Chit Chat Stocks - Formula One Group (FWONA) with Francisco Olivera

Episode Date: March 24, 2022

Formula One Group operates motorsport races and holds commercial rights for the Formula One world championship . Officially Formula One Group is a subsidiary of Liberty Media Corporation. Listen as Brett and Ryan ask Francisco questions about the company, its business model, and valuation. Enjoy the show! This episode is sponsored by Stream by AlphaSense, the highest quality expert network library. Sign-up here: https://streamrg.co/CCM Subscribe to 7investing with the code "CCM" and get $10 off: https://7investing.com/subscribe/aff/4/ Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Interested in more of Francisco's work? Follow him on Twitter here: https://twitter.com/FrancoOlivera?s=20&t=q2DdGsv8wqWaDwXDtJJqLg Contact us: [e-mail]  Timestamps Formula One | (3:04) Growth | (36:25) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. This is our deep dive episode where we interview one expert on a single company. And today we talk with Francisco Oliveira, friend of the show, friend of Brett and I's, and we talk about Formula One, which is a really, it's a company I didn't know was public. I knew about the sport, but I didn't know it was public. And so it was fun to kind of look into it. Did you have any big takeaways from the interview? Takeaways. I think the interview was very detailed. Francisco knows this business inside and out. And yeah, we learned about every different revenue stream. So whether it's anything you're wondering about how the Formula One business works, and then how it relates to

the stock, how it relates to the weird tracking stocks that are out there because of its relationship with Liberty Media, all that gets explained here. I learned a lot. I say that every time. But when it's a good episode, that means I learned a lot. And I think everyone else will too. All right. And before we get to the interview, we want to talk about our sponsors. It is a new name change stream by AlphaSense, no longer streamed by Mosaic. This is the expert interview transcript library. We've talked about them here on the show before. If you want to check them out, go to streamrg.com. You can get expert interviews on tons of different companies. Basically, I imagine any common company that you own is going to be on here. I think it's probably getting

close to 10,000 call transcripts on there. They've confirmed that. Yes. 10,000. Okay. And a lot of them are exclusive only to Stream by AlphaSense. So go ahead, check them out. It's streamrg.com. You can sign up for a free 14-day trial if you use our code CCM. But yeah, without further ado, let's get to the interview. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast.

Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. Okay. Today we are welcomed by Francisco Oliveira. This is second time on the show? Third time? I think so. At least twice. Okay. And you are the general partner at Aravilo Capital. Am I saying that right? Yeah, I reveal Capital Management, a management company. Okay. And today we are talking about Formula One, which is a business that has, thanks to Netflix,

had a lot of hype lately, I think in part, and just the drama of last season. So why don't you just start there? Talk about what Formula One is from a business lens. Yeah. It's a pretty interesting and unique business as we think about sports, because essentially Formula One is an entity that has the commercial rights to monetize Formula One. They manage every single type of revenue-generating contract for the league. They organize the league with the teams and try to make a profit.

It will break down each revenue driver. What I would like to say is it's a weird concept to think about, especially imagine most of the audience is from the US. When you think of a league like the NFL, MLB, NBA, essentially those, when you think at the league level, they're not really, you know, they're not for-profit entities that have private owners getting a dividend from the NFL per se, right? They have the franchises and the teams. Formula One, the way that the league started, evolved over the years, there was actually an ownership group that actually was trying to make a profit out of it. And the teams share in those revenues, but there is a commercial operation, and it was historically owned by Bernie Ecclestone, and then Private Equity came involved. And then in late 2016, Liberty Media agreed to acquire it and the deal closed in January 2017.

So it became a public company as part of the Liberty Media structure. But essentially, it's a sports league that has a corporation that is a for-profit entity to exploit the revenues from the league. and there's three primary revenue revenue streams that that the the entity generates right um one broadcasting rights so essentially um getting paid by by different television channels or or streamers or broadcast but cable channels broadcast channels around the world right so if you think about in the u.s um espn pays uh formula one to be able to broadcast the the races and so that's a one uh big bucket and it's about last year last year was around 40 of revenue usually high high 30s um the second one is race promotion so essentially the league itself doesn't

own you know any tracks um doesn't have any hard assets right but they get paid by motorsport clubs um government entities private promoters in different countries around the world world it's a world championship and to to be able to to form the the grand prix in each country and and they pay formula one so they get it basically they get paid a fixed uh rate per race some contracts can can vary by country and that's around 30 percent ish of of revenues right you you get paid to go there so if you think about the way i like to think about it is think about um a a music artist right um and they do go on a world tour and they don't own any of the of the concert venues they don't own uh stadiums or or amphitheaters or anything like

that they get you know basically paid you know sometimes up front sometimes per on a per ticket basis but when you're a gigantic global star right you're going to get very large guarantees by global promoters well essentially that's you know formula one is the show right it's it's a global world championship of the the highest quality racing cars and the most advanced type of tracks um you know in all parts of the world um 23 races almost all of them are in different countries and so they get paid by these promoters to to go there and and put put the show put the circus that's that they sometimes say um the third main revenue stream which is like the mid-teens uh percent of revenue is sponsorship so you know rolex is a sponsor amazon aws is a sponsor

um pirelli tire sponsor they have tech sponsors and you know a champagne sponsor right when there's when the race ends and the the the top three the go to the podium to get their trophies you know you get the traditional spring of champagne so they're sponsored for that and um so that's a another big revenue stream they also there's also you know facility type of revenue streams there's a vip passes for different races that they have access to they have a logistics business that they help i don't think it's a high margin one but they help uh teams kind of transport their their cars and supplies uh across different parts of the world um so that's kind of like on the other f1 revenue it's about 13 of revenue so those are the bigger

drivers it's a commercial operation the for-profit entity that manages the world championship um formula one league i have a question were you a fan of the sport prior to uh the liberty the acquisition uh i i wasn't a fan i mean i knew you know michael schumacher and some of the the drivers and you know ferrari right is an amazing brand and mclaren and and uh mercedes of course but i i wasn't really like a a big fan i began to follow it uh right after right after liberty was announced uh announced a deal and i believe the the after the announcement it was the italian grand prix uh the race the first race that came um and uh it was you know i i got hooked on it and and even before we i'm sure we're going to touch on drive to survive uh which the fourth season

