Liberty Media Corp at Barclays Americas Select Conference

May 16, 2017 AM EDT
FWONA - Liberty Media Corp
Liberty Media Corp at Barclays Americas Select Conference
May 16, 2017 / 06:45AM GMT 

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Corporate Participants
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   *  Chase Carey
      Liberty Media Corporation - CEO, Formula 1

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Conference Call Participants
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   *  James Wolff
      Barclays Capital - Analyst

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Presentation
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 James Wolff,  Barclays Capital - Analyst   [1]
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 Okay, I think we are going to kick things off. Welcome, first of all. I know it's the first session to our Americas Select Conference. For those of you who don't know me, my name is James Wolff. I work within the media and technology teams for Barclays here in Europe.

 And I have a great pleasure in being joined today by Chase Carey. Chase recently has embarked on a new chapter in his life, having spent most of his career in an executive capacity at News Corp. He is, of course, now Chairman and CEO of the Formula One Group, and it is that that we are going to talk about today.

 This session will run as a fireside chat, but hopefully towards the end, there should be some time for questions in case you guys have any. So I think with that, let's kick it off.

 Chase, I think maybe to kick things off, for those that are less familiar, help outline the basic business model and maybe what attracted you and Liberty the most to the opportunity as you saw it.

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [2]
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 Okay. First, nice to be here. Good morning. I mean, maybe I will start with the second part first because it's probably a little easier and quicker. I think there are probably two driving things that appealed to Liberty and realistically myself about the business.

 I think first, the view that Formula One as a unique global event of business is really in the sweet spot of an evolving content world. And I think its value was going to disproportionately grow. I think those unique branded events have a unique opportunity to grow as a lot of other content gets commoditized and fragmented. So we thought really well positioned.

 And I think the fact that it is not just a sports franchise, but it's a sports franchise where you really control, I guess, almost what I'd call -- it's not a league, but the league. So you are not buying a piece of it, you are really buying control of the entire business. And the ability to have that type of control is really unique in the sports business.

 I think the other factor that was tremendously appealing was that this business, I think particularly in the last five or six years, had not really been managed in a way to achieve its potential. So we thought there was a lot of upside by going in and doing a number of things to grow the sport to really take advantage of the uniqueness of that franchise and really enable it to achieve its potential underlying value.

 I think in terms of the business model, it is -- certainly from a financial perspective, it's a business that is distinguished by having incredibly stable, realistically long-term streams. They are all largely contractual with an array of parties.

 It's a business that is also incredibly high cash flow conversion, very low CapEx. And our biggest expense is really -- our primary expense is really paying a percentage of the profits to teams. So you have got a business that has predictability, stability, high cash flow conversion, low CapEx.

 From an operating perspective, there are three big drivers of the top line: promoter fees, which are what we get paid by locations to host events; broadcast or television revenues; and sponsorship revenues. There are actually an array of other opportunities. probably many have not developed, that exist and will be increasingly important: hospitality, gaming, merchandise, over-the-top in a digital world, particularly for a sport that has such a unique fan base is a unique opportunity. So many areas that have either not even begun to be developed or are in their infancy that are an important part of that revenue stream.

 Again, we have got an overhead; we are adding a bit of an organizational structure. The biggest cost is essentially agreements under which we pay a significant -- a meaningful part, about $1 billion this year of our profits, to the teams that participate in the sport. So your largest cost in it is really payment of a portion of your profits through to the teams.

 And it's an ecosystem that we sit at the center of with the regulator FIA and deal with a number of constituencies: the teams that put their cars on the track; this year 20, next year 21 race promoters; a set of sponsors that aren't as large as they should be or close to it; broadcasters around the world; and a number of other unique more one-off partners as we go forward.

 And our job is really to maximize engage with those -- all those parties to make sure we put the best sport we can on the track. Because it starts with the product and we've got to make sure what we put on the track in the sporting world is exciting and engaging for fans.

 And then monetizing that for us and our partners as we go forward. And again, we think right now, to go back to the owner-managed comment, it is a business that is really not anywhere close to what we think is the potential for it. So we are putting an organization in place that enables us to drive it forward.

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 James Wolff,  Barclays Capital - Analyst   [3]
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 Great. I mean, you've touched on some of these points. But how far -- and I appreciate it is still very early days -- how far along the line since you've taken over are you towards implementing the sort of institutional structure that you see as an end state in terms of the broad-based changes that strategically you are looking to implement?

