Liberty Media Corp Q4 FY2022 Earnings Call

Welcome to the Liberty Media 2022 Year-end Conference Call. As a reminder, this conference will be recorded today, March 1. I would now like to turn the call over to Shane Kleinstein, Vice President, Investor Relations. Please go ahead.

Thank you. Good morning. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in Liberty Media's most recent Form 10-K filed with the SEC. These forward-looking statements speak only as of the date of this call and Liberty Media expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in Liberty Media's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. On today's call, we will discuss certain non-GAAP financial measures for Liberty Media and SiriusXM including adjusted OIBDA and adjusted EBITDA. The required definitions and reconciliations for Liberty Media and SiriusXM scheduled 1 through 3 can be found at the end of the earnings press release issued today, which is available on Liberty's website. Now I'd like to introduce Greg Maffei, Liberty President and CEO.

Thank you, Shane, and good morning to all of you. Today speaking on the call, we will also have Formula One's President and CEO, Stefano Domenicali, and Liberty's Chief Accounting and Principal Financial Officer, Brian Wendling. First, let me start with an update on the split-off of the Braves and the creation of Liberty Live tracker. We filed the amended S-4, and we still expect completion in the second quarter. Let me turn to Liberty SiriusXM. We expect we will have a simplified structure following the recapitalization of LSXM and the creation of Liberty Live tracker, and we are focused on rationalizing this structure in the near term. Looking at SiriusXM, the underlying asset, reported strong fourth quarter results with record high ARPU and EBITDA and record low churn. Management did give more cautious forward-looking commentary given multiple headwinds we're experiencing here in the early part of 2023. The top of the funnel in terms of new subscribers is still pressured as the SAAR has dropped from about $17 million in 2019 to something like $13.5 million last year. The ad market remains soft, especially in the first half of 2023, and we are seeing moderating marketing spend ahead of the fourth quarter app revamp. Plus we've had some cash impacts. We expect peak satellite CapEx in 2023, and we are now a taxpayer, something which previously we had not been. We do expect these incremental satellite CapEx will moderate in 2024 with nearly no incremental satellite CapEx by 2027 by the end of the year. We are also stepping up some tech investments for long-term success. We are building improvements around commerce and identity to reduce friction, and the new app will have more personalization as it has within 360L. We do expect these negative trends in the ad market and the SAAR will turn, and we have a resilient business model with meaningful free cash flow, so we still remain optimistic about our longer-term prospects. Turning to Live Nation. We continue to see incredible demand. 2022 attendance was up 24% over 2019. We are at an all-time high for concert attendance despite many markets still being closed during part of the year. We've seen especially strong international markets with 70% of net new tickets sold in 2022 being to international clients, and we expect another record year of demand in 2023. Ticket sales in 2023 are up 20% versus the same time last year. And last year, we also benefited from 20 million tickets that were rescheduled from prior periods due to COVID. Formula One Group. Right into the 2022 year, attendance records were set, we were up 36% over 2019. Our fan base is increasingly diverse with new fans being younger, and the share of females within the fan base 40% larger than the share in the established fan base. That's been the new fan base. The U.S. is especially strong. One in three fans globally started following F1 in the last four years. In the U.S., it's even higher at one in two. This is a result of many efforts, most of which relate to our drives to access our drivers across all channels, not only Drive to Survive, but through driver preferences on social pages and coverage in larger publications, and late-night comedy appearances on shows like those hosted by Jimmy Kimmel. It's interesting to note, for example, look at our Instagram followers: comparing GOAT Lewis Hamilton has 31.5 million versus Tom Brady at 13.6 million. F1 is clearly breaking into the mentality of America. And looking at the younger talent, Leclerc has almost 10 million and Luka Doncic is at 8 million. Again, we're doing pretty well. We will have 3 U.S. races in 2023, marking the second year in Miami, capitalizing on the first year's success with several improvements around hospitality and security. We expect the sporting world to be as excited as we are for the inaugural Las Vegas GP. F1 Las Vegas social media garnered over 170 million impressions and over 5 million engagements since September of 2022. We launched LVGP TikTok last weekend, and the first post had over 35,000 views in the first 24 hours. Let me turn to the Braves. We reiterate that we believe the split-off will better highlight the value of the Braves. We grew baseball revenue in 2022 even though we experienced less postseason gains, capitalizing on the tailwinds from our 2021 World Series win. We had year-over-year growth across ticket sales, sponsorship, concessions, and retail. We sold 3.1 million tickets and led Major League Baseball with 94% of our inventory being sold. Demand for the season and single-ticket games remains high for the 2023 season. Bleacher Report called the Braves' front office the #1 in Major League Baseball for the 2023 season, and we tend to agree. We were happy to extend manager Brian Snitker through 2025, and GM Alex Anthopoulos invested smartly in the off-season, adding to the already core talent we have by locking them up in multiyear deals. This team is built on young talent and is positioned for long-term success, and we look forward to the opener on March 30. And with that, let me turn it over to Brian to talk a little bit more about our financial results.