premieres today um but even before there which i saw a huge amount of friends and family members start to get interested in the sport the fact that i know i studied the business after the deal was announced start to watch the races i you know i became i became a fan but not not before the deal was announced though right that makes sense uh and getting back to the business we're gonna have some more fun ones i think if people are interested in that at the end because i know some people on twitter asked that but one of their big expense drivers is the concord agreement and the deals they do with the specific teams and that's driving their margins and what their expenses are going to be can you go into the details of that and i believe it just changed

if i'm not wrong right yeah so you know you reference the concord agreement which is basically a contract that that governs uh the relationships between the commercial operator of formula one the entity and the teams but also the fia and the fia is like the global regulator uh of the sport right they they're the if you think about like the having um think about an nfl game with referees right and and people who manage uh the rules and that that's the fia um and and they have they're part of right the the conversation with with the teams and the the commercial rights holder so that contract basically determines everyone's role and it also determines uh the amount of money the teams get paid and and now it has uh before the teams didn't have budget caps now they have they

have budget caps it also um helps govern certain of the technical rules um and those can be side deals as well but essentially it determines where are the payments going and before i get to that you know i mentioned the fia and as we think about you know the main american leagues like the regulator and is combined with like the the non-profit entity and here they're sort of separate right the the the race stewards right and those who determine uh some of the rules it's a separate entity um that's not the commercial rights holder um so that's all they're also part of the of the of the concord agreement right because they're an important player and they get paid as well the essentially if i go back to the the three main revenue drivers

right uh race promoters write a check right f1 doesn't own the tracks the uh media broadcasters they write a check right and and they produce their own shows like you know f1 commercial has some cameras and and some of the control some of the production but the main investment comes from the uh a big investment comes from the broadcasters sponsors they write a check right so this is a very very uh capex and opex light business you need a team to manage those negotiations right and you need a team to market the sport and and you know and and run the sport and and get all this data to like you know heineken has been a sponsor and just speak with heineken and like hey this is uh our audience is globally by country so there is a a corporate

overhead but in the grand scheme of things the opex and the capex is very very light now you reference a high you know high cost right of the business and 50 of the revenues essentially go to the teams right because the teams have to invest in the engineers that the and and the construction of of the of the vehicles right each there's 10 teams um each team has two drivers they they're they all have their their chefs their marketers or engineers or their data analytics teams their their you know racing engineers who kind of determine strategy the race bosses obviously drivers are paid very well um so all these teams have huge investments they're obviously more capital intensive but they participate um in the revenue streams of the leagues so essentially

50 percent of revenues um go to the teams if if the the league actually has um you know mid 20 ish i think last year was around 23 percent of ebitda margins right you know thinking about you have 23% EBITDA margins, but, you know, 50% of revenues go to the teams and they deserve that, right? Because, you know, they're competing, participating, and there's also incentives. So best performing teams get paid more. And if you're, you know, on the back of the grid, you're obviously not going to get paid as much. But when you think about that, 50% of the revenue streams goes to the teams, the business is already generating 23% EBITDA margins. It's a very, very, very high margin before you you pay the teams right so given you know because it's a capex

opex very light uh business capital expenditures so this is a 21 billion dollar revenue business last year hasn't is has recovered from from covid but there's still some revenue streams that are still um going to come back online this year and and capex was like under one percent of of revenue last year so um that's why it has a you know a there's such a big expense to the teams right um because they need to be rewarded and so every few years that concord agreement expires i think the recent renewal was for five years so think about it as similar to like the current collective bargaining agreement between mlb mlb uh players and owners not exactly the same here you have commercial business and team owners uh negotiating versus players and and and team owners

but it's sort of that right so there's puts and takes you know there's teams like ferrari who feel that the the the prestige that their brand brings um they should be paid more just because they're ferrari and in the past they have been paid more um so there's sometimes teams are like well we'll drop off and we bring audience and and there's puts and takes right and and and before it was kind of a free-for-all and teams didn't have uh budgets so the top teams would spend like you know near half a billion dollars a year essentially to run two cars and you had smaller teams that you know may be struggling to to get to 150 million dollars a year so as liberties come in they put more structure commercial structure to the sport and wanted

to create more parity and actually make the teams profitable right you put a budget cap top teams still receive a lot of revenue they have sponsorship revenues of their own um you make them profitable they you know become valuable franchises like you've seen um american sports teams right so like i think the denver bronco they're up for sale now but probably someone could bid five billion for that uh david tepper the the hedge fund manager bought the panthers for two billion dollars so uh part of what formula once wanted to do is actually make the the f1 teams more valuable and i think they're succeeding in that but you know went off on a little bit of the tangent there but that's sort of how one should think about the cost structure

of the business it's actually a very very very high margin low capex low opex business but the teams participate and and they deserve so um one important thing about the recent concord agreement and we don't have really it's not a public document um and both sides want certain things concealed but liberty has said that um under some revenue thresholds they actually get a little bit of operating leverage on on the team payment so the team payment is a variable cost right um it's essentially around 50 of revenues and it's variable like there's no you know as the Lease revenues go up, team payments go up. But in the new Concord agreement, under some targets, which unfortunately they haven't revealed, but hopefully we'll get more of a peak of this next year, they'll get a little bit more margin out of their growth.

So that's the best way to think about the business. Your summer travels deserve an upgrade. With select Chevrolet, Buick, GMC, and Cadillac vehicles connected by OnStar, you can stream, game, and more on the go. Whether you're headed to a music festival or a cottage getaway, you can access hundreds of apps on Google Play right from your center display. Explore OnStar tech today at OnStar.ca and discover how to take your summer to the next level. OnStar. Better never stops. okay and before we hit record we were talking about how liberty loves complexity and uh i guess for anyone that's looking at their financial documents for the first time uh the tracking

stock structure can be a little uh hard to digest so can you kind of talk about what exactly that is and and why they're the different tickers yeah so so liberty media corporation is is essentially a kind of a media conglomerate or media holding co entity and it has different assets right they have a 80 plus percent stake in in sirius xm they have i believe it's like a 30 plus percent stake in live nation publicly both are publicly traded companies they own formula one they have some cash they have some debt and they own the atlanta braids um and probably a miscellaneous asset here and there essentially what they did and this company traded um just lmca uh a shares there's there were c shares with no votes and b shares with super votes that john malone uh controls

