Liberty Media Corp

NASDAQ:FWONA

Earnings Call Transcript 2018-Q2

[Operator]

Good day, ladies and gentlemen. And thank you for standing by. Welcome to the Liberty Media Corporation’s 2018 Second Quarter Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded today, August 8.

I would now like to turn the conference over to Courtnee Chun, Senior Vice President of Investor Relations. Please go ahead.

[Courtnee Chun, Senior Vice President, Investor Relations]

Thank you. 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, including statements about business strategies, market potential, new service and product launches, discussions involving IR communications, plans for the Battery Atlanta, matters relating to Formula One including digital initiatives, new races, new cost structures, potential governance changes, sponsorship opportunities and distribution renewals and other matters that are not historical facts.

These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including without limitation, possible changes in market acceptance of new products or services, the ability of our businesses to attract and retain customers, competitive issues, regulatory issues, and the availability of capital on terms acceptable to Liberty Media.

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, including adjusted OIBDA of Liberty Media and adjusted EBITDA of SiriusXM. The required definitions and reconciliations, Schedules 1, 2, 3 can be found at the end of the earnings press release issued today, which is available on our website. This call also may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding Liberty TripAdvisor Holdings. These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These forward-looking statements speak only as of the date of this call and Liberty TripAdvisor Holdings 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 TripAdvisor Holdings' expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Now, I would like to turn the call over to Greg Maffei, Liberty's President and CEO.

[Greg Maffei, President and Chief Executive Officer]

Thank you, Courtnee. Good morning or good afternoon to those on the East Coast today. Speaking on the call is myself with Liberty’s CFO, Mark Carleton; and Formula One's Chairman and CEO, Chase Carey. During the Q&A we will also be available to answer questions related to Liberty TripAdvisor.

So starting with Liberty SiriusXM. We did continue our repurchases of the stock and bought an additional 161 million for a total purchase of $261 million through July 31st. We effectively bought the SiriusXM shares at a $4.69 look-through price over the period to year-to-date. Regarding iHeartCommunications, so you may know that we pulled our initial offer after reviewing the results from a projected balance sheet, which were below expectations and negatively impacted our estimated value. We do continue to own $660 million in aggregate principal amount of iHeart bonds.

Looking at SiriusXM itself, it had outstanding second quarter results. Revenue was up 6% to $1.4 billion. I think there’s lots of good news in the quarter, two standouts; self-pay net adds of 483,000; and churn down to 1.6%. Liberty Media ownership as of July 23rd stood at 70.5%.

Turning to Formula One Group, Great 2018 season with more exciting outcomes, varied podium-finishers, increased overtaking, more drama and still the same glamour. In sponsorship, we signed a new technology provider and global sponsor in Amazon Web Services, renewed key global sponsorships and multiyear agreements. We also extended the Belgian Grand Prix at Spa.

I would take a word of caution as some of our more perspicacious analysts have noted, quality results will vary due to rev rec, timing of races, number of races and the nature of the business. We remain very positive about the long-term direction and that we're headed in the right path.

Live Nation had another fantastic quarter; revenue was up 7% for the quarter. All divisions continued to deliver double-digit operating income and AOI growth, particularly strong year for entertainers on OIBDA track to grow by 3 million fans for the full year.

Turning to Braves, in second place I mean at least after an exciting victory last night. In our second year at SunTrust Park ticket sales have increased over 2% versus our inaugural season which is really unusual, including 13 [shows-offs] and new record attendance for Suntrust Park. There are several exciting developments at related real estate development at Battery.

thyssenkrupp, a multinational powerhouse with over 41 billion in revenue will build its elevator businesses North American headquarters and Innovation Center complex at the Battery. This would bring 900 jobs to three facilities on a nearly 5 acre site. We are progressing with the sale of our residential development and have identified the potential buyer will provide more details once that transaction closes but we forecast and expect the IRR on that transaction of 22%.

Based on current sales, we are projecting that Battery will have three of the top 10 grossing restaurants in the Atlanta area by year end. We also announced the planned development of an Aloft Hotel this morning. Final announcement -- we complete -- that final announcement completes our development plans at the Battery.

