Formula One (FWONA) and its impact on stock prices
By Jenny McCall
Sunday’s race in Abu Dhabi had everyone gripped. Not only was it the deciding race on who would become world champion but the nail-biting end has divided sportspeople and fans around the world. British champion Lewis Hamilton was dethroned by his Dutch opponent Max Verstappen.
Formula One (FWONA) is watched by millions and is the equivalent - some would say - to The National Association for Stock Car Auto Racing, LLC (NASCAR) in the US. In 2020, according to Statista, Formula One was watched by over 400 million people. Formula One Group has a market cap of $13.80bn.
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The Formula One Group, which was founded by Bernie Ecclestone in 1950, is a group of companies responsible for the promotion of the FIA Formula One World Championship, and the exercising of the sport's commercial rights. It consists of its subsidiary Formula One and other investments, such as Liberty Media Acquisition Corporation and an intergroup interest in the Braves Group.
The Series A and Series C Liberty Formula One common stock trade on the Nasdaq Global Select Market under the stock symbols FWONA and FWONK, respectively. The Series B Liberty Formula One common stock is quoted on the OTC Markets under the symbol FWONB.
It wasn’t just the tense moments of anticipation that had people gripped. As you watch Formula One you are shown a plethora of sponsors and brands. Every inch of the main team cars and uniforms are littered with well-known names, from Swiss watch maker Tag Heuer right up to more well-known names such as Royal Dutch Shell, Marriott and more.
These brands are placed in powerful positions of visibility, and they pay a high price for this placement. We understand the importance of advertising in sport and other high-profile events. But do we know the impact these sporting events have on the brands and the stocks they trade under?
In 2011 Professor Klaus Schredelseker and Fedja Fidahic from the University of Innsbruck, published a paper linking Formula One races and stock market movements. The results were very interesting.
The study found that on average a win by McLaren Mercedes yielded an abnormal return of 70 basis points (BP) for the Daimler Chrysler stock in the seasons 2005 and 2007. A loss caused the share price to only increase by 9 BP. Daimler Chrysler and McLaren Mercedes are no longer merged together but the race had a huge impact on its stock price at the time.
The results however were different for Renault. In 2005 and 2006, both years in which Renault has won the drivers’ championship as well as the constructors’ championship, in the case of a win the Renault share price dropped for 24 BP, whereas in the case of a loss it increased for 88 BP.
So, based on the above study we can say that the races impact stock prices.
Let’s look at the three main sponsors based on market cap for each of the top three teams from Sunday’s race. For the purposes of this, we will look at the last race, which of course took place in Abu Dhabi on 10th-12th December.
Max Verstappen was first with Red Bull and their main sponsor by market cap is ExxonMobil (XOM). In second position came in Lewis Hamilton whose team is Mercedes and the main sponsor for them, again by market cap, is Marriot Bonvoy, under the Marriott International (MAR) brand. The third and final position was filled by Carlos Saniz who raced for Ferrari, with Royal Dutch Shell (RDSB) the main sponsor by market cap.
1st Poll Position
- Team: RedBull
- Rider: Max Verstappen.
- Main sponsor: ExxonMobil (XOM)
- Market Cap for ExxonMobil: $262bn
- Share price before the race: The stock price closed at $63.01 on 10th December
- Share price after the race: The stock price closed lower at 61.03 on 13th December
2nd Poll Position
- Team: Mercedes
- Rider: Lewis Hamilton
- Main sponsor: Marriott Bonvoy (Marriott International) (MAR)
- Market Cap for Marriott International: $50bn
- Share price before the race: $160 close on 10th December
- Share price after the race: $153 close on 13th December
3rd Poll Position
- Team: Ferrari
- Rider: Carlos Sainz
- Main sponsor: Royal Dutch Shell (RDSB)
- Market Cap for Shell: $165bn
- Share price before the race: closed at £16.55 on 10th December
- Share price after the race: closed at £16.14 on 13th December
- On the lead up to the race the company’s share price was reaching daily highs of $17
Of course, there may be various reasons for the decline in share price of all three main sponsors after the race but based on the study by Schredelseker and Fidahic and analysts’ thoughts, some still believe that the impact of the race is a contributing factor on the company’s stock price.
“The outcome of the Formula One Grand Prix certainly affects the indicative market prices of key sponsors as the leading teams qualifying for the notable races also have an indirect responsibility of driving up the brand value,” Sawhney added.
As far as the market prices are concerned, the shares remain highly susceptible to many external, as well as internal factors. The team’s performance in some of the most viewed and widely recognised Gran Prix helps the associations get as many co-sponsors as possible, effectively increasing the brand value of the respective teams.