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [4]
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 Yes, I mean, it's clearly early days. We are three to four months into the transition of management and ownership, so certainly not going to declare -- we are not declaring victory three or four months in. I think we feel good about the early momentum.

 Priority one realistically was putting an organization in place to enable us to achieve what we wanted to. That historic organization was really a one-man show. Bernie Ecclestone, who a larger-than-life figure, really ran a one-man show. Essentially the organization was a financial and legal organizations to support him.

 Again, I continue to give him credit for what was built over decades, although, again, I think with the complexity of the world today, what was being done in the last half-dozen years was really not getting the sport to where it needed to be. So it really didn't have an organization to support it.

 So priority one was putting an organization place. And the key two hires right out of the blocks were on the two key parts of the sport -- Ross Brawn on the sporting side, who comes from a multi-decade really probably unique career of unique success and really respect in Formula One. And he will oversee the sporting side. And Sean Bratches, who really drove the business operations of ESPN for a number of decades to come in and run the commercial side.

 They are putting their key people in place underneath them. And I think probably by the next month or two, we will have -- when they are in place, they will have their key teams in place. And probably by the end of the year, we will fill out.

 We are not looking to -- or I guess we are looking to continue to be a lean and agile organization, so we are not going to add a lot. But in the sort of business operations, we will probably go from what was predominantly a 70, 75 legal and financial staff to more 100 -- double that, 140 to 150. And most of that being operating executives to drive it.

 There are other groups that are more specialized: a broadcast group, a freight group, and those that exist outside London and they will continue in place. But those organizations are in place. They have started to move forward on the priorities we have got. So Ross is engaged. There was a meeting couple weeks ago on what's the next-generation engine so that we have some objectives of where we want the engine to go to help enhance the competition and help with the sport.

 Other meetings about the sport itself to make sure we are doing what we should to, again, make the sport as exciting and engaging for fans as possible and ways to connect. And likewise, certainly the commercial side keeps moving. We have done a couple deals. We announced a deal with Canal Plus a couple of weeks ago. Engaged with many sponsors.

 Actually really felt great about the level of enthusiasm once we have an ability to go out, because in many ways, Formula One previously was sort of reactive. They dealt with whoever came in to meet them, but there wasn't an engagement and outreach. But now that we are reaching out, and I think there is a great sense of just [palpable].

 We're through five races and each one has been a bit better than the other. I thought Barcelona we launched -- again, no transforming events, but a number of things that almost everybody to a man said created a fresh sense of energy and excitement.

 And so as we have been connecting the various potential parties, we are finding a tremendous level of enthusiasm that hasn't existed. And to some degree almost you could say frustration for people that felt there wasn't anybody to engage with. So early days, but we are starting to move those things forward. But there's no question: some things will move faster than others, but we are moving forward on every front.

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 James Wolff,  Barclays Capital - Analyst   [5]
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 And again, at a sort of high level, how should I think about the type of investment cycle decision in order to drive growth at Formula One?

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [6]
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 Well, again, we're not a CapEx, so investment in a classic sense, we don't -- we are not a CapEx business, so we are not investing in that way. So I guess I would think of adding people as an investment; building a digital capability as an investment. We didn't have a research group; we didn't have a marketing group. So we're building those sorts of capabilities, which is a form of investment to support the business.

 This year, the revenue side is pretty baked this year. We didn't come in until less than two months before the season starts and just the nature of it. By that point, most of what you are going to do this year is pretty baked.

 So we are adding -- we are building an organization to support the business going forward. So I guess there's a degree of investment, but it's predominantly in people. And again, it's not -- it's sort of going from again that 75 to 140 to 150 level.

 And doing some things -- obviously doing research studies that we didn't previously have with fans costs something, but it's the marketing initiatives, but they are all pretty modest. So I think probably -- I wouldn't -- I know I call it investment -- probably the part that really is growing the business is probably more how does the revenue grow over time.

 And I think there's probably -- I've looked at it in sort of three broad characters; break it into three buckets of revenue streams. And as I think about the business and where are we going to be in 2020, I mean, that's -- the business has also I think historically been managed completely for the short term.