Over Liberty TripAdvisor I am looking at the underlying results for Trip. Trip had a fantastic quarter. The third straight quarter of hotel adjusted EBITDA improvement even with significant marketing reductions. In my view the initial market reaction on these quarterly results was just wrong; seems the stock has been coming around but I still think they’re missing the larger story. Trip is executing very well. It’s optimizing its SEM marketing mix and hotels. It has improved its product offering. It is growing. It’s advertising its sponsors listing which is a highly profitable incremental business and it’s increasing its [bulk-able] supply for non-hotel offerings and is a leader in that space. Consolidated revenue was up 2%, adjusted EBITDA was up 8% and net income was up 19%. Mobile accounted for nearly 50% of hotel shoppers and mobile revenue for hotel shoppers again grew double-digits and reaching the all time high.

With these solid results, we now expect to deliver year-over-year consolidated adjusted OIBDA growth in both operating segments in 2018. Notably user reviews and opinions also grew significantly up 24% year-over-year and it reached a staggering 661 million as of June 30th. Fun fact of the day to amuse your friends, the single most reviewed item with over 138,000 reviews, this just brought up 1 million. You should check out my review, it’s number 114,782.

With that, I’ll turn it over to Mark for some financial results.

[Mark Carleton, Chief Financial Officer]

Thank you, Greg, and for your review as well. At quarter end Liberty SiriusXM Group had attributed cash and liquid investments of $110 million, excluding $64 million of cash held at SiriusXM. The value of the SiriusXM common stock held at Liberty SiriusXM, as of August 7, was $22 billion and we’ve $850 million in debt against these holdings. We’ve paid down $300 million in margin loans during the quarter.

Formula One Group had attributed cash and liquid investments of $109 million excluding $89 million of cash at Formula One -- at F1. Formula One Group has attributed public market securities with a market value of approximately $4 billion as of August 7, including the inter-group interest in the Braves Group and our stake in Live Nation. We have $2.1 billion of attributed debt excluding the debt at F1. Debt decreased $354 million during the quarter as we paid an extraordinary additional distribution of $229 million on the exchangeable bonds due to AT&T’s purchase of Time Warner and Formula One repaid a $125 million of their operating debt. Braves Group had attributed cash and liquid investments of $113 million.

At quarter end, Liberty SiriusXM Group had an attributed principal amount of debt of $7.4 billion which includes $6.5 billion of debt at SiriusXM. Formula One Group had an attributed principal amount of debt of $5 billion which includes $3 billion of debt at F1 and Braves Group had an attributed principal amount of debt of $629 million.

F1's total net debt-to-covenant OIBDA ratio was defined in their credit facilities was approximately 7.3 times, as of June 30 as compared to a maximum allowable leverage ratio of 8.75 times. We've communicated a target total net leverage ratio for Formula One of 5 to 6 times bank covenant OIBDA and please note that these leverage ratios are for the Formula One business specifically and not the Formula One Group overall.

And with that, I'll turn it over to Chase Carey to talk about Formula One.

[Chase Carey, Chairman and CEO, Formula One]

Thanks, Mark. We're just past the halfway point of our 2018 season as we head into summer. [Technical Difficulty].

Hopefully we're back. I guess I was saying, we're heading into our summer break a little over halfway into the season with our last race the Hungarian Grand Prix being the 12th race in our 21 race season. It's been a successful season on the track, as Greg said, with competition at the top, among both drivers and teams, as well as a number of exciting dramatic races. We're also encouraged by the momentum in fan engagement as we begin to turn around the declining trends in the sport during the last five to six years. 44% of our average fans are more interested in the 2018 season than they were in 2017 versus only 7% a year ago. 66% of fans believe F1 has improved versus two years ago, or just 15% say it's worse and 67% of fans say F1 is in good hands with Liberty while 10% disagree.

Live attendance in aggregate is up 4% year-on-year at the 10 tracks where we weren't raced last year and attendance at the two tracks we did not have in 2017 which are France and Germany, was well in excess of expectations. In Germany, the promoter even had to build new grandstands to meet demand.

As importantly, fan reaction to our enhancements like fan zones, merchandising, track tours, Hot Laps, Paddock and Paddock Club changes and more, has been great. We're also encouraged by our momentum in television viewing. Race day viewership year-on-year is down 4%. However, that is largely due to our move from free to pay television in Italy. Excluding Italy our television viewership is up 3% year-on-year and our Saturday viewership for qualifying is up even more.

We are especially pleased with our performance in our two key growth markets, the US and China where viewing figures are showing particularly strong uplifts. Fans reacted positively to our enhancements in cameras, sounds, graphics, and other elements in our broadcast and we have more to come. 69% of our fans say F1 TV coverage has improved while just 13% say it's worse.