Thank you, Greg, and good morning, everybody. At quarter end, Liberty SiriusXM Group had attributed cash and liquid investments of approximately $305 million, which excludes $57 million of cash held at SiriusXM. There's also a $1.3 billion of undrawn margin loan capacity at the parent level related to our SiriusXM and Live Nation margin loans. As of February 28, the value of our SiriusXM stock held at Liberty SiriusXM Group was $14.1 billion, and the value of the Live Nation interest was $5 billion. We have $2.8 billion in principal amount of debt against these holdings. Total Liberty SiriusXM Group attributed principal amount of debt is $13.1 billion, which includes $9.5 billion of debt that's down at the SiriusXM level. Formula One Group had attributed cash, liquid investments, and monetizable public holdings of $1.8 billion at quarter end, which includes $752 million of cash at Formula One. Total Formula One Group attributed principal amount of debt was $3 billion, and this includes $2.4 billion of debt at the Formula 1 level, leaving $565 million at the corporate level. During the quarter, F1 refinanced its term loan and revolver at attractive rates and extended maturity. F1 repaid $477 million of its term loan B in connection with this refinancing using cash on hand. At year-end, Formula One's $500 million revolver is undrawn. Formula One's leverage at the end of the year was 2.7 times. On the F1 operating business, given quarterly variability in the year-over-year race calendar, a reminder that this business is best analyzed on an annual basis. Total revenue grew 20% in 2022 with growth across all primary revenue streams. Other F1 revenue grew 63% or $180 million, with approximately $110 million of the revenue growth coming from hospitality and experiences and approximately $55 million coming from increased freight. Team payments as a percent of the pre-team OIBDA as reported was 66% in 2022, down from 68% in the prior year, benefiting from the terms of the 2021 Concorde Agreement. As a reminder, other costs of Formula One revenue are largely variable in nature and relate to both primary and other F1 revenue opportunities. Other costs increased from 20% of total revenue in 2021 to 23% of total revenue in 2022, primarily driven by compression in freight margins with significant air charter cost inflation during the year as well as increased cost of servicing our additional hospitality offerings. SG&A as a percent of total revenue was basically in line with historical averages in 2022. As mentioned in Q3, we did have some modest increases in personnel costs due to the change in the company's LTIP from stock to cash-based long-term bonus program and increased headcount to support growth. Also included in SG&A in 2022 was $19 million of costs from the Las Vegas Grand Prix, mostly related to personnel and marketing initiatives. Looking at 2023, we look forward to a record '23 race calendar. The calendar will consist of 14 flyaway races compared to 12 flyaway races in 2022. As we've discussed before, flyaway races typically pay higher fees than the European races. And on Las Vegas, as previously communicated, we expect total revenue approaching $500 million. Looking at total race-specific economics, Vegas is projected to be in the top 5 of all races in year 1 in terms of total profit to the company. The Paddock building is progressing on schedule, and the concrete structure will be completed by the end of March. CapEx related to the Paddock building will be incurred at the formula and corporate level, and track-related CapEx is expected to be incurred at the F1 OpCo level. The majority of our CapEx spend will be incurred at the corporate level, primarily because year-round activations of the Paddock building will be separate from Formula 1. We will not be providing a forward-looking allocation between F1 OpCo and Formula One corporate CapEx, but you'll be able to see it in our historical numbers as they get reported. LVGP will pay rent and other fees out of Formula 1 OpCo to the Formula One corporate for use of the building during the race period, which will show up in our financial statements as revenue at the corporate level but will eliminate in consolidation. We also expect the receipt of advanced payments primarily related to ticket sales to impact year-over-year comparability and working capital flows in the first year of the Vegas race. Nearly all LVGP revenue will be recognized in the fourth quarter when the race takes place. We'd expect grandstand and GA tickets as well as sponsorship revenue to be recognized in primary F1 revenue as race promotion and sponsorship revenue, respectively. We expect hospitality tickets will be recognized within other Formula One revenue. On cost recognition, we expect the vast majority of the race-related costs to also be recognized when the race takes place as the cost of F1 revenue. So there will be some SG&A incurred throughout the first few quarters of 2023. Finally, at the Braves Group at quarter end, they had attributed cash and liquid investments of $151 million, which excludes $22 million of restricted cash. The Braves Group had attributed principal amount of debt of $546 million at the end of the year. Liberty and our consolidated subsidiaries are in compliance with their debt covenants at quarter end. And with that, I'll turn it over to Stefano to discuss Formula One.