 Bernie said CVC. as a private equity guy, always made him focus on how do I maximize profits tomorrow. And there was never a sort of where do you want to be three years from now.

 And when people -- because I get asked the question continually: where are you going to be in July? And I guess my answer has been: I care much more about where we are going to be in 2020 than where I'm going to be in three years than where I am going to be in three months.

 Now, to get there in three years, you got to be doing things in three months, so clearly you got to build a path. But the goal is really to build value in the business.

 And when you think about it in 2020, there's some aspects of the business that will move more quickly. So sponsorships would be an example. I'd expect this to be well along to where we think we should be getting to.

 Television is probably an area that will be more midstream. We have our contracts, the three- to five-year contracts that will roll over. So some will roll over, but not all will. So we will be more midway there. And then some -- but clearly the real payoff is further down the road.

 And so developing markets like the US and China, which today for us are all upside. We don't -- we hardly scratch the surface in those markets. Building an over-the-top platform again will take -- we are on our way, but the real payoff would still be to come.

 But I think in three years what you I think would have is a lot more visibility to the opportunity. So I think for the ones that are growing an over-the-top platform, by that point in time, I think you could really -- it would have some scale, but I think you could have a better sense the product would be.

 We are spending a lot of time right now just with a whiteboard defining what's the product, what's the experience, what is going to be in that that's going to motivate a hardcore Formula One fan around the world to pay. And we have a price to get, let's say for example, $10 a month to access that package.

 And I think you will have a better sense of the US payoff or the China is clearly further down the road, but I think we'd be far enough into it that there would be more visibility to what that opportunity is and where you are going driving that opportunity forward. So I think that's really the investment is really more probably visibility to where those pieces of it come from -- go to.

 And then I guess the only other piece I would -- which I don't think is an investment, but certainly is a priority to growing the business is the relationship with the teams first and foremost. We have an infamous document called the Concorde Agreement, which was this agreement that comes up every six to eight years, it comes up in 2020, that defines the financial -- the arrangements with teams.

 And I think our goal would be -- and we've said it -- to create much more of a long-term partnership, not a partnership that has a point in time where you go out and renegotiate the next eight-year partnership, that there's a continuum. And that really what we are doing is working, as I said to them, we are working as partners that compete on the track but have a shared vision of where we go with the sport, grow the sport, and share the benefits of doing that together.

 Because it is a sport historically that was a little bit every man for himself. And so then how do you game each other and the like. And I think that certainly leads to 1 plus 1 is 1.5. And I think if you can pull together and figure out what's the right path forward for everybody, you can make it 1 plus 1 is 3.

 And I think that's our goal is to change the culture of the sport, which is very -- I don't -- I think -- it had some very unique aspects to it, but create a culture that is really more -- and I actually feel good about it so far. I think there's a real welcomeness to wanting to do that.

 There is no question of changing a culture that has been embedded for that long will take some time. But I think there's a transforming opportunity to really build a longer-term healthy -- healthier relationship that benefits us both.

 And I don't -- people ask about the Concorde Agreement, passed it. I've sort of at times been asked about things like breakaway races and the like. And I don't -- I'm not -- given the size and scale and practically what we have, those sort of things are not realistic.

 I think it's just that whether it creates is a gamemanship if you got that point in time you have people posturing and positioning for what can I get out of it. And what I'd like to have is everybody's priority being almost continually looking three years down the road of where we can be, not looking at a specific point in time.

 And we've had meetings with the teams individually and collectively. And again, I think they all welcome us getting there, but we've got to drive it there.

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 James Wolff,  Barclays Capital - Analyst   [7]
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 Great. Well, I am going to come back to a couple of points that you raised there. But you talked about the big opportunity in the US and China. So I just wanted to, I guess as a tangent to that, pick up on a point that you've been quoted and saying since you joined, which is about expanding the race calendar. So what would be the timeline and locations that you would be thinking about with that in mind?

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [8]
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 I guess first, I would I guess want to be clear, because I also said this. We said this year, we will have 20 races; next year we have 21. And I think our first priority is to make sure those 21 races are as good as they can be.

 So I think before worrying about adding races, we want to -- we think we can do a lot to make those races bigger events, better events, both experience-wise and financially for us and our partners. So we think that is priority one.