And our digital engagement continues to be an area of dynamic growth. Year-to-date, our interactions during race week are up 60% and our video views are up 110%. And we're still in the early stages of upgrading and expanding our digital platforms.

We continue to move forward with an array of initiatives on the motor sports side of our business to improve competition, action and unpredictability. We're introducing recent regulation changes for next season and we'll introduce a larger list of sporting regulation changes in the coming weeks to further improve the sport.

Most importantly, we continue to move forward with the broader set of changes, the cost structures, revenue distribution, regulations, and governance, the so called Concorde Agreement. We made good progress with the teams and agree on the goals and objectives and now need to work through the details to find the right compromises as we finalize these agreements in the coming months for the 2021 season.

On the commercial side of our business, we will finalize our 2019 calendar which we expect to look a lot like our 2018 calendar in the next few weeks, as we successfully finish off renewal agreements. We're already turning our energies to the 2020 calendar and we are particularly excited about a number of opportunities to add new events to the 2020 calendar that we believe would really capture fans imagination and be widely supported. In fact, we are actively discussing opportunities on forward confidence.

Our potential race in Miami is one of those. We initially targeted the Miami race for late 2019, which we knew was tight particularly for a three race where we have to navigate many local issues. It is much more important to make the race great and to push it a year earlier so we decided a prudent choice to focus on 2020. The support and enthusiasm in Miami is great and we look forward to the special event there.

On the television side of our business, we’re also successfully completing our renewals for next years -- next year in a number of midsize yet important territories at rates that meet or exceed our targets. These agreements include both free and paid platforms and we're now also addressing digital opportunities with a number of our traditional broadcast partners. For example, opportunities for television partners to distribute our over-the-top package.

It is still early days for our OTT product, which we launched on web platforms in May and intent to launch on mobile and other devices in the coming months. Our goal for this season is to improve the technology and content of the platform to enable the full commercial launch next season. We will continue to improve the OTT product over the next few seasons with expanded videos, data archival and other content. While it is still early, we’re encouraged by initial anecdotal fan reaction and excited about the future about this important part of our long-term strategy.

The third major pillar in our commercial area is sponsorships and with our new place and new team in place almost a year we're building great momentum here. Challenge one was to renew and expand relationships with existing sponsors and we've done that successfully.

However the key to success is to bring in new sponsors in the many untapped categories for us and to create a wider, deeper relationship with them. Sponsors today are looking for more bespoke plans and want to achieve a real connection with our fans and sport, not just the billboard. They are creating the capability to offer this tailored relationship with expanded capabilities like fan festival, e-sports, digital offerings, regionalized capabilities and unique integrations with the sport.

We're excited about the interest from potential sponsors based in new categories and for new regions around the world. Potential sponsors are excited by our story and our way of taking the sport. Our recent agreement with Amazon Web Services was an important deal in tech space through which we will build further tech relationships. The AWS agreement is an example of our ability to establish a relationship with Amazon as well as a marketing partner, and as a partner bringing us world-class services in the critical digital space. AWS provides us significant revenues and first class services for our growth.

Overall, no group in F1 is busier than our sponsorship group and we believe they are on track to achieve our 2020 goals.

There is a long list of other active initiatives to expand and grow the Formula One franchise from fantasy gaming to twitter live shows, hospitality to our recently announce MIT business conferences.

2017 and 2018 have largely been investment years where we’re building the foundation for the future by improving the sport and the track and for the teams in the sport reengaging fans at both live events and on traditional and digital platforms, building an organization that can tell our story and deliver the right opportunities to commercial partners across the board and to develop the geographic and brand extensions for Formula One. We believe we’re on track to do so.

And I’ll turn the call back to Greg.

[Greg Maffei, President and Chief Executive Officer]

With that, let me thank Chase and Mark and remind you all that we’ve -- again some of you may already know we’re holding our Annual Investor Meeting on November 14th in New York. As we get closer to that day, please refer to our website for additional information. As always, we appreciate your continued interest in Liberty Media.

And with that, operator, I’d like to open the line for calls.

[Operator]

Thank you. [Operator Instructions]. And we’ll go first to Jeff Wlodarczak with Pivotal Research Group.