did a few years uh ago and they also did this before they bought formula one but just for simplicity's sake they separated out um they created new tickers under the same legal corporate entity right so the corporate entity hasn't spun off any hard assets but they created different tickers under the same legal corporate entity um and essentially three main tickers right one called liberty serious xm group where the main asset there was the their stake in in serious xm they created one called the braves group where the main asset there was the atlanta braves they created one called liberty media group um and that and that entity well liberty media eventually bought formula one and then formula one was was reflected in that entity so they

separated in three tickers they didn't separate the assets legally and what the tickers do is that they reflect or track right the value of those assets so it's meant to you you have a so formula one today ticker for the a shares is fwana f-w-o-n-a and when you own that stock it reflects the assets of formula one and there's there's cash and some miscellaneous assets and some debt um that is not an equity interest in formula one of those assets it's an equity interest in liberty media corporation the liberty media corporation has three main tickers and each is reflecting or tracking the value of these assets. So I know it can be a little bit confusing because usually when we think about this type of corporate activity where you have one entity

essentially split off another entity and give you a new ticker, they're usually two different distinct corporations. They each pay their own taxes. They each have their own CEOs and they each have their own 10ks and sec filings etc that hasn't happened here you know there's still one liberty media corp but liberty media corp instead of having one main ticker it has three and each one reflects the value of those assets so it's like a synthetic equity essentially um so if you if you the good thing is that look if you look at liberty media well there's a bunch of assets but you're interested in the Atlanta Braves, right? And you like the Atlanta Braves baseball team's franchise value, the real estate projects that you're investing in, et cetera, et cetera. Well,

there's a ticker for that asset. If you're bullish on Liberty Series XM, there's a Liberty Series XM group. And if you're looking at the Formula One asset, which is the one that we're talking today you can invest in the ticker that reflects um formula one these are as malone and buffet i'd like to say like transitory type of of vehicles right eventually um there will likely be spinoffs and in hard legal separations right um but they they're done you know you could raise capital against each ticker. So there can be an equity offering of one of the trackers and it doesn't necessarily dilute the other tickers and they can raise the convertible bond based on one of the tickers. They can provide stock-based compensation to the CEO of Formula One. And he's

not necessarily getting stock in a conglomerate, which different drivers, he can do an incredible job at formula one but if the other assets don't underperform stock will get hurt no well this one you you get the isolated um stock-based compensation on the on the asset it's reflecting and there's consolidated corporate taxes there's only one ir department um so there are reasons they're but they're transitory right eventually you would want formula one to be its own separate asset um with with completely apart um you know when you don't 10k etc um when you have a lot of these assets combined right there's disclosures aren't necessarily have to be as detailed so think about like berkshire hathaway right there's many many businesses that that buffett owns that

don't really need to disclose as much right but if um you know if berkshire hathaway energy were its own publicly traded company and i know they they do have some filings apart but they were on their own publicly traded company there would be a lot more information to the public eye um maybe their own conference calls and and a lot more uh their investor information but so so that's that's what liberty media has today i think it adds to confusion that there there are assets that have been spun off of liberty media that are not tracking stocks and so there are other separate tickets so um liberty media used to own a basically a big stake in charter communications and what they did was that they put that stake in in a new entity that they spun off called liberty

broadband now that that is a separate company um it's called it starts with liberty right and then broadband it basically essentially just has their main asset is charter communications and they have a small capable company called gci but that is a separate entity their own conference calls their own 10k their own corporate structure it's not a tracker so i think liberty has done different spinoffs and mergers and corporate activity over time and then when you add the liberty media corp with its three main tracking stocks, Formula One Group, Liberty Series XM Group, and Braves Group, I think that adds to the confusion.

But I think that's, I don't know if I explained it well, but I did the best I could given the complexity that these folks bring to corporate America. Yeah, no, it's all good. Yeah, I think I understand it now. it's taken me it's a business i've had on the watch list a bit and it's taken me quite a while to to understand that but i think everyone will get it now let's move back to the actual business now tv rights like you said are a big driver of revenue and that business is in there's a lot of

things at play in that business as well so that could affect how formula one is distributed to people how do you see that playing out over the next few years i know you follow the streaming space closely so kind of what your opinion on that and what is the optimal home for formula one i know we had someone on twitter say that maybe it should be netflix but i know they've never said they want to actually get into sports right so a lot of questions there but i think just broadcast rights in general what are your thoughts um so yeah it's it's it's obviously uh uh you know their biggest revenue stream huge driver i think on a year by year basis right they always have renewals right so this is a global a global league um you know it's i think the average race was

watched by around 70 million people um globally last year and i think the the last race of the season last year which ended in a lot of drama was well over 100 million viewers um so you know but that's you know it's a global sport you have people in brazil watching and you have people in germany the uk you have people australia you know china singapore obviously the u.s mexico all around the world right so usually these are maybe three five year deals sometimes a little bit longer sometimes a little bit shorter so um for example this year is the last year in the u.s uh contract and and the viewership in the u.s has grown like 50 last year um and and and the popularity in the u.s has grown immensely this year they're adding a race in miami that was

already a race in texas there's now talk about a race in in vegas um and and a lot of this popularity has been because there's been drive to survive a show on netflix on formula one has kind of you know given a lot of people a story to to really you know it's a sport that it was seen as like you know very exclusive you know only like hardcore people understand that there's a lot of technicalities well you know now netflix put like you know hey a a hard knocks the nfl show on hbo kind of like a you know let's get to know the personalities what's driving these people what's the intensity of the competition and in a global streaming platform such as netflix which has with 220 million subscribers and this show was on their face when you opened the app and it was

obviously a great show it's kind of driven the popularity of the league to new heights and the competition has gotten stronger as we talked earlier and other budget caps and such um so every year you have new negotiations it's staggered right because um i think last year they negotiated uh germany and brazil uh this year they negotiate the u.s i think two years from now they have to negotiate the uk so there's a constant cadence um of that what are the opportunities i think in the short term uh i mentioned the us right the espn renewal is coming up um when when liberty bought formula one the u.s races were were on on mbc sports network and some of them were mbc the broadcaster um the main channel but it didn't have a lot of