Thanks, Brian. 2022 was a fantastic season on track, commercially with our partners, and financially in our results. Max Verstappen with 15 wins broke records for the most wins in a single season. The Red Bull team won their first constructors' championship since 2013. The intense competition battle came down to the last race with Alpine and McLaren both fighting for fourth place. The feedback from the drivers made it clear that the new regulations meant that cars could race more closely, and we saw some great results on the track. This action during the season fueled our growing fan engagement. 2022 showed record attendance of Grand Prix events. We welcomed more than 5.7 million fans to race weekend, up 36% compared to 2019. Demand is continuing in 2023 with sellout crowds expected at a number of races this season. Formula One was once again the fastest-growing major sports league on the planet in 2022 in terms of social media followers. We have 60.6 million total followers, up 23% from 2021, and saw significant growth in markets like the U.S. where social followers were up 42% versus 2021 to 4.5 million. Additionally, across f1.com and the F1 app, unique users were up 11% versus 2021 to 125 million. On viewership, cumulative TV audiences for the 2022 season was 1.54 billion, and average viewership per race was 70 million. U.S. viewership was up 36% compared to 2021, with an average of 1.2 million viewers tuning in on race days. Looking at some other markets, Italy viewership grew 22%. Australia was up 20% and Germany viewership grew 9%. With our newer, younger demographic, the digital share of F1 video minutes consumed grew from 16% in 2021 to 24% in 2022. As an endorsement of F1's growing global popularity, technological relevance, and sustainability efforts, Ford announced the return to F1 from 2026 in a new partnership with Red Bull. Ford is a celebrated name in motorsport with a storied F1 history dating back to the '60s, and they are the third most successful engine manufacturer in F1 history. We expect Ford's involvement as a technical engine provider will bring value not only to Red Bull but to the sport. The growing fan engagement has benefited both new and renewed commercial agreements. F1 grew revenue across all primary sources: promotion, media rights, and advertising and sponsorship. In addition, our Paddock Club hospitality product performed especially well in 2022, its first full season of operations since the onset of the pandemic. We welcomed 50,000 guests over the season with sellouts at 12 out of 19 events. In 2023, we are focused on optimizing the value of our Paddock Club by expanding the premium services we offer, continuing to enhance the guest experience, and adjusting pricing. Turning to recent updates on our commercial agreements. On race promotion, we extended our race in Zandvoort from 2024 to 2025, and the '23 Dutch Grand Prix is already sold out. The promoter has focused on sustainability in travel, with 99% of general admission ticket holders in 2022 arriving by public transportation, bike, or on foot. We signed a number of large broadcast agreements throughout 2022, including renewing our partnership with Sky in major European markets and with ESPN in the U.S. More recently, we entered into a multi-year media rights agreement with BeIN Sport to exclusively broadcast F1 in 10 territories across Asia. Our FOX Sports agreement in Mexico was extended through 2025. We also renewed our partnership with Play Sport in Belgium for 2023 and 2024, and our agreement with DAZN in Japan through 2025. F1 TV continues to grow in popularity among new and legacy fans. The product is now available in 120 countries. On sponsorship, just last week, we announced the addition of Qatar Airways as a global airline partner under a multiyear agreement. They will also be the title sponsor at three races. Looking forward, there are a number of areas we continue to explore for additional sponsorship opportunities, including travel, financial services, food and beverage, telecommunications, and more. Our team is continuously building