[Jeff Wlodarczak, Pivotal Research Group]

I had two on F1. On your second quarter F1 results your relatively high fee Russian race last year was in April and this year was pushed in the September. So you effectively replaced that race for comp purposes in the second quarter with the French race, which I assume is a far lower fee. How much of your 2Q revenue meet their results, was simply that specific sort of timing comp issue? And I assume that’s going to reverse in the third quarter and then I had a follow-up.

[Greg Maffei, President and Chief Executive Officer]

Yes, I guess -- and we don’t get at the specific race fees but in general flyway races are higher than European races and I’d say the biggest variant in the quarter is the race calendar. I guess the other factor in the quarter is because we amortized across last year about eight races in both years through June and the last year date of 20 and this year’s date of 21. So I think calendar factor is the primary issue.

[Jeff Wlodarczak, Pivotal Research Group]

And then Chase, if you could talk about your level of optimism about getting a new Concorde Agreement at least as it relates to getting a deal for the engine in place relatively soon?

[Chase Carey, Chairman and CEO, Formula One]

Actually I feel good about the discussions, I mean that will go in the details and we had details to work through but I think there people agree with the goals, people agree with the direction and I think that the overall points of what we’re trying to achieve in addition to the sport. So we just need to -- I think we -- I know we did jobs, but we need to find the right compromises as you get into the details, not always going to get everything they want but I think everybody recognizes that. So I -- you’re not done till you’re done but I feel good about the discussions and good about where we’re going and good about the engagement with the teams.

[Greg Maffei, President and Chief Executive Officer]

If I can add something on I think Chase and the team, Sean and Ross have a done a great job of turning the dynamic at Formula One which was usually fairly short-term and often fairly worth enough for me in the short-term into a more general recognition to build the health of the sport to the benefit of all and I think that is going to play through on the Concorde Agreement where the spirit of compromise is likely to occur and be to the benefit of all in the sport and first of all and foremost of fans, so.

[Operator]

We’ll go next to Vijay Jayant with Evercore ISI.

[James Ratcliffe, Evercore ISI]

Hi it’s James Ratcliffe for Vijay. Two if I could one on Liberty Sirius and one on Formula One. On Liberty Sirius, what’s the thinking around the future of that iHeart debt position given that seems like the deal is not stable at this point and how does it effect liquidity for potential buybacks going forward? And secondly on F1, Chase, if you can just give us any more color about the OTT launch, what you learned, what's gone well, what hasn’t, good response or any color on sub trends that would be helpful? Thank you.

[Greg Maffei, President and Chief Executive Officer]

So, on iHeart first, we remain watchful, I think they're going through their process and while results there have been so much disappointing, we do see potential for interesting partnerships or more. And we certainly recognize that we have a interesting position which I don't expect to grow right now and it’s self-sustaining, we're actually in the money against our cost and I don't think it will impact our ability to repurchase shares. We previously announced as you know and did that exchangeable against the series stock to raise capital and we're still spending that $400 million authorized. So, I think it's a standalone, self-sustained element. It has a strategic potential, but it's one that we're going to be judicious about own and execute it, we can come up with a right transaction.

[Chase Carey, Chairman and CEO, Formula One]

And I guess on the OTT, I think our focus really -- I’m not sure we've learned I mean what’s going right and wrong, probably not unexpectedly. We've had some of the issues a lot of people do in building the tech stack to support it, and that whether that led to the product not launching initially where we targeted and some bugs we have to work out of it.

I think probably we certainly expected and recognized, that's a part of the reality and this year is much more about getting the product to where we want to, both from a content and tech. Now the content will be -- now -- I mean the content is probably an 18 month build so we'll add content features this off-season and probably add content features next off-season. But I think it's really at this point about getting the platform right from a technology and content perspective and then really commercially launching it. Maybe once you're -- when you're launching it mid season, it really takes away a lot of the abilities to market and push it in the right way.

So I think our sort of in phase is -- this year's priority is get the product to where we want it to at this point in time to really give it a proper commercial launch next season. I think in the positive I think the -- and I’d call it probably more anecdotal at this point, because our focus is really more on getting the platform right, is -- there’s very positive fan reaction and some of the specifics, the demographics behind it are great in terms of age, spreading interest from various regions, we’re not obviously in all countries but I think we're encouraged by the interest. We're encouraged by the enthusiasm for the product, the use of the product, those using the product -- or the time they're spending on and just the time we've had it in the market and only running in Barcelona. It's up multiple. So the usage of it, the demographics, the ability to tap into the young markets, I think all are encouraging to us, particularly since we're still in the process of -- yet we probably work through most of the significant technological -- the [bugs] but not all. And we still have some content components to add to it. But I think we feel good about where we're going and this is a product -- and for us the right thing was to -- again make sure we do it in a logical way and more important to get it right than to do it fast. And so, I think for us this year is about getting the product to the place we want it to be at this stage of its life, and then give it a proper commercial launch into next season.