distribution and didn't have a lot of investment you didn't have dread to survive yet there wasn't a lot of eye on the sport right and they liberty wanted um to get a lot more exposure to get the sport on people's faces right so what did they do they they went to espn the the deal with nbc expired they went to espn's like hey basically don't pay us much i think some people said the the basically contract was for free the initial contract don't pay as much but help us promote the sport you know put us on espn putting us on put us on abc you know talk talk about us on sports center um you know espn has their social huge social media presence and their number one sports app as well so let us get more uh reach and and exposure um to the the u.s sports fan

so they negotiated that deal the read the league became more popular more competition the netflix effect so it's been a boon for for both f1 and espn now the deal is coming up right so that's an opportunity you weren't getting much revenue from espn now there's a possibility to get maybe 20 30 40 maybe even 50 million dollars from espn on the other hand what's the other opportunity right um this week was or i think earlier this week or late last week announced that that apple is is actually going to have mlb games on friday nights they're putting their toe in the water but are starting to get you know um uh sports on on the apple tv plus streaming service there also uh is noise that apple is seriously considering um bidding for nfl sunday ticket uh amazon is

also considering bidding for nfl sunday ticket and amazon is is already has an nfl package so why am i mentioning this because there's more um entities that want to stream high demand uh well-known sports and and even and even you know other streamers like espn plus is obviously building in your own streaming service but peacock has english premier league paramount plus has uefa champions league there's a lot of bidders interested in in having sports to drive their streaming services so i think um i think there is a big opportunity for for formula one in the u.s to to get a a bigger increase in feeds um if we think about this globally i think the popularity of the sport has also expanded in many other countries i think other broadcaster uh will bid

and i think in in in europe you have the zone uh which is a streaming service and they're very interested in formula i think they broadcast formula one a couple countries formula one has has had their own um streaming services in some countries not all it's called f1 tv and and they have a and they have an app it's been more of an experiment um and i think over time the league has kind of shifted to to either having that service help the local broadcaster so right if you subscribe to the local broadcaster you might get that service for free or they can collaborate um or maybe just giving that up and just being a super super super fan type of thing Because as we've seen with other kind of live entertainment entities like WWE, you know, WWE used to have their own direct-to-consumer service.

And in the U.S., essentially, they basically decided to shut that down and license WWE pay-per-view to Peacock. And you've seen UFC do that with ESPN as well. So I think globally, you have a lot more demand for sports rights. um formula one has become a lot more popular as of late so i think you have a nice tailwind uh there um to to continue to increase that revenue stream and i think streaming is a big opportunity but in my eyes it's more an opportunity for poor f1 to license out their content to to streamers netflix i think the speculation about netflix like they they've obviously liked um drive to survive in that popularity um i think reed hastings uh he was at a conference i think it

was late last year um he's like look i essentially what he said is that when when when the when the league was up for sale that that now they're in a position that they could have looked at that to buy the league that was my interpretation of his comments some people think that he would license out um df1 uh races for the service which may be um i think netflix has shown to be a little bit more flexible of uh and and open to different type of content over and serve on their service over time but they haven't had uh live content yet and and ted sarandos the co-ceo he's he's basically said look if they could have and they could own a sports league like um um i think espn owns like the extreme games um and and you know they can own something like that where they can

control the asset that they would so i think netflix would be a dark type of horse but the in the short term really opportunities to continue to license this out to to global streamers and and to and to local broadcasters i see a lot of value so that's that's how i think about the the management team so there's still a lot of opportunity to grow that um but yeah they got to put on a good show and we got to make sure there's a lot of competition um this year there's no new rules for the car so there's the design of the car this year is more modern it's designed to to for the the cars to be able to like follow themselves pretty quickly because these are you know these are like fighter jets uh but driving in track right and they they produce a lot of

dirty air so when you're driving behind someone in a formula one car uh you struggle a lot so they've changed the design a little bit this year so cars can closely follow each other so that combined with budget caps and other things that they they've done to advance the sport will create more competition um popularity with with netflix more promotion better sponsorship opportunities um they've done they've invested more in in esports and they have their own esports league um there's a lot of things that they've done uh to to increase the image of the sport at the global level and i think that's all opportunity to you know more engagement and popularity of the sport ends up um it ends up creating more demand for for media rights but also for all the other

revenue streams okay and i want to ask more about growth but uh before we get to that let's take a quick break cox panoramic wi-fi includes advanced security to help protect all your connected devices you'll get real-time alerts oh like this one so you don't have to worry about malware or when your kid downloads a song from a shady link. And now all your computer can play is Red color, red color, where are you? All blocked, thanks to Advanced Security, included with Cox Panoramic Wi-Fi.

Advanced Security must be enabled in the Panoramic Wi-Fi app. Restrictions apply. This episode is brought to you by State Farm. There are some monthly expenses you just can't get away from, like insurance. You might be looking at your expenses thinking you're going to have to pause on your DIY project, stop collecting vinyl, or even give up your daily coffee fix to have great insurance. Talk about a nightmare. It's a good thing State Farm knows everyone has a budget and they have a range of options, like insuring your ride and your home, with surprisingly great rates on both.

With State Farm, you can also personalize your policy, so you get the coverage you need at a price that lets you keep up with your projects, add to your vinyl collection, and continue to enjoy your coffee. habits. So forget about giving up what you love to have great insurance. For surprisingly great rates, like a good neighbor, State Farm is there. Call or go to statefarm.com for a quote today. Welcome back in. So I put down here that they're trying to, or Brett put it down, that they're trying to really grow the sport in America. And you talked about that. I guess from your point of view, more broadly, what do you think is going to drive growth for them over the coming years what are going to be the i guess the biggest drivers globally or for or the u.s globally globally so you know we talked about the media rights right

so i you know don't want to revisit that but i think that's a huge driver um the increased popularity right of the sport will drive more sponsorship demand so you want you're going to have more uh companies globally that want to be associated with the sport and you see many at the team levels um actually get sponsorship from u.s companies like namely like red bull just had a huge sponsorship deal with with oracle um so that will the popularity the the fan engagement will drive a lot more sponsorship revenue and that's a it's it's a big revenue stream but race promotion which is the fees they get from the promoters is also a huge opportunity right right now um it'll be 23 races this year um and and there's a lot of demand that for as we as a the world