 And most of our races are reasonably long-term contracts, so again realistically, we are not sitting down and picking each year what 21 races do we have with the vast majority of -- I mean, the contracts are probably five-plus-year contracts generally. So a lot of the race schedule is fixed.

 And I think from our perspective, we'd like to add a few races. We haven't gotten far enough into the process. I think in some degree that becomes probably more of a holistic discussion with the teams and the FIA as to what we are doing.

 And I think it probably becomes part of a discussion around costs and structure and a broader vision of other parts. But I don't want to get too far in front of discussions we should appropriately have. Because we've said to the teams and our other partners we want to have a more transparent process. We want to make sure that we are getting input and the like.

 So we think there's an opportunity there. In terms of where we'd add, we've been clear, we think. We think there's a great opportunity to add a race -- at least a race in the US in what I'd call a destination city, sort of a city like a New York, Miami, Las Vegas that captures the world's imagination where you could have an event that really would be something that is uniquely exciting to everybody. There's some opportunities in Asia, other opportunities in the Americas.

 Realistically, I can probably, as I said the other day, fill a page with the number of cities around the world that have contacted us [everybody was so might have] probably puts us back at the top of the page that want to have a race. And some are more interesting than others.

 Mostly what we are doing is digesting and evaluating that interest and trying to prioritize what are the places that we think would make sense. One of the great things about our sport is that our races almost to a tee are in great global cities -- again, I will call them destination cities -- that capture the world's imaginations that everybody wants to go to that are really conducive to having a big, broad, multidimensional event that transcends the sport, has the sport at the center. But has an event that captures as music, entertainment, exhibitions that really is something special. We are largely in locations like that.

 And the people that want to have races likewise are cities like that. Because part of what those cities who partner with us, and obviously they pay a meaningful amount, are looking for our sport to do -- to provide a platform for that city, that country, to really reach out to the world and connect with the hundreds of millions of people that come into Formula One.

 So in some ways for a fraction of the cost of a World Cup or Olympics, we provide that platform to connect and almost a legitimacy of sort of you're a city on the world stage or a country on the world stage that people want to go to.

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 James Wolff,  Barclays Capital - Analyst   [9]
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 But maybe zeroing in on the US for a moment, if I think about it, it's not per se a new sport. NASCAR is certainly more mass-market, but it has in itself faced some challenges over the last year.

 And then if I take a step back, the NFL in viewership terms has faced some challenges. What, as you look at the US and describe it as one of your key opportunities, gives you confidence to talk about the US sports market as an area of growth?

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [10]
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 Well, just what you said: the NFL certainly I think as a business, the NFL has got a pretty enviable growth curve. So you can debate audiences, but I haven't checked on it lately, but I think if you tracked the revenue curve, it would be the envy of a lot of people out there.

 I think there's no question in the broader world, you have this sort of digital revolution or digital whatever you want to call it is creating change. People are accessing content in different ways, in different forms. Everybody talks about the millennials and their smartphones and things like that.

 I think in many ways -- again, as the world fragments and things become commoditized, I think on a comparative basis, I think these sports are just become more important. They have got to be managed properly. They have got to be connected properly.

 We didn't have a presence in digital media. If you go -- if I even talk to from my past life the people I know, the guys who run the NFL and the NBA, they will end up saying the most important marketing vehicle or growth vehicle they have had in the last four or five years is social media. And it's the way fans today follow them, follow their stars, follow their teams, follow their sport around the world. So you've got to be managing it properly to create those connections.

 And I think it is evolving. I think you need to create an experience today that covers the entire expanse of people who want to watch in different ways and bring them in in different ways. I think we are a very different sport than NASCAR, particularly in the US. I mean, other than both being automotive, I mean, you still get the -- I mean, we are a sport that people would say first and foremost there's sort of glamour stars and mystique.

 I mean, in all respect, I know NASCAR well and we dealt with it at Fox. But I don't think most people would put the same labels. You look at where it races, I wouldn't necessarily -- I love Talladega, but I'm not sure many would say it's a destination city.

 I know, with all respect -- now I'm going to get in trouble at Talladega -- but we are a sport. As a sport, its core appeal is Southeast. Our sport goes in and probably is going to appeal much more in New York and LA.

 And so I think -- and the global nature of it, aside of what's just interesting about our sport, the drivers from around the world, it is truly unique. And there are sports that have built audiences around the world, but a Premier League has done a great job, but it's still an English soccer league.