[Operator]

We'll go next to Amy Yong with Macquarie.

[Amy Yong, Macquarie]

I guess one for Liberty SiriusXM and also one for F1. On Liberty SiriusXM, Greg, now that that iHeart transaction has taken a pause, can you talk about how you plan to close the all SXM spread and maybe the optimum use of leverage for Sirius XM? And then Chase on F1, I know you prefer shorter term broadcast agreements, I think you signed ESPN, CCTV, any big negotiations coming up and then I guess with Miami and Vietnam getting pushed out does this also pushed some of the leverage that you have out as well?

[Greg Maffei, President and Chief Executive Officer]

So Amy, we've talked about some the reasons why in the past the spread is existed. We're trying to take advantage of that to the benefit of the SiriusXM shareholders by doing share purchase at that level, using the proceeds we raised from the convertible exchange, the exchange [way], and we will continue to pursue that strategy. There’s probably some limitation how much leverage we can put at the tracking stock level. It does have the benefit of the dividends from Sirius, our shares, roughly $140 million, so it's nothing, but there’s a limit how much leverage we can put at that. So -- but we will consider that and we always have other means to surprise people and eliminate the discount as much we did unclip.

As far as the Sirius leverage, their leverage has come down a little bit because they frankly had so much cash flow and the stock has run to their greater period of times. But I think they are still targeting around the 3 to 3.5 leverage and they’re probably at the lower end of that right now.

[Chase Carey, Chairman and CEO, Formula One]

And on Formula One television agreements I mean the calendar issue is really one, I mean right now we're largely done with our renewal. We've got a contract on with our renewals which would be 2019 and so anything happened in the calendar could affect that and what would be moving to at this point and we actually feel real good I think we can actually see in the agreements so much success we're having in the sport and the momentum in the sport we’re starting to see in the agreements as we move forward and -- but we would be moving to focus on renewals or agreements that’s for 2020 season, so to the degree race is moving to 2020 season is actually matching up with anybody we would engage with. We have some report on renewals next year, probably bigger renewals in 2020. We obviously always have some in every year but we do have some important ones next year, and again, probably bigger ones the year after. I think doing them short it serves us well because I again I think the sport today is in a much better place than it was a year ago or even six months ago we went into the season and I think you can see that when we engage whether it's broadcasters or sponsors there is an excitement about what they think is directional sport.

[Operator]

Will go next to Bryan Goldberg with Bank of America Merrill Lynch.

[Bryan Goldberg, Bank of America Merrill Lynch]

I've got one on the Amazon deal and then another one on the race calendar expansion efforts. First on Amazon, just I want to clarify, on the economic impact of this relationship to F1 from a P&L standpoint, is this solely going to show up as sponsorship revenue or is there a change in cost of F1 we should be thinking about given the services that they will be providing you? And I just want to verify, this deal kicks in beginning third quarter of 2018?

[Greg Maffei, President and Chief Executive Officer]

Yes, it kicks in second half of this year and it is an [ideology] of components, sponsorship components, recognize right sponsorship and we’re getting tech services from them and services we need to build up the digital capabilities and I guess just like other costs we incur building up the digital platforms, those costs would be recognized, including net revenue positive deal to us, but the services are important and obviously the sponsorship relationship is important but each will be recognized for what it is. And in terms of -- what’s the calendar question?

[Bryan Goldberg, Bank of America Merrill Lynch]

So as you guys have been hard at work looking at new venues for the tour and also renewing with existing venues. And I was just curious, with race and terms around Miami, what that relationship might look like? And as you just sort of think about expanding the calendar in general, how would you characterize F1’s appetite for entering into risk sharing arrangements with local promoters as opposed to fixed fee agreements, what are the puts and takes as you see them from this level in the model?