reopens right there's a lot of demand from from different countries to to to be exposed to in a global stage um to everyone around the world right so many of the the people we talked earlier like who are the race promoters right sometimes they're racing clubs sometimes they're government entities sometimes they're local uh promoters and sometimes local promoters sponsored with governments and you think about a government paying a fee right to formula one you essentially have you know 70 to 100 million people around the world get exposed to your country and see your country and people talk about the country and ends up being you know what what management has called like a super bowl event so in the u.s when when there's a super bowl this year was in

la it's a it's a party across the week they're conferences people meeting each other business deals well the same thing happens for for formula one right so so some people at concerts and fashion shows and and all sorts of other events and and you create a a global promotion for your country and there is you know scarcity around that so right now 23 races and they really there are things in the concord agreement that have leaked out that they eventually could go to 25 but my read of it is that it's very unlikely i think 23 is a a good number lots of races almost almost year-round sport right which is also an advantage but it also creates scarcity so like if if one country decides to drop out you can easily get someone else like

there was a russian uh grand prix and obviously it was it was going to be it's canceled for this year right f1 just took the contract and canceled it said force majeure and events that you know in light of the event horrible events that are going on in the ukraine um because of russia that they're not going there and they're going to be able to replace it fairly easily um with another country there's speculation around turkey um in a couple other countries but they can do that because they have a lot of demand from different countries now there's talk of columbia wanted to be wanting to be involved las vegas uh wants to be involved so three races in the u.s would obviously help the popularity of the sport even more um what also helps the popularity is

the nationality of each driver right so if we get an american driver i think that would be an incredible boost to f1 in the u.s right when when you had a world champion from spain and fernando alonso was a world champion uh around 2005 um that obviously created a huge popularity in in in spain when you had michael schumacher will in germany huge popularity so sometimes there's ebbs and flows and then that's a good thing globally right so it was hamilton's now uh you know he's won the world championship seven times he didn't win it last he should have won it last year but didn't win it last year and obviously the first time he won it you know propelled into the popularity of the uk so there's ebbs and flows there's good things about being diversified

globally but but what's going to drive the the growth at the end of the day is having high demand from the fans having great races and great shows with great personalities fighting each other for for the world championship and you saw that last year the rate the championship came down between willis hamilton and max verstappen willis races for mercedes max verstappen for red bull it came down to the the last race of the season the last lap and max verstappen won a controversial ending but let's put that for to the side and that drove you know huge talk about the sport huge engagement right people like dying to see the the next season of formula one drive to survive which kind of covers the entire season and the backstories so at the end of the day that you

got to have good competition on the track so f1 um historically over the past couple years you know mercedes just been crushing everybody and when liberty came down you know started to change of rules started you know you know as i talked earlier the new car this year easier to track the budget caps right think about a budget cap um you know there's crashes in the race right if you crash your car in the race that takes money to repair um and that's part of the budget cap throughout the f1 season teams are constantly making up making the car faster investing in the car so at the beginning of the season your car at the beginning of the season is going to be dramatically lower slower than than your car at the end of the season for all teams for every team

so you're going to keep developing if you crash the car and you got to put money from your budget cap on repairing your car that money is not going to advancing the car right so the budget cap is is it makes things a lot tighter for the team you can't make mistakes right um you have limited resources to to invest in the car so i think all these things all these initiatives that that liberty has done um are going to create better racing and better racing creates better stories rivalries and that allows um things like you know f1 drive to survive to become popular now i think lewis hamilton is going to get a documentary for apple tv plus uh the mclarentine has done their own documentaries on youtube um and and and i think mclaren did one on um amazon a couple

years ago so that at the end of the day drives everything right um and i think that they've they've been moving towards that and when you have that level of engagement and demand and competition well when there's only 20 30 races you know 20 you know every country is going to fight more and bid more for those for those contracts when you have that huge fan engagement well espn might get a rival bidder or two and the same thing when you when you renew in brazil or you renew in germany when you review in you know australia name your country as a global sport and then the same thing could be said of a sponsorship right so when you are have so much racing engagement and fan affection and a huge audience well the champagne sponsor might have

you know three rival champagnes bidding and rolex is a sponsor so you might have all their watch companies uh bidding to to um to be the sponsor so that's at the end day what drives everything um and it's a it's a great business model right so it's a low capex low opex uh and when you and when you have all the all these good racing come together um you have a pretty high uh demand for all your revenue streams all right what so there are a few ancillary revenue drivers you hit on f1 tv a bit but is there any promise there for i think two specific ones would be video game licensing and their social channels i i think the so in the other revenues they have the logistics business um just kind of like just a stable business right um and and probably one of the

lower margin business that they have the paddock club i think is is one of the more interesting ones which is kind of your vip uh suites on on every track so the race promoter gets pays a upfront fee to formula one and they get to sell tickets and certain sponsorship even though everyone keeps on certain sponsorships and you imagine things like uh you know merchandise and hot dog stands and all that type of stuff that the promoter exploits but one thing that f1 keeps the rights to is the vip paddock club right so it's like a think about in in a box right in in a stadium which you know very vip you know high suite type of environment um exposure to drivers and team owners and things like that and that's a very like a premium experience that costs a lot

of money and as the world reopens and demand for experiences uh goes up demand for these type of experiences is going to be very very high um so i think that's a huge opportunity i think video gaming is a big opportunity code masters which is purchased by bought by ea uh i think a year ago or so um they own the the license of the f1 video game and they've said on their conference calls that they're growing nicely and doing well so there's more opportunities there to to as now that ea owns the game invest more and bring you know they've obviously done an amazing job with nfl madden and fifa so more investment in the f1 video game could could possibly bring a more licensing revenue and esports opportunities as well um i think they'll they'll they'll be

incremental they'll bring um dollars but if they are successful and you get a lot of people engaging with the sport um even better right um and uh f1 tv yeah we talked about it earlier i think it's still um tbd how big that business can really be i i prefer actually them to just focus on licensing their rights right if you think about a direct-to-consumer streaming business for just one sport um that's really hard to to maintain uh the fan because you really need a super fan and and you know acquiring that customer and just servicing that i think other sports leagues have found that it's just better to to to have partners and license out right um so i i think the opportunity there would be just like servicing like very very very super fans and

