maxi operation in the world of motorsports: Liberty Media Corporation, which operates and owns interests in a broad range of media, communications, and entertainment businesses, after having bought 100% of Formula One in 2016 and from January 2024 also Quint (a company that handles the management of tickets and hospitality packages for many sports organizations), now has also taken over MotoGP. Formula One owner Liberty Media is expanding its investment in motorsports by purchasing Dorna Sports, the sole commercial and television rights holder of the FIM MotoGP World Championship since 1991 and a leader in sports management, marketing, and media.
The economic indicators of MotoGP that Greg Maffei, Liberty Media CEO, finds most attractive relate to revenues, margins, and cash flow. Revenues are diversified and derive from medium to long-term contracts: 43% of the turnover relates to the concession of media and TV rights (Sky for Italy) with contracts of 3-5 years, 32% from the fees paid by the circuits to host the races with contracts of 5-10 years, 17% from commercial activities such as sponsors, hospitality, merchandising with a duration of 1-5 years, and the remaining 8% from other activities. EBITDA reached 37% of turnover in 2023. But it is the cash flow that is even more attractive, as the absorption of liquidity for investments does not exceed €5 million per year.
2. Some figures about the operation
The official announcement was given on Monday 1st of April.
Currently, 79% of Dorna is owned by Bridgepoint and the Canada Pension Plan Investment Board, while 21% is owned by top management. Formula One Group (the branch of Liberty Media that already controls Formula 1), founded by John C. Malone in 1991, announced the acquisition of an 86% stake from private equity firm Bridgepoint and the Canada Pension Plan Investment Board, for €4,2 billion, while the asset value is estimated at €3,5 billion with the balance of the existing debt in Moto GP, which therefore is expected to remain in force after the closure of the deal; more precisely, €4.2 billion corresponds to 23.5 times the EBITDA 2023 (179 million) and 8.6 times the turnover (486 million). The current managers of Dorna Sports will retain control of the remaining shares, approximately 14%; the selling partners will therefore receive an amount of 3 billion euros (2.3 billion in cash and 700 million in Formula One Group shares).
The equity consideration to sellers is expected to be comprised of approximately 65% cash, 21% shares of Series C Liberty Formula One common stock, and 14% retained MotoGP management equity. The cash consideration will be funded with a mix of cash and debt, subject to market conditions. The Formula One common stock will be priced on a 20-day volume weighted average price before the transaction closes; furthermore, Liberty Media retains an option at its sole discretion to deliver additional cash.
Through this operation, Liberty Media becomes the owner of also other motorcycling events controlled by Dorna, such as Moto3 and Moto2, the world championship MotoE, Superbike, and the Women's World Championship.
3. Changes in the management
Regarding the present management, as clarified in an official communication, will be attributed to the tracking stock of the group Formula One of Liberty Media, whereas, Carmelo Ezpeleta, CEO of Dorna since 1994, will be confirmed in his position and role and the legal head office will be kept in Madrid.
Ezpeleta has shown his enthusiasm in this operation from the very beginning: “This is the perfect next step in the evolution of MotoGP, and we are excited for what this milestone brings to Dorna, the MotoGP paddock and racing fans. We are proud of the global sport we’ve grown, and this transaction is a testament to the value of the sport today and its growth potential. Liberty has an incredible track record in developing sports assets, and we could not wish for a better partner to expand MotoGP’s fanbase around the world.”
In addition, the operation, as underlined by Greg Maffei, president, and CEO of Liberty Media, is aimed at on the one hand ensuring a global championship with engaging races, and on the other hand, guaranteeing a strong financial profile able to generate huge cash flows. Also, the owner of Dorna has confirmed his enthusiasm about this operation, recognizing the experience that Liberty Media has in developing sports resources through the expansion of MotoGP fans in the Americas, teams, commercial partners, and shareholders.
4. A past precedent: the CVC case
The operation is expected to be completed by the end of 2024 and, as usual, is subject to the receipt of clearances and approvals by competition and foreign investment law authorities in various jurisdictions.
Already in the past, Liberty has been floated as a potential new owner of MotoGP promoter Dorna Sports for a considerable amount of time, but such a prospect has always been met with questions about whether the deal would be considered lawful under EU antitrust rules. This stood as no mere hypothetical because of a past precedent from 2006, that of private equity group CVC Capital Partners. CVC, indeed, which already controlled Dorna and consequently MotoGP, reached an agreement for the acquisition of the majority of the shares of SLEC, the holding company of the Formula One Group. The operation nevertheless was soon obstructed by the European Commission which expressed constraints over what it defined as a potential concentration.
The Commission, under Article 4 of Council Regulation No 139/2004, is entitled to undertake a preventive analysis of those mergers and acquisitions that, overcoming certain turnover thresholds, acquire a “Community dimension”. Those kinds of operations may lead to concentrations which are defined by Article 3 of the abovementioned Regulation as a change of control on a lasting basis. Concentrations are not unlawful as such, but they are forbidden when they would significantly impede effective competition in the common market or a substantial part of it, in particular as the result of the creation of a dominant position. Since the CVC’s attempted purchase of SLEC shares would have resulted in sole control and being the combined worldwide aggregate turnover of the undertakings above 5 billion euros, the case was submitted to the Commission.