 We actually have drivers from multiple continents racing all these places really connect in really unique way that everybody -- again, other than the Olympics and the World Cup, which happen once every four years, we are the only sport that goes out and has that breadth of participants, that breadth of events across all those platforms.

 So I think first, I think the sports world properly managed -- I'm thinking we can say across the board, if you manage those sports roughly, I think sports have to navigate a changing digital world but are well positioned if well managed to really be winners.

 Because there is still only going to be one Formula One. There is only going to be one NFL. There is going to be only one NBA and I think those -- there is only one Premier League. And I think those sports, yes, like everything else in the world today has to figure out how you are navigating some of the underlying society changes and changes in people's habits.

 But I think the strength and popularity and you are probably going to, again, find growth in other areas than some of the traditional ways. But I think the power reach and value of those franchises I think is going to be -- I think going to continue to be incredibly strong.

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 James Wolff,  Barclays Capital - Analyst   [11]
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 Great. I mean, you've touched on I guess some of these points. But when you said that you would like ideally each event to become the equivalent of the Super Bowl, how should we be interpreting what your vision is around that?

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [12]
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 To some degree, I guess I think -- and I know I have said it, so it probably has been taken too far. Everybody says there is one Super Bowl and there are 21 races. I do think what's true, as I said, we have 21 races, but realistically in each country we have one race. So in that country, you have the opportunity to be that.

 And I do think we have a lot -- our aspirations. We should be in many ways what a Super Bowl is, but what I meant is a Super Bowl is more than just a big sporting event. It's really a cultural event. You go to a -- at Fox, I lived Super Bowls. I had been to I think 20-plus Super Bowls.

 And when you go to a Super Bowl, you know you are in a Super Bowl city and you know you are in it for the whole week. And it consumes the week and there is stuff going on. There is music, there is food, there is entertainment, there's exhibitions. There is something for kids; there is something for adults. It really is a multidimensional experience for the week with a sporting event at the core of it. But it is more than a football game.

 I've said I could also probably use an example of a heavyweight fight in Vegas. If you go to a heavyweight fight in Vegas, there is a buzz for the whole weekend there. And half the people aren't even boxing fans, but they are there because it's a great fun event.

 And realistically, I think we started to tap into a bit of that in Barcelona. We launched a bunch of stuff; we had a lot of people who just said they were just having fun doing all the stuff there was to do in Barcelona and doing some of the things that we provided, fan experiences.

 But also for us, one of the -- there are other characteristics we can bring out that really make it an exciting event, which for the Super Bowl is -- we are a sport of stars and glamour and movie stars and sports stars and have them there.

 So I'm -- walk into the paddock and Kelsey Grammer is standing next to me or Naomi Campbell is over there. And that's a part of what creates and adds to the experience for a fan to go home and say wow, I just saw X, Y, and Z.

 Make sure the drivers engage. So Lewis Hamilton tweeted how much fun it was for him to go out and see the energy of the crowd and the ability to engage with them. Drivers in many ways are our biggest stars.

 So to create an event that has all those characteristics to it that they again is sort of an event that takes over a city for a week that ultimately culminates with a great sporting event on Sunday afternoon. And that probably really is what I meant by that analogy.

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 James Wolff,  Barclays Capital - Analyst   [13]
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 Great. Well, listen, I want to come back to another point that you were talking about earlier, which is I want to loop in this broader topic of audience and the OTT priority as part of your strategy that you have been talking about.

 If I look back over the last close to a decade, Formula One TV audiences have been in decline. And that's coincided with a transition in consumption from free to pay. How would you really evaluate the payoff and the changes in consumption patterns? And as you think about OTT as a priority, do you have all of the rights that you need to navigate that vision?

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [14]
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 First, I mean, actually our television, the viewership is [A-graded] because it's global. It's really a mixed bag of varying places. It's [up there] places. I mean, there is a general perception. It's a little distorted by -- I mean, actually the first one is China, which there was -- the way the numbers revolve. And I think any research out of China is always a little complicated, particularly [Amida].