partnering with with local broadcasters but i don't you know i don't think the f1 tv opportunity is going to be as as as massive um so those are they're kind of the the you know they have like sports betting deals as well um those can sort of go under sponsorship in reality but um they've started a fantasy fantasy f1 uh league as well that you can play for free but some of these are just mainly there might be some incremental some sponsorship opportunities on the margin but i think the the the big goal of those is just to drive more engagement at the end of the day no that makes sense and let's move more to capital allocation they're doing some debt or buyback repurchases like we uh talked about with liberty it's not straightforward um so how do those work

what are your thoughts on capital allocation and balance sheet in general so i think it's helpful so so we talked about trackers and there's the the formula one group tracker so i think it's helpful to also talk about what's what's inside of what's inside of that tracker right so you have the f1 asset and that asset has um 2.9 billion dollars of debt it's uh i mean term loans and they have 700 million dollars of cash they're levered at 4.4 times even dot and they said their leverage target is is below five times usually it used to be five to five and a half they've lowered their leverage target i think they want a better uh better debt ratings from the rating agencies and and and potentially to to refinance that in in the short term um but

outside of the f1 asset right they have actually 1.3 billion dollars of cash they have a a a spec also where they have shares in the spec that are publicly traded liberty media acquisition corp lmac um and they have a small stake in in one of the other trackers in so it's an intergroup type of stake in in the atlanta break so if you think about capital allocation they set a leverage target and if they're within or inside of that leverage target you know free excess cash flow um and incremental capital that they can raise to maintain the leverage right so if you grow EBITDA and you maintain the leverage target so you issue more debt right you have more access to capital and more capital to repurchase stock so you maintain those leverage targets you access

free cash flow and excess capital that you raise um they're going to probably repurchase so they've started to so obviously when when when if i take a step back and think about when covid happened you know essentially they they had to do races with nobody in the stands they had to like you know pause sponsorship deals um pause uh promotion payments right so from you know the promoter can't sell tickets uh well they're not going to pay f1 right so essentially f1 in some cases was paying rent to go to race because they needed to have races to keep the the tv contracts alive so essentially in 2020 the entire business was disrupted you know generate you know nothing in cash flow and you know revenue is obviously tanked so coming out of that you know growing

you know getting your revenue base back getting your EBITDA back you know getting leverage where it needs to be now that that started to happen in in in the leverage targets became we got within their guidance late last year they started to repurchase a little bit of stock so you've seen in Q4, it's not a lot, but they were able to repurchase some stock at the margins. But usually, that's the start of more meaningful repurchases that I think we're going to see this year and beyond. You touched on debt repurchase. They have a convertible bond.

It's cash convertible as well, which means that they don't have to issue stock to repay the debt. And they were able to repurchase some of that. There's probably the value of that debt is around $600 million. So it's probably tightly held and probably maybe some bond funds or fixed income vehicles were willing to part ways with some of that. And so they were able to repurchase some of that convertible debt, which is essentially a way of minimizing dilution. So you can view it as a stock repurchase. But going forward, right, so they have nearly $500 million in EBITDA at the F1 level that will continue to grow nicely. They're well within their leverage targets. They have a lot of cash at the holding company level.

So, you know, they have, you know, $1.3 billion in cash at the holding company level. So, you know, you have, you know, the market cap of this entity right now is, you know, under $14.13 billion and change. So you have a lot of liquidity relative to your market cap. You're generating a lot of cash flow. You've recovered from COVID. Now you have prospects for growing EBITDA and free cash flow for Formula One significantly. um so they're going to have the ability to to return a lot of capital to shareholders so that's how they they kind of view um their capital allocation they the SPAC um they have the

shares of the SPAC and they've committed to to invest around 200 to 50 million if I remember correctly um in in addition to when they close a a SPAC deal um usually these SPAC deals something have like a pipe investor and so they've committed to invest uh some incremental capital but they'll even beyond that they'll have you know over a billion dollars of cash in the whole call um at the whole call level at the f1 level there's have 700 million dollars in cash and as i said you know cash flows come back nicely last year not all the races last year had full fan bases not all the sponsorship revenue last year came back online from covid and there's still opportunity to continue to grow um the the media rights and there's new races

coming online as well so i imagine um we're going to continue to see a good good amount of growth um in the short term and more free cash flow growth and given the the access to capital that they have they're probably going to be able to to repurchase a meaningful a meaningful amount of shares going forward okay and one of the questions we got from twitter and it's kind of question we usually ask is sort of for a pre-mortem so if this uh formula one investment went wrong what would happen or i guess put another way how could this go wrong um as you think about the the business right sometimes you can't control short-term volatility But if I think about the business, I would say you start to have a wane in the popularity of the sport.

You might get less attention on shows like Drag to Survive. Racing might become mundane. You might have one dominant team and the racers in those dominant teams are just not personality that that people can relate to so you have bad racing consistently for a long period of time which then people don't want to go see those races live people don't want to see them on tv um those hurt those revenue streams right then you might have to you know you have less potentially less less demand for from promoters so maybe you have to reduce the schedule reduce the amount of races um brands don't want to be associated with usually have less sponsorship demand

um and you know and you don't have additional bidders incremental bidders when you have to renew tv rights right so that that puts a dent on that um but i think i think that's you know if you have that happening right so it's kind of like the reverse a reverse type of flywheel right you know that really bad racing very long period of time people are bored by people don't want to see it um and it kind of hurts every revenue stream and and and then um and right so EBITDA goes down and and you have leverage right yes you have 4.4 times EBITDA um and so leverage goes up because EBITDA goes down you have less cash flow and you know it becomes a unimpaired assets of sorts but I think as you as you think about popular sports leagues that that really you know

care about the sport want to care about the fan engagement over time right there's things that that can be done to and you know no sports league has remained the same right you think about the nfl um you know this overtime uh rules have changed sometimes the kickoff rules have changed the extra point rules have changed you know at one point we have you know you had uh the the challenge flag implemented and at one point you had the challenge flag implemented for pass interference i think they took that away but you you tweak things you change rules you know now there's like rules that protect the quarterbacks pretty well what the result of that is that you have you know a you know huge passing yard type of league more action more scoring right um the nba

right many years ago they didn't have the three-point line and you know you make the the shot clock um be be you know have less seconds and and the time to get through half court and make this game faster baseball i think has been reluctant to to kind of change the sport but now they're seeing pressure so i think if you're on top of these things right um fundamentally people love to watch uh race cars race each other um and and these aren't races these aren't tracks it's just a circle right they're complex they go uphill they go downhill tight curves wide curves um there's some there's street races they're regular tracks um they're like hybrid races um they're night races as well there's day races you know every you know in almost every continent

