We all know that Liberty Media bought Formula One in January and the public can now get a piece of the action by buying shares, sold on America's Nasdaq stock market, which reflect the sport's performance.
Last Wednesday, Liberty released the Formula One Group's results for the first six months of 2017 and on reading the media coverage you might have thought it was a profit-making machine.
Reports claimed that in the first half of the year F1 paid off £770m ($1bn) of its debt and in the three months to the end of June it had operating income of £35m ($45m). However, analysis by Christian Sylt for Forbes has revealed that over that period the Formula One Group made a net loss of £21m ($27m) with a total of £95m (£123m) lost in the first half of the year. So which version of events is right? Actually, they both are.
The first point to make is that F1 and the Formula One Group are two very different things. The commercial rights to F1 are owned by a company based in Jersey called Delta Topco and this is what Liberty bought for £3.6bn ($4.6bn) in January. Liberty refers to Liberty Media Corporation, an American company which owns 100% of Delta Topco along with a number of other companies ranging from the Atlanta Braves baseball team to radio broadcaster SiriusXM.
Last year Liberty set up an ingenious structure which allows the public to buy shares in its different business divisions rather than the company as a whole. These divisions cover related assets owned by Liberty so the SiriusXM Group is named after the radio broadcaster, the Braves Group is named after the baseball team and the Formula One Group is named after F1 as Liberty owns Delta Topco.
However, crucially, these groups do not own the assets. The financial results of the groups simply reflect the financial performance of the assets which are owned by Liberty. The better the assets perform financially, the better the shares should perform. The groups, including the Formula One Group, aren't companies or legal entities, they are just stocks.
Assets like Liberty's shares in media company Time Warner and its 34% stake in event organiser Live Nation are also grouped under the Formula One Group but it mainly reflects the performance of Delta Topco. The company was a license to print money for its previous owner CVC which made an estimated £3.4bn ($4.4bn) from it before selling it to Liberty. In 2016 Delta Topco's net profit came to around £30m and it made £25m the previous year.
This doesn't seem to have let up as although F1's operating profit was down in the three months to the end of June this year, it still came to £35m. If you think this means the Formula One Group's bottom line must have shown a tidy profit too then you're wrong.
Operating income is calculated by deducting a company's running costs from its revenue. Delta Topco's biggest single cost is its prize money payment to the teams but the next largest comes off after the operating profit – interest payments on debt.
F1 still has on its books much of the debt that CVC used to buy the business and it came to a total of £2.6bn ($3.4bn) at the end of June. But didn't the media reports say that F1 paid off £770m of its debt over the past six months? They did indeed and that's exactly what happened but it's far from the end of the story.
As another Forbes report revealed, Liberty only used £233m ($301m) of its own cash to fund the purchase of F1 as it was fuelled with shares offered to the sellers and debt.
Liberty used its assets to get several loans and the proceeds were then paid to F1's former owners. There was £340m ($445m) of debentures which are convertible into Time Warner shares and £270m ($350m) with Live Nation shares pledged as collateral. The debt came to a total of £930m ($1.2bn) and although Liberty itself took out the loans they were attributed to the Formula One Group as they were used to acquire F1.
So although Delta Topco paid off £770m of its debt over the first six months of this year, the loans which were taken out to buy the company more than offset that reduction. It left the Formula One Group with a total of £4.7bn ($6bn) of debt at the end of June with 56% of this coming from F1 itself.
This accelerated the Formula One Group's interest expense from just £5m ($7m) in the first six months of last year, when it was known as the Liberty Media Group, to a whopping £91m ($118m) in the same period in 2017.
It helped to fuel the group's £95m net loss though, as Forbes points out, it wasn't the only factor as F1 itself also suffered from having fewer races in the first six months of the year which gave it less revenue to book and therefore lower profits to offset against costs like the interest expense. It weights the revenue to the second half of the year when there are 12 races so there is a greater likelihood of Delta Topco making a profit.
As Forbes points out, the implications of this are far from hypothetical. Investors buy shares in the Formula One Group so when it announces heavy net losses it has a heavy impact regardless of whether F1 itself made an operating profit.
When the losses were announced on Wednesday the Formula One Group's share price reversed 3% within just four minutes of the Nasdaq opening, wiping around £150m off its value. Although the share price has climbed since then it has yet to settle at the level it was at beforehand. It means that anyone who has sold out recently may not have got the grand prize they were hoping for.