 But there was this -- there's this [Innis] quote. It used to be 600 million, now it's 400 million. Half plus of that was in China. And realistically, China, we are still in our infancy so any viewership in China really isn't a meaningful change in the business, where we are in the early days of growing China. So that region China wasn't a region we were monetizing. So it's really more platform-specific or broadcast-specific.

 So I think that's -- to start some of that is a misperception. Actually, this year, we are up within European countries as a whole. We are up through the beginning of the season and --.

 But there is no question there are issues. The migration in places from free to pay has an impact on audience now. Almost every sport in the world is migrating, is going through a migration from free to pay. So the question there is a directional shift to pay.

 Part of what we have to do is it's more -- is make sure it's more than free and pay. Digital, as I was talking about, how people are connected is becoming a more important part of that reach. And so really think of how you are connecting and engaging fans across a broader spectrum of free, pay, digital, including over-the-top, which is I think tremendously important opportunity.

 The most valuable fans are your most passionate fans. And we actually have an incredibly important group of passionate fans around the world who love the sport. And we are actually a sport probably ideally suited because we have such a wealth of data and information, such a great history.

 And so the ability to really create unique packages. And we are still figuring it out for that fan who wants a much deeper understanding of what is going on in the sport, what's going on on the track.

 And those fans and the demographics of our fans are great, too. We have generally a wealthy educated group. So if you create a package that has value to them, we think there's a real potential to tap into something very special for those fans.

 We will have to navigate through broadcast agreements and they will vary by country. So again, it's never a one-size-fits-all when you are global. So there will be a process we have to work through with our broadcast partners to enable us to do that. We are on that path already.

 But we think we really have -- we had one Reno -- we had a Reno recently that there is an opportunity for us to really have some exciting things in the television space. When you look across that spectrum, we'd like to engage with everybody sort of free, pay, digital, and find the right way to have the right package and the right experience for all those players. Give our sponsors and others a ways to connect to fans across those players.

 Our sponsorships in the past were much too one-dimensional. We didn't take advantage of technologies. We basically slapped signs on walls and then counted how many minutes they showed up on TV.

 So develop a much more targeted set of experiences that go past that. Use technology to create differentiation. Get into not just global reach, but local. There's an enormous number of categories we are not in. So I think the television and its related stuff clearly will evolve for us and it is something we are already engaged in.

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 James Wolff,  Barclays Capital - Analyst   [15]
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 And sort of how far along the OTT strategy vision would you say you were? Just to leave us with a sense of timeline?

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [16]
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 It's early days. Again, partially to come back to -- up until, I don't know a month ago, the organization was three of us. So let's say there's Sean, me, and Ross. And we didn't have any research yet. So as I said, some of the tools and manpower you want.

 So we've started a -- right now I call it a whiteboard. We got a whiteboard with ideas. And I think this year, we'd like to really try to -- I don't want to get encumbered at first by the contract. So really I'm going to start with what's the package we think would be the right package to maximize this opportunity for fans.

 And I think this year, we'd like to really define that package to be able to take it out into the marketplace and start engaging with consumers. But it is -- so we've spent some time on it, but again, it's early days for us.

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 James Wolff,  Barclays Capital - Analyst   [17]
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 So I want to come back to the infamous Concorde Agreement. So how have the conversations been with the teams thus far? Is it too early to talk about the renewal and what your priorities with respect to arrangement with the teams?

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [18]
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 I actually feel very encouraged by the teams. I think directionally at a high level, I think we've actually got a pretty good shared vision about the opportunity. I think a recognition that both on the track there's some things.

 I mean, we came out of a meeting a few weeks ago on the engine to say we think directionally we'd like the engine to be simpler, cheaper, louder. And I think this last-generation engine became more expensive and complex, which is what enabled [fort perry] at Mercedes just simply built a better engine than everybody else.

 And we want technology and engineering to be part of the sport, but it shouldn't be a defining part of the sport. So you should get an edge, but I mean, first and foremost, we still want the drivers to be the stars.

 So I think -- but I think that complexity led to it and then the cost led to it. What some of the teams spend on the sport today is an incredible amount. They will acknowledge it's an incredible amount. And to some degree, they I think will end up saying we need to be protected from ourselves. Because they are not spending it to create the handful of teams that spend an extraordinary amount. Aren't really spending it to create something that enhances the consumer experience.