right you you have races um and so it's it's really relatable you have you have these these amazing you know almost hundred year type brands like like ferrari like mercedes like mclaren now porsche is seeing the popularity of the sport and porsche has said that they want to actually get into the sport and be involved um so fundamentally what they have is something people does not have decided to see and is popular globally for you know i think there's been race car racing races in in monaco or you know over 100 years ago i think they started racing in monaco or 100 years ago or and so fundamentally the sport is very popular um it's the the elite of you know the best drivers in the world and the best cars the fastest cars and more

technical cars in the world so as long as they continue to invest in the product um and and to be fair before liberty bought they've kind of you know they were owned by private equity was more focused on extracting cash flow you know so a lot of things went sideways they didn't really have a commercial operation now they do right um you know and the netflix deal would never happen under the old regime as an example all the things are in place to invest in the sport to increase the popularity i recently you know my sister watched tried to survive she's not even a big sports fan and she watched it she didn't watch it because of my encouragement to to be clear now she's you know super psyched about the season so they've done a lot of the right things now they have to

continue to push in that direction and and if as long as they continue to do that i don't think will see that kind of reverse flywheel scenario i talked about it's a it's it's it's something you have to be mindful of right um look and not every race is going to be great you have some nfl games that you know stink it's a blowout and some some super bowls and some playoffs and some seasons aren't just aren't as memorable right um but over time like the the the popularity remains and grows And I think, I think you're going to see that with F1 and you're seeing it with F1 currently. So I'm mindful of those type of risks, but I, I, I don't think, I don't think we're going to see that, that type of, that type of scenario emerge anytime soon. All right. Let's wrap things up with the last business question here. Where do you see, and we've got some fun ones too, because I know you're a fan of the sport and I know people are asking about that, but where do you see this business in three to five years? Maybe you can put some numbers on what they could get to, because I know they're at what an enterprise value of approximately 15 billion right now. So what kind of EBITDA revenue numbers do you think they can get to? so on on the enterprise value now so it's a it's around 15 billion for the f1 sport um

but but but for the entire entity is a little bit higher because you'll you'll have some some other assets where do i think they can go right so i think they they can go stay at 23 races maybe 24 but likely around 23 very very high demand from different countries so so once contracts expire for different countries someone's going to come in with a being a very very high aggressive bidder the pop the racing is going to get better the the the the cost caps that the teams have just started last year and they're going to take lower for for uh one more year to take lower this year relative last year and next year's going to take lower the racing is going to be more competitive you're gonna have porsche come in you potentially have other other uh

racing brands come in you had austin martin come in last year um potentially you got an american driver um you're gonna potentially add las vegas so you have miami and texas this year miami for the first time las vegas could be added in in a year or two um so you have way more popularity in the u.s which brings up more upside opportunities so um including sponsorship so i see revenue growing nicely this is not like a 30 percent or even a 25 percent of revenue growth each year but even even at um even in the you know low double digits or high single digits and and with the new concord agreement created some operating leverage for formula one You're going to see even higher EBITDA growth, higher margins.

They're going to have their leverage targets be stable. A combination of cash flow and debt capacity is going to give them the opportunity to repurchase a lot of stock. To add a cherry on top, if the team led by Greg Maffei can pull off a pretty attractive SPAC deal and the formula one group invests in that spec that's another potential upside situation so there's different ways you know the value of the sport continue to increase generating cash flow being returned to shareholders but also other capital education activities look i think eventually um i think eventually formula one could be spun off right so we talked about trackers trackers are transitory type of which i know transitory is a big word these well not anymore

but used to be a big word with the fed uh the so it's it's a it's a it's a vehicle that's that has an expiration right tracking stocks don't remain tracking stocks forever eventually there'll be asset back so eventually i think you'll have a spinoff of f1 and what does a spinoff of f1 do um bring more attention more focus more scrutiny on the sport um a different investor base like look some some funds are just not going to touch a tracking stock some mutual funds are not going touch a tracking stock some index funds are not going to touch a tracking stock um when you have an asset back you know entity i think you know the potential investor base becomes different and maybe the the potential for someone else to take it private um so i think now that the sports

is more popular so i think that the the the opportunity to grow EBITDA is still is still strong and the opportunity to return capital is still strong and the opportunity to to invest in in potentially another business or to exploit the SPAC and in an attractive way for, for shareholders, you know, remains fairly strong. So, um, I think there's, there's still a long road ahead. And I think right now you're, you're paying around like a low 20 multiple, uh, for on, on, on my sort of estimate for EBITDA two years down the road, um, on my estimate for cashflow down the road, um,

based on EBITDA growth targets. And you get like $4 per share in other assets, mainly cash, which could be put to good use. And at the end of the day, the team at Liberty, their specialty is capital allocation, right? And putting the great management teams in place. So I think they'll continue to allocate capital very well on behalf of shareholders.

And so I think the asset will evolve eventually, maybe three years from now will be asset backed um but but fundamentally i think what's really attractive to me about this business is that i think the downside is low right it's a contract based business you have contracts with the promoters you have contracts with the uh broadcasters the sponsorship those sponsors these are usually you know very uh valuable entities Sometimes they have to put, you know, probably money up front in escrows, global companies, or, you know, valuable media conglomerates, and low capex, low opex business. Fundamentally, it's a really, really good business. um and and so so beyond that i think it's uh the the the possibility that all of a sudden you know revenue contracts materially i think it's fairly low you saw that during the pandemic but obviously

you know the world shut down um and they were still able to pull off a season um so i think you saw them go stress test through a scenario where you had no fans right and when they survived they came out of that stronger so i you know i fundamentally believe the downside is low of the business model but the upside still remains that continue to grow the sport globally especially in the u.s so the richest country in the world uh is is is the biggest opportunities for the sport in many ways okay let's do some fun ones uh hamilton or verstappen oh hamilton all the way really all right yeah yeah come back here this year gotta get the revenge yeah i i think so i think he's gonna come out uh really motivated um you know he's he's he's sort of like tom brady