fan engagement opportunities to capitalize on our momentum. The fifth season of Drive to Survive aired on February 24. The 2023 F1 Esports qualifying round is being held through May 25, and we hope to build on the strong engagement from last year when 1.3 million players attempted to qualify. The new licensing program, F1RK, launched its first location in London in December, hosting over 600 F1 guests and celebrities at the official launch party, who experienced the excitement of F1 with 60 full-motion racing simulators. The second venue will open in Birmingham, U.K. in the fourth quarter of 2023, with additional locations planned to follow. A new F1 exhibition will also launch in Madrid later this month and remain there before moving to Milan in time for the Italian Grand Prix. This is a 90-minute immersive experience guiding visitors through the past, present, and future of the sport, and it's planned to visit 25 cities around the world over the next decade. We're counting down to the start of the 2023 season. Testing in Bahrain concluded last week, and following another year of improvements to the track, we anticipate even greater competition. Ferrari and Mercedes are definitely looking to make a comeback. The 2023 race calendar will be a record-setting year for Formula One. We decided not to replace China on the calendar, as the economic benefits of an alternative race did not justify the logistical and sustainability issues for Formula One and our teams. There will be six Grand Prix events in Azerbaijan, Austria, Spa, Qatar, Austin, and Brazil. The Sprint series has successfully boosted attendance and engagement throughout the entire weekend for our promoters and broadcast partners. The 2023 schedule includes three races in the U.S., featuring a night race in Las Vegas in November. We've announced Heineken Silver as the title sponsor and T-Mobile as the exclusive wireless provider, with plans to implement an advanced 5G public network during race weekends to support our customer app and improve the fan experience. Our second wave of public ticket sales will launch soon, and in the spring, we will start resurfacing the track roads with digital plans to minimize disruptions to traffic flow in Las Vegas. We have made a long-term investment in Las Vegas, which we anticipate will benefit us for the race for many years to come. Finally, we made several announcements to advance our commitment to sustainability, diversity, and inclusion. F1 has established a global charity partnership with UNICEF to support quality education for the world's most vulnerable children, continuing our longstanding dedication to promoting STEM education globally. We are also excited about the upcoming launch of F1 Academy in 2023. This series aims to empower young female drivers to reach the highest tiers in motorsport, offering those in go-karting or junior categories the essential experience required before progressing to F3 and ultimately Formula One. The series will feature 5 teams managed by current F2 and F3 teams, with each entry fielding 3 cars for a total of 15 cars on the grid. The inaugural season will consist of 21 races, concluding with an event at the Austin Grand Prix in October. I am thrilled to announce Susie Wolff as the Managing Director of the F1 Academy. With extensive experience as a driver and team principal, she will bring significant expertise to the initiative. As we close 2022 and look forward to 2023, I believe F1 is in its strongest position ever. This year, we launched a new brand campaign showcasing F1's role in the sports and entertainment landscape, giving fans a compelling reason to engage with the 2023 season and return for more. F1 is an unmissable and extraordinary spectacle, full of adrenaline and an exhilarating mix of action, innovation, and entertainment, both on and off the track. The remarkable potential of technology will converge to determine the difference between victory and obscurity. This is not just any sport; this is Formula One, full speed ahead. And now I will turn the call back over to Greg. Thank you.