 What they are doing is spending it because two other guys are spending it, so they got to do it to compete with the other guys. And we want this to be healthier realistically for all the teams. We would like it to be a healthy business for them. And so I think if we can manage the spending, the engine becomes a part of that. Make it a healthier business for them.

 On the track, do everything we can to make sure we are enhancing -- making the competition great, making the action great. So are there ways to enhance passing and other things. Make sure the rules don't get too complicated so fans can follow it. I mean, one of the things we keep saying is at the end of the day, you got to keep remembering: we are doing this for the fans. We are not doing it for the teams.

 And we want to -- and first and foremost, we are sports entertainment. So you got to make the entertainment great and then enable fans to connect to it.

 The R&D part of it is an important part. Again, we don't want to lose the engineering technology aspect of it, but it shouldn't dominate it. We want to make sure the drivers -- and Niki Lauda keeps saying to me: We got to let the drivers drive.

 I actually thought it was great in Barcelona, we had more than -- we had some great moments: guys bumping coming out of the pits on the track and sort of let them go. And so I think there is a real positive feeling amongst the teams broad-based.

 I'm sure as we get into the specifics of how do you execute on some of these things, there will be differences. And that's our job is to find the common ground in the specific areas that -- where there will be differences.

 But I think the teams really almost across the board are excited about the future, excited about trying to have a long-term vision for the sport, and excited about addressing some of the issues that they agree we should be addressing.

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 James Wolff,  Barclays Capital - Analyst   [19]
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 I mean, because you touched on it. Essentially outside of the top three, quite a few of the teams are struggling economically. How is the conversation around equity distribution or distribution becoming more equitable going to take that?

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [20]
------------------------------
 Again, I think we've talked -- we want to make the focus predominantly on how do you -- because it's interrelated. Cost of revenues are all interrelated. You don't want to -- again, you are going to have to deal with it in pieces, but you want to start with a focus on the whole.

 So it's cost revenues rules, engines. And which is why our real focus, as I said, we want to make for everybody the business of owning a team a much better business proposition. Not just -- there's certainly benefits of owning teams. You will always be able to marketing, branding, and other benefits that come out of it.

 But we think it's good for everybody, including us, to make the economics of owning a team much healthier. And so we are trying -- we are addressing that more holistically at this point than in pieces.

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 James Wolff,  Barclays Capital - Analyst   [21]
------------------------------
 So I am going to ask one more and then I am going to give you guys a chance. Perhaps help me think about any ways to partner up with the rest of the Liberty portfolio? Global, Charter, Discovery, pay-per-view on STARZ, etc.?

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [22]
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 Look, they are all part of the wider ecosystem we exist in. And again, the world is getting more linked in every way you want to look at it. I think the reality, though, is the benefit is probably mostly opening a door. I think healthy relationships, if they are healthy, are sort of have to be win-win and have to be good for both of us.

 And so there are competitors to those guys that we are equally excited. My job is to build Formula One, not to build the Liberty portfolio, with all respect to Liberty. But to the degree it opens the door to do something with Live Nation or Eurosport or Liberty Global, great. But there are competitors to theirs that also would be thrilled to find opportunities to do things with.

 So I don't think -- I think predominantly it's a door opener to finding things. But I think we have to find things that, again, I say are win-win. Because it's no good having a partnership with somebody unless they are excited about the partnership. I want partners that are excited about what we are doing, the opportunity to work with us, and the opportunity to create some special things with us.

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 James Wolff,  Barclays Capital - Analyst   [23]
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 Great. I am going to open it up to see if the audience has any. I certainly have a few more of my own. But okay, we've got one at the front.

==============================
Questions and Answers
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Unidentified Participant   [1]
------------------------------
 So you are moving from 20 to 21 races, but that's actually dropping Malaysia and adding Germany and France. And when you think about the economics of the race that you are dropping and the two that you are adding -- Malaysia, I think, was one that paid very high promotion fees.

 Do you think that the addition of the two is able to offset the revenues that you are losing from Malaysia? Or is it -- and then when you think about the amount of investment that maybe Formula One has to put behind those races to make them more exciting, will that impact the economics in the promotion side from 2017 to 2018?

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [2]
------------------------------
 I guess the second part -- first, I'm not going to get into the specifics of individual race fees. But I think your second point is probably the more telling point is realistically where we have our races is about much more than a fee. If we are just chasing a fee, there are places we'd go today and there are places we wouldn't if we are just maximizing it.