Since the health of competition is at stake, the first assessment undertaken by the Commission is the definition of the relevant market, in order to establish who competes against whom. The relevant market consists of the product market, which comprises all those products and services that can be regarded as substitutable, and the geographic market, in which undertakings operate in homogenous conditions. In the present case, the Commission was able to find several product markets associated with Formula One and MotoGP businesses, some of which overlapped while some others did not. In detail, despite there being no occurrence of intersection concerning advertisers, regulators, or teams, serious horizontal overlap was found in relation to the TV rights market. Especially in Italy and Spain, the two broadcasting events were deemed as each other’s closest substitute, given that the market for other motor racing events was comparatively limited and the market for regular throughout the year football was assessed distinct.
Therefore, in the eyes of the Commission, the acquisition would have resulted in a strengthening of a dominant position since they would have covered nearly the totality of the market of TV rights for major sports events with a combined market share of 90-100%. Moreover, this joint ownership of the TV rights would have meant a strengthening of CVC’s bargaining position against broadcasters and, eventually, an increase in prices. Further, the Commission expressed strong fears that the operation would have enabled CVC to adopt a bundling strategy, obliging the purchase of Formula One rights together with the less popular and attractive MotoGP rights. Anyway, as to this point, the decision was left open since there was strong evidence that on the contrary CVC would have maximized profits by selling the packages separately.
Finally, to complete the takeover of SLEC, CVC was obliged to a full divestiture of Dorna, thus not being able to manage at the same time the two motorsports giants.
5. The Bridgepoint case
In 2011, the Commission was again instructed to look after another meaningful acquisition in the world of motorsports. This time, Bridgepoint Capital Group Limited, the subsequent owner of MotoGP, reached an agreement for the takeover of Infront Sports & Media AG, which in his portfolio was holding, inter alia, the rights for the Superbike World Championship.
Likewise the CVC case, the Commission identified as the main market participants manufacturers, motorsport regulators, and broadcasters. Once more, as to the first two categories, despite there being horizontal overlap, the commissioners did not ascertain that the transaction would have had any material anticompetitive impact. But what differentiates this decision, is that neither for the TV rights market any opposition seemed justified, since after the market investigation and combined shares analysis, the Commission found no proof that the acquisition would have meant a strengthening of the bargaining position or an incentive to implement bundling strategies. Despite being in the same sports market, under the same regulator, and being the TV product very similar, the green light was awarded.
For the above reason, the Bridgepoint case could represent an important key point for Liberty Media’s antitrust concerns. Anyway, though it involved similar actors, the scenery has diverse elements since Superbike was in reality considered a minor sport event, and thus a minor competitor. Furthermore, the identified market share increase was really limited, between 5-10%, and would have constituted a little factor only in those Member States in which MotoGP too was to be considered a minor sports event. It is then clear that in concrete this would not work for Liberty Media argumentations.
6. What will happen next
For the moment, we can only wait and speculate whether the European Commission will consider the acquisition of Dorna Sports by Liberty Media as potentially creating an unduly dominant position in its sector. It is forecasted that one of the risks and uncertainties is that the parties of the operation may not satisfy all conditions of the proposed transaction, including the failure to obtain regulatory approvals.
However, Liberty Media CEO Greg Maffei said in an investor’s call surrounding the planned acquisition that he was very confident regulatory permission would be granted; he underlined therefore that F1 and MotoGP are only a small subset and the market has continued to change from the time when this was previously reviewed in a major way, seemingly pointing to the 2006 case. The same confidence has also been shown by Liberty’s chief legal officer Renee Wilm. Liberty management, therefore, notes that the CVC transaction took place almost 20 years ago and since then the sports entertainment markets and their perimeters have expanded enormously and have undergone significant changes. Moreover, the Americans add, CVC had not sold MotoGP to avoid regulatory jams, but only for a time factor: CVC was in a hurry to close the Formula 1 deal (for which it had a short-term buy option) and therefore could not wait the necessary months to receive the antitrust clearance.
Liberty has already stressed that Formula 1 and MotoGP will be managed as entities completely independent of each other and the confirmation of the management goes right along with this understanding. It is indeed clear that the result will turn around the ability to further show that the two industries would not have an overall common management. In this sense, the Commission has already shown, namely in the Bridgestone decision, to have no reason to oppose as long as existing concession agreements are not affected by the merger and that there could be room even for pro-competitive justifications, like long-term future for the products. Nevertheless, such demonstrations will be hard to prove as operations like this can heavily affect consumers' welfare and, therefore, the Commission resorts to strong presumptions.
In the next months, we will find out if Liberty Media's expressed confidence in securing regulatory approval will meet the Commission consensus. Until then, the fate of F1 and MotoGP remains uncertain, hinging on the fulfillment of regulatory prerequisites and the demonstration of independence within Liberty's management.
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