Thank you, Stefano, and thank you, Brian. To our listening audience, we appreciate your continued support of and interest in Liberty Media. And with that, operator, I'd like to open the line for questions.

Our first question comes from Vijay Jayant with Evercore.

Greg, regarding the Braves, with the spin-off nearing completion and the recapitalization along with the reattribution of Liberty Live, can you discuss the potential for a spin-off of Liberty Sirius after the reattribution? Are there any limitations to consider? When you previously undertook the Liberty entertainment spin-off, even before discussing a merger with DIRECTV, you executed a spin-off regularly. Is a similar opportunity feasible from both a structural and tax efficiency perspective? Stefano, I believe you have about 10 global sponsors. You mentioned several opportunities in different verticals. Is there a chance for more global sponsors, or have we reached our limit? Lastly, it appears that the logistic costs being borne by the teams have increased. I'm trying to clarify whether some of the inflation impact is being passed onto the teams. Should we expect this trend to continue, or was it just a one-time occurrence?

Okay. I'll start, Vijay. That was a long time ago. I almost got lost in the questions, but thank you. We have many options, including a spin-off of Sirius. However, I believe there should be discussions with the SiriusXM independent Board members regarding the best structure moving forward if we decide to take action. All possibilities are being considered, and as we mentioned, we are examining them with renewed intensity. We feel we are in a much stronger position to pursue any of these after the Liberty Live reattribution and the Braves spin.

Yes. Thanks, Vijay, for the question. I'll start for the second part. This logistic cost is true; last year it was a combined factor that we had to pay for that and included the team. But I would say the first signal that we see already this year is going in the right direction regarding logistics costs to be reduced. In that respect, there is also the other element that we are trying to be even more efficient to ensure that things are done in the proper way. This is very, very important to share that. And on the other side, with regard to the partners, of course, we want to keep the exclusivity as a main value, and we don't want to put on the other side, the final number of that. It's important that we give the right value to the global partner but also to the other verticals that are coming into the equation because we never had such a strong pipeline. So it's up to us really to make sure that everyone has the right visibility and value for what is the investor-related with us.

Our next question is from Ben Swinburne with Morgan Stanley.

Two Formula 1 questions. I guess, first for Greg or Stefano, whoever wants to take it or certainly both. It's pretty clear, and I think Stefano made this point last year that the value of the teams has significantly increased, especially from where you bought the business years ago. But I don't know if I have a clear idea of sort of how that benefits F1, the company, and ultimately, shareholders. I think it does, but I'd love to get your perspective. And in particular, given the award of asking the first Concorde Agreement question for 2026, does this allow or enable or support your ability to continue on this path of operating leverage into the new agreement because of the amount of value creation at the team level? So that's, I guess, the more interesting question. And then I'm going to try, I know Brian, you guys don't like to give guidance, but I just wanted to take another stab at the G&A commentary because we're getting a lot of questions on that this morning, $80 million OpCo in Q4. Is there a way for us to think about how sort of recurring that level of G&A is as you move into 2023? I know you mentioned marketing. And I guess when you guys talk about a top 5 economic race for Vegas, are you including these incremental G&A costs that are happening outside of the quarter? That's it.

So Stefano, I'm happy to go first or let you take the lead. One thing we've been working on, with Liberty's support, is building a mentality similar to what the NFL exemplifies, where all teams benefit when the league as a whole thrives. While teams fiercely compete on race day, we also need to focus on the growth of the entire ecosystem on the following days. It's essential for us to have healthy teams for a healthy league, and it's important for all teams, including those at the back of the grid, to have the opportunity to generate revenue. They've experienced significant increases in their value, and while our value has also improved, we're committed to the long-term perspective. This doesn't mean we won't have disagreements regarding revenue shares, but our goal is to create a mindset where mutual benefits are realized. Looking ahead to the next Concorde Agreement, we'll approach it collaboratively, emphasizing our commitment to increasing overall value and the importance of seeing significant growth in team values.

No, I totally agree, Greg. If I may add just two considerations. Something financially means also the strength of the entire system to invest with also the strategy to engage more with fans and partners that will have a direct effect on the growth and strength of the business itself. We don't have to forget that not many years ago, the teams were suffering, and we, as F1, were there to support them financially. This is something that we don't have to forget. That's why we really believe that the more value we give to the team, the more value will go back to the system and to the entire business.

And Ben, on the SG&A piece, I'll talk about it from the full year basis first. But you've seen an increase, obviously related to the Las Vegas Grand Prix that's $19 million. That was elevated in the fourth quarter because we had our launch event and marketing activities around initial ticket sales. We also talked about the LTIP moving from stock compensation expense to a more like a personnel expense; that's in there now. You won't see that increase; so it's in the base. And then there's other one-time items in there. There's higher legal and professional fees associated with a couple of different matters including an ERP implementation and a few other one-time items that are affecting SG&A. So on your question about whether SG&A is included in our statement on the top 5 race, it most definitely is.

Next question is from Barton Crockett with Rosenblatt Securities.