you know uh you know he's he gains a lot from like internal positivity and and he's going out there being very consistent he's the you know what's what's so amazing about hamilton is that he's just amazing under pressure you know he was the back on the wall last year down a lot of points and just won a bunch of races in a row and was leading the last race up to the last lap which is controversial so he's so good when he's under pressure it's it's amazing it's you know he's got a great story his dad worked many jobs to to invest in his karting career um mclaren picked him up as as a young prospect he won the formula two league his first year he almost won the world championship um he won the world championship end of his second year with mclaren he's won a race

every season as a as an f1 driver he's just an amazing he's you know reading about him the office there was a big wall street journal profile on him last year which i think is a pretty good read um hbo had like a mini documentary on him you know when they first spotted his potential is like in remote control racing they had remote control racing leagues um and he just like was a little kid very little kid young kid i think this might be like four or five years i don't know very very young maybe a little older he's destroying like older guys and you know so he's a natural ability huge work ethic he's a very inspirational person i mean i like rax for sad don't get me wrong max or seven is a beast he's he's amazing but but but i'm uh i'm team lh all the way

so for anyone that like so i don't follow the sport that closely what was the controversy with the uh last lap it's it's a little complicated right this is when we get to like the intricacies of the sport but i'll try to explain the best way the best way i can so lewis hamilton is is is number one in the race and he's leading by comfortable margin i forget the exact amount but it was just basically like hey you think about a basketball game you're you're winning by 15 with a minute left right um so you know not impossible to to lose that lead but extremely hard right so and then there was a car crash um and sometimes when you know a car crashes you know you have debris you have parts of the car all the race so you can't you know have cars

drive by 150 200 miles per hour next to like broken parts of the car right you're just asking for an accident so what happens is that they call out a safety car and the safety car is just a regular car that that takes the pace of the field you know much much much slower right so they go much slower the the field kind of bunches together as they the they clean the debris usually there's there's when there's a safety car you have an opportunity to pit stop on the cheap right because if you think about a pit stop um there's you you go out of the track you go slower you stop they change your tires you leave and while you're doing that people are going around really fast around the track while there's a safety car people are going around

the track very very slow right so you're the the time that you lose when you pit stop during the safety car is is not a lot right um the second factor is that towards the end of the race that the you know there's 20 cars right the the guys in the back of the field they they usually get lap sometimes even twice so the guys always host guys the house guys so the the order of the field is also mixed up howlton can be number one but you might have the driver 18 behind him and driver 20 etc in between driver number two so when that race car that crash happened towards the end of the race it allowed max verstappen who was number two to have a cheap pit stop right and he did did it before Lewis. And if Lewis pits, he's been behind.

So there's some like game theory stuff, but Lewis is not going to pit because he doesn't, he wants to protect his lead. So Max knowing that Lewis is not going to pit because he's not going to take the risk because if Lewis pits, just Max doesn't pit. Right. And it will go first. Max knowing Lewis won't pit, Max can pit and still remain number two, right? Cheaper pit stop. And then the field is all mixed up. So Max will be number two,

but like like i said earlier the 20th driver can be in the 19th driver can be between max and moose so usually to end up to to end the safety car they allow the the cars that are last to unlap themselves so the field bunches together in the order and then the safety car goes away you start racing so you guys follow me up to there yeah yeah well i watched i think it's an equalizer but yeah but it created a cheap pit stop and then you got to get the field together so what happened there was only like six laps left this stuff takes it was it was like a lot of stuff they had to clean up um and what happened was that they realized that they didn't have enough time to clean up and then bunch the field together because it because if

they just had all this time they were just going to end the race with a safety car which it can happen hey it can happen but it's not sexy and doesn't sell and given the world championships is on the line so what they did was at first the the race steward debated to just to let the cars like let the order that that it that was set so the cars the order mixed up so number 10 20 driver in between one and two for example they're like screw it let's just let them be there and they can sort it out when they start racing but then rebels started complaining so what and then the race the race tours knew that if they just made they got the entire order in order they weren't gonna have enough time so what they did was so this is the controversial part that they only

allowed the drivers in between lewis and max so lewis was number one max was number two to unlap themselves right so the the guys in last place that were in between them too they unlap themselves but everyone else they didn't allow to unlap themselves so the the guy who was number three i think was carlos signs from from ferrari he had cars in between him and max when the race started they did that because it was like in between you know you get to restart the race and you don't end under a safety car but what happened lewis's tires were like dead max had a free pit stop new tires one lap left and when you have tires that have huge mileage versus ones that are brand new you're right behind the guy because the field gets bunched up together

you didn't unlock the other car so the car number three can't really challenge car number two you started racing again it was an easy pass maxler step and passed louis pretty easily won the world championship and there was only one lap of racing um they gave red bull the championship basically yeah that's how i went so like essentially you could argue like well they they wanted racing they wanted racing and and and so uh and technically i think it was under the rules but you know it was controversial and the and the head race steward um essentially fired um in the off season so wow interpret that as as you will so i don't know if i did you know it's it's technical uh but i you know tried to explain that as a as a it's good for business though good

for business oh no it's good you know you know max verstappen global superstar people love him um he's he's dutch and the racer is like selling out tickets and he has fans that go to many many races and travel you know he's got the orange army he's young his dad was an f1 driver he's like a phenom in a young age and having that as a world champion now and an arrival of lewis and it's it's honestly great for the sport so um if lewis would have won it would have been an amazing season an amazing comeback for him overall because he had to win a bunch of races to get that tight with with max but it was just it would have been you know he's won already seven times right um he's he's tied with michael schumacher for the most championships so i think

now that you know it's more intriguing now max has defended title lewis is hungry as ever lewis went like in a social media blackout for for a couple months and he came back and people went crazy when he came back and I think he's hungrier than ever so so overall I think what happened is is it was very controversial but probably good for the sport at the end of the day okay well I think we uh I'd love to ask more but I think we're going a little long-winded so I'm gonna cut it off but uh I think this will be the season will have started by the time this is released right correct the season starts March March 20th I think okay so yeah this will come out right after that. So if you, uh, maybe if, if you're listening, maybe, uh, start watching as well. Uh, Francisco,

thank you for coming on. Uh, enjoy it. Uh, we want to remind our listeners that we are not financial advisors. Brett and I are not anything we say or discuss here on chitchat money is not formal advice or recommendation. We are however, general partners, arch capital. So clients may have positions in the securities discussed in this podcast. Thank you all for listening. We'll see you next time. Thank you.