[Greg Maffei, President and Chief Executive Officer]

I think every -- realistically every race is unique. And I think each one -- we look at both on the specific terms and I think people don’t realize these events frequently have a lot more moving parts than just to cater hospitality components, sponsorship components and title, and relationship components, other components around it. But you look at each on the merits and what is it, what is it -- what is the direct economic benefits and certainties and we’re not afraid of risk. If we believe -- this is upside to the risk. So we obviously can afford that and I think we value -- we like I think our promoters have skill in the game, so I think it’s important to have them, have that skill in the game to stand behind it, but if we think there’re opportunities that have upside both within the event itself as well as upside to us on a much broader level, then we’ll evaluate it on the merits. And if the returns justify the risk, I really don’t want to turn the model upside down, but if the returns justify the risks I think we look at that, I think we look at that conservatively so we want to be comfortable. And again, I think we’re not looking to transform our model, but we look at each one based on the unique characteristics of that event.

[Operator]

We’ll go next to Bryan Kraft with Deutsche Bank.

[Bryan Kraft, Deutsche Bank]

Chase, at the beginning of this year you had talked about 2018 being an investment year with ‘19 and ‘20 being growth years. Now about two-thirds of the way -- you are almost two-thirds of the way through 2018, are you on track with your plans to begin realizing the growth potential of the business in ‘19? And I realize that you are managing the business for long-term growth rather than margin. But as we get beyond say 2020, do you think that the revenue growth will lead to natural operating leverage in the business as you do grow revenue or you think it's more of a stable business margin -- stable margin business going forward with a better top-line growth?

[Chase Carey, Chairman and CEO, Formula One]

See, I mean first I actually think -- I feel we’re on plan, I think we feel actually pretty good about where we are and some of that -- I mean that’s both financial as well as in reality confidence in the sport I mean. So it's not -- you can't just -- just looking at numbers, I think it's also the confidence in quality of sport, fan engagement with the sports. So I gave some of the stats on that. But yes, I think we're actually -- I feel pretty good about where we are in terms of the goals we’ve set out and the objectives we’ve set out to achieve that.

In terms of leverage it's a -- we're fairly unique business. I'm not sure I mean, our biggest cost is up, it's the contract cost, I mean by a large margin, the team -- the payment to the teams is not -- it’s something -- obviously we will have a new agreement in 2021. But that's the contract costs so you can't manage that up or down, that's up -- that it can change in 2021, it changes per year based on what the contract says. But our operating costs below that are relatively small percentage of our overall revenue. It doesn't mean we don't pay attention to it, we obviously want to watch every dollar. But we are really up in many ways a revenue center. As we build out some capabilities, there are costs to go build that hospitality. There are costs -- I mean there's some that are just pure -- revenue goes through to the bottom-line. If we get sponsorships, get sponsoring for organization but at some place like hospitality, there's cost in providing hospitality. And over the top, there is a cost to building out the capabilities to drive those.

We've added overhead. So I think we're probably through the bulk of putting the organization in place to support it. So I think there is some -- if you look at the cost, there’s some -- we have fairly significant cost for things like production for the television broadcast, freight that we provide to move the show around the world and those things, yes, freight to move, the freight costs but they should scale as we grow revenue.

So there's some places like expanding hospitality and some costs associated with it as we build out digital platforms, there’s probably some cost associated with that revenue. There are other costs that will be -- whether it’s overhead, television productions, freight that would not move -- would not have -- this should be leverage on but in aggregate those costs realistically are still a relatively small percentage of our aggregate revenue, our biggest cost is the contract cost to the teams.

[Operator]

We'll go next to Ben Swinburne with Morgan Stanley.

[Ben Swinburne, Morgan Stanley]

Thanks. A couple of questions about your -- some of the comments in your prepared remarks. You mentioned that the 2019 calendar, you think look a lot like ‘18, so should we assume the same number of races? And then the second thing is you mentioned, you are I think optimistic you can finalize the agreements in the coming months. I just want to make sure that is it your expectation, or at least your hope that you can finalize sort of the entire Concorde Agreements and not just the engines on sort of everything before the end of the year? Just wanted to ask for some clarification those two.

[Chase Carey, Chairman and CEO, Formula One]

So we haven't announced the ‘19 calendar so I guess we’re not going to provide more color than I did on the prepared comment. We will announce certainly before the end of the month in the next few weeks, we will clearly put out a preliminary calendar needs to be approved by the FIA and go through other steps, but they’re looking out but we haven't announced it, so I probably won't go further.