I want to shift the discussion to sports teams and ask for your insights, Greg, on the vigorous activity we're currently witnessing in the acquisition of sports teams at high prices. I'm referring to discussions around teams like Manchester United, Milwaukee Bucks, Phoenix Suns, Washington Commanders, and certainly the Denver Broncos. There appears to be a number of valuations coming in significantly higher than what these teams were previously assessed at, according to sources like Forbes or Sporteco. I'm curious if you have any thoughts on this trend and whether you believe it could extend to baseball. Additionally, do you think this trend could be affected by the ongoing issues surrounding local TV rights and the associated risks to a crucial revenue stream?

A couple of thoughts. I mean, I don't have any unique thoughts on the value of sports teams. You've seen a lot of commentary about these being trophy assets. There's a limited number. They've been a good source of value that increasing global popularity only means that they have more interest globally and more potential investor interest globally. I think those are all true; isolating which of those factors is hard for me to say. I think that's certainly going to be true of the Atlanta Braves, true of them as a trade value, being the longest continuously operating franchise in the United States. A story and history of winning a storied history of economic success; hard to think of a more perfect franchise in many ways. Obviously, there are changes coming to the ecosystem. I feel pretty good about those changes for a bunch of reasons. I do think you will see net revenue declines across all of baseball with the decline of the RSNs. I think that's in the short term, at least, that's almost inevitable as some of these contracts end. And there may be operations that prevent that, but it seems more likely than not. But about our relative position, I feel very good. Having the largest cable household or a broadband household territory having a very large dedicated fan base, having a relatively modest RSN fee given the scale of that territory; all anecdotal evidence suggests that we have the most profitable RSN for the RSN owner and distributors. So there's plenty of confidence that there are reasons why they would want to stay engaged. And there are a lot of other broadcast outlets that would want to be involved with the Braves given the strength of all the factors I initially mentioned. So the disruption is certainly there, the potential, but I feel very good about how we're positioned. And frankly, the financial health of the Braves gives me more confidence in that too.

Our next question is from Stephen Laszczyk with Goldman Sachs.

Maybe for Greg on F1. I think you said that roughly one-third of the fans started following F1 over the last few years, and that certainly makes sense with looking at the attendance increases. But maybe looking ahead, could you talk a little bit more about your confidence in converting the fans that have come into this sport, maybe because of Drive to Survive or social media over the last few years into lifelong fans in the sport? And maybe more broadly, what do you see as the next most important levers to driving fan growth from here?

Well, I'll comment, but I also want Stefano to add. Look, we are very focused on sustaining the growth and interest in F1 in many ways. That's with new innovations on the track, ensuring more competitive racing with new innovations around the weekend like the sprint races. Lots of ways to grow fan interest on the track. Lots of ways to grow fan interest in some of the things we do off the track and exposing the drivers. Drive to Survive was obviously a key part but not the only one. I think we're helping, and the teams are helping create what will be a very exciting movie next year with Brad Pitt and the directors and producers of Top Gun: Maverick, all of which we think will be another way to sustain growth. The Las Vegas race is going to be a massive attention-grabber for our sport. It'll open up our sport to many people who previously were not aware of it. While there are 16 and 17 year-olds who are crazed and get up every Sunday morning to watch, there are many people who really do not follow Formula One. It will be hard to miss Formula One after Las Vegas. It will be loud, and we will attract a lot of attention. So we're not only thinking about current aspects, but we're also considering the long term to sustain that interest and convert it into long-term fans. I think we have a lot on our plate and many more initiatives in front of us to do that.

Yes. I would say that Greg covered the main sporting pillar for sure. We talked about raising on the sporting side, on the technical side, and on the financial side; these are elements of which we really focus on because we've shown in the short term that we've found ideas to improve the respect of the race itself. But we have to add another dimension related to the fact that we are an entertainment platform that is growing. We are working on new forms of fan engagement with different social content and a new way of connecting with media. But we also don't have to forget one thing that's becoming increasingly relevant. The way that we are doing our sport in a context where we are talking about very important values, like diversity in our projects, our social responsibility, and our ideas to sustain the sustainability side of it. I think all these new elements of discussion are attracting new individuals and new fans to Formula One. We also have the opportunity to communicate these efforts with a different voice, and the tone of that voice will vary depending on who we're engaging with. We are a platform of connectivity. So broader connectivity means that all the elements that can attract interest must be discussed and acted upon as we strive to prove ourselves very seriously.