 So it clearly affects sponsors, it affects television, it affects the broader perception of the sport. When we have a sport, whether it's TV or live, I want these stands packed, I want an energetic crowd, I want an excited environment, and I think that is all part of creating value for us.

 So I think you want places with pro owners that are excited about having the races that create really unique special events. And I said we've got a long list of parties that want to have races and we feel very excited about some of the places that we could go to.

 Again, we don't have that much room, I mean, realistically. But going back to a place like France and we've talked about the importance of Western Europe, the foundation. So it's not just about finding the maximum fee; it is really a race. Where we are with our races affects promotion, affects television, affects hospitality, affects all the various parts of it as well as the broader perception and momentum of the sport.

 And I think clearly over time realistically Formula One has moved around many places. I think probably we hope to actually be in our places longer, not shorter. Not be jumping around; we'd like to build an audience and continue to stay there. But there are places like Malaysia where realistically it didn't work for either of us.

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Unidentified Participant   [3]
------------------------------
 And when you think about your point, which makes perfect sense, of making the races more exciting and approaching more of an event, is that something where you see your EBITDA being invested into? Or is it something that the race promoters will, with the revenues that will come from a more exciting event, they will come on and make that investment on behalf of the sport?

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [4]
------------------------------
 There probably is some -- sort of a marginal investment, but it's not -- I mean, we will be investing, but in many ways, it's probably -- I think most of what we are doing is providing momentum and a platform.

 When you go to these places, you come back to the sponsors. Sponsors are dying to have opportunities to new things. Heineken is a great example. Heineken at these places is now setting up a Heineken bar at critical entry points. We are not paying Heineken to do it. What we are providing is an opportunity for Heineken to connect with their customers in a new and different way that they pay for it.

 But because we are creating, we have to create the momentum and the excitement. So some of it comes back to marketing and digital and creating a buzz. And if you create a buzz, there are a lot of people who want to -- so we are going to create -- we are working with a third-party to come in -- I'm not sure it's announced, so I won't say it -- but to create a much richer merchandise experience.

 When you go to our places, it feels -- the merchandise experience feels like a carnival 20 years ago. You got a little calendar and there's some T-shirts tacked to a wall. You go to a U.S. Open or a Ryder Cup or a Wimbledon and they've got a tent the size of three football fields. And walking through the merchandise tent is in many ways as interesting a part of the day as anything else.

 So we want to create those -- but there are people who want to sell that merchandise. And so we don't have to invest for the merchandise. So we will have some things. I mean, we had a zipline going across the general admission area at Barcelona. It probably cost us a couple bucks to put a zipline up.

 But by and large, it's not really investing in it. It's having ideas, Probably the most important part is ideas and creativity and in many ways energizing. One of the things that I've been most surprised by is while we were -- the staff was pretty limited there. By just creating a sense of freedom and energy -- actually, I've been really impressed. I've got some great creative lawyers that are doing stuff. But we got all this press about the little boy who got pulled down.

 And they did it on their -- I mean, just by having a sense of freedom they wouldn't have had a year ago. I didn't go tell them to find the little boy. There are people who did it on their own, thought it would be a special moment, and it was.

 But a lot of creating is, again, creating momentum, creating excitement. So I am not going to say there is no cost to it, but it's really good people doing good things with good ideas. And if you grab good ideas in a crowd -- there is a list as long as your arm of people who want to connect that are struggling today in a fragmenting world of how do I connect, how do I create a unique identity.

 We could probably sell that sponsorship five times over to the zipline going across it. We didn't, but I can imagine that the right sponsor that would want an identity with this.

 So as you think properly executed, we should make money, not spend money, off of creating a platform when you got 100,000-plus people in television and people with cell phones and things like that and pulling it out and taking pictures at events like this. Actually, there is a pile of people who want to take advantage of that and it gives us an opportunity and probably again can make money off it.

------------------------------
 James Wolff,  Barclays Capital - Analyst   [5]
------------------------------
 Great. Well, I think on that note, I think we are out of time. So on your behalf, thanks a lot, Chase, for being with us today.

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 Chase Carey,  Liberty Media Corporation - CEO, Formula 1   [6]
------------------------------
 Nice to be here. Hope the conference goes well.




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