And then just one more quick one. Brian mentioned that prepayments came down as a percentage of pre-team share adjusted EBITDA or OIBDA in 2023. We know those are variable. I was wondering if you would be willing to speak to at what point we started to see some of that operating leverage come through in 2022? And maybe what investors could expect to see on this front in 2023?

Yes. So as you rightly point out, team payments were a source of margin expansion in 2022. That was offset by the freight compression we've discussed. Higher hospitality costs, although we still have very attractive margins in the Paddock Club. But as we've talked about before, with the 2021 Concorde Agreement, as our profitability grows, we have increased leverage on those team payment counts. And as we pointed out before, there are some one-time items in SG&A. So we would expect some of this to continue into the next year.

Our next question is from Peter Supino with Wolfe Research.

Pleasure to be on Liberty call. A question on F1 operating expenses, in particular, I wondered if you would discuss puts and takes for OpEx as we move beyond 2023, given that 2023 OpEx includes some one-time costs for the O&O event in Vegas. And then the second question is on your global popularity. It's obviously on the rise, and we all agree that the U.S. is going to see a wonderful benefit from Vegas. And as that happens, I wonder as you look at other professional sports leagues in the way they leverage their brands, what best practices outside of the core events are you looking at that you think you might be able to replicate at F1?

I will address the operating expenses first. As we mentioned, freight margins have been a significant factor impacting our other revenue costs, and we managed to absorb those in 2022. It's unlikely that this trend will persist as we move forward, and we anticipate seeing some leverage in this area. Hospitality costs, as we noted, have good margins, and Las Vegas will be a contributing factor. While we haven't disclosed the operating expense figure, we've provided the revenue number and overall profitability, but you can expect an increase in operating expenses related to Las Vegas, which is expected. We do foresee leverage as we progress.

Yes, can you hear me, Peter?

Yes, thanks, Stefano.

Okay. Sorry. I was losing the line. No, I think that the global popularity, as you said, is growing, and this is a fact. What we are bringing home is that all the other sports leagues are really interested in understanding how our growth was so fast and dramatic. But of course, we are quite humble in that approach because we want to learn from everyone around the world, what we can capture in order to increase our growth. I think it is key to engage with our drivers and fans. They are the authentic voices of our business. We feel that sharing that responsibility of fan engagement is giving us incredible traction because then that attractive approach will turn into business. If you think about gaming, if you think about the fans wanting to attend races, people are following us on social media. So I think this is really one of the key elements that is quite unique, and I believe we will work even harder to make sure that this voice is even stronger.

Next question.

Our last question is from Jason Bazinet with Citi.

I have a quick question about Formula One. If Vegas turns out to be as successful as you expect, can you discuss the factors or challenges that might influence your plans to expand into other cities?

I'll take a cut, and I'll let Stefano add. Vegas is unique for many reasons. One, the economic opportunity is large. We're operating in a country that Liberty is reasonably familiar with. It's pretty close to us. The ability to negotiate and execute something on a street circuit rather than an owned circuit, made it easier in many ways, as there wasn't a promoter; that was a role good for us to fill in and good for us to test some of the theories we had about promotion. So it is a unique opportunity and a great test lab. Could there be other cities? I think there are many countries where it's obvious we would be less effective as a promoter than the U.S. There may be some where we could operate effectively or perhaps have some form of co-promotion, and that could be interesting. But I do not think we will find another city quite like Vegas in terms of the kind of place where we would go all out and do what we've done and what we are doing here in 2023.

Yes, I couldn't agree more. I think that is absolutely, totally right. And we don't have to forget that in such a short time, we moved in a new dimension that has been to promote in a way that no one was thinking possible before. So the first step for us is to ensure that Vegas is right at the first attempt. This is total focus on that. And then, of course, I am sure this will give an incredible push for all the promoters to see what can really be done better. Already by doing that, it will create an incredible push for everyone to strive for better qualitative results for everyone involved. We have huge demand around the world to host Grand Prix, not only in the U.S. but also in Paris. So this could be an experience that can be used to better organize Grand Prix in the future. But for now, let's make sure that we are focused on making Vegas special.

So operator, I think we are done. To our listening audience, thank you for your interest and for your support of Liberty Media. We hope to speak with you next quarter, if not sooner. And I think operator, we can end the line there.

Thank you. This concludes today's conference. We thank you for your time. You may now disconnect your lines.