In terms of what we're finalizing, now certainly we will be -- we are looking to finalize the major components, there always be components that are sort of moving, it's not like you're done. I mean particularly issues like regulations and they're living, breathing process that will continue to evolve. So you'll have a set of regulations in place, whenever you put sporting regulations or others, some change but certainly you get an engine obviously that doesn’t change that often but other regulations will clearly change. And I think with the things we’ve put in place we will probably continue to find ways hopefully to make whatever we put in place better, but when I'm talking about getting us more than just the engine regulations, it's talking about -- and more holistically -- probably not completely but more holistic -- getting the major components in place. Now I can put out a specific deadline for it. One of the challenges of bringing it to a completion is it doesn’t I mean the actual -- obviously effect to many of these things is 2021, so there isn’t a natural deadline potentially. And made easier by adding a deadline you have to get it done by, so I think we all -- I think we and the teams all recognized and know it would be good for us to lock -- to get these things stabilized so we can all plan for the future. So I think there's a shared objective to get it done but there isn’t a sort of external forcing mechanism in the short-term but I think our goal is to move this forward and try and to get it done in the coming months. That’s it.

[Ben Swinburne, Morgan Stanley]

And then just maybe a broader follow-up. And I would imagine that you guys have relatively good visibility into the top-line of this business. It's underpinned by some nice long-term contracts. I know there is moving pieces. But externally we’re dealing with the quarterly accounting which as Greg mentioned is challenging to extrapolate. When you look at the back half of the year or you look at this year, do you guys expect revenue to grow for Formula One because it's down first half? I know it’s an investment year, but any color you provide us would be helpful?

[Chase Carey, Chairman and CEO, Formula One]

I mean I guess to back to things I said I mean in a quarter, I think in particular in any year what races fall where and to some degree when you change the number of overall races and how they flow through have impacts, so I'm not going to get into project it in the second half of the year, but we feel good about where we are though realistically and I have said it before our focus is where we are going to be in 2020 not -- I mean yes we care about the short-term but at the end of day our real objective is we think we can think take this business to a another place, we think the opportunity is there to do it. So it's priority one, it’s really about getting this business to where we think it can be. It doesn’t mean we take our eyes off the ball in the short-term, but the short-term quarter-to-quarter will move even faster, we talked about earlier about it. But this year, we feel good about the momentum in it and there are issues to deal with whether it's over the top or continuing to engage with parties and tell the story and in some degree again create the right momentum in the business while it didn’t have the momentum a year ago.

[Operator]

We will go next to Jason Bazinet with Citi.

[Jason Bazinet, Citi]

May be just a question for Mr. Carey. This was before your time and I could be wrong but based on press reports when I look at those team payments it looks like they were a much smaller percentage of the overall EBITDA than it is today, something in the 40s and it went to 50s and 60s and we’re sort of in the 70s range. Is that accurate if I go back 10 years, that there has been that sort of steep rise? And then as we forward, what would you like to see and can you just remind us -- I think there was a time when you tried issue some equity to the racing teams to sort of get everyone on the same page, so incentives were aligned, but what -- the reason I ask is there’s probably the biggest risk to everybody’s model because I think everyone agrees that the top-line can inflect in ‘19, ‘20 and those other costs as you said are small, but the big cost is sort of -- is a big one and it's a big unknown. So any color you can provide in terms of what you'd like to see?

[Chase Carey, Chairman and CEO, Formula One]

Well first, your statement on the long-term trend going back is accurate. I mean I think actually if you to go back into the early 2000s -- and I’m doing, not off the top of my head so, yes, somebody have to check it, I think the percentage was 25% to 30% and today it's more in the high 60s sort of closer to that, if I’m correct closer to 70, first for ‘19 and ‘20 it’s locked-in so realistically it is what it is through ‘19 and ‘20. To the degree what the revenue distribution is both amongst the teams and between us and the teams is what is part of those longer-term discussions for 2021 but that's up the first year we did that. Since those discussions we’re having with teams, again, I'm not going to I guess -- I think those are discussions at this point we’re best having with the teams in private and then when we get to the place that we -- when we finalize that, we would be happy to discuss where we’re at and what we think the opportunity is under that revised structure. But since those are live discussions with the teams I am not going to provide comment a lot on that, I think those are best I still had in a private room between us and the teams.

[Operator]

We’ll go to our last question to John Tinker with Gabelli.

[John Tinker, Gabelli]

Just to switch gears on Atlanta Braves which had a very solid EBITDA number, the teams are generally valued on revenue. So how do you sort of look at the team when you think about how to value it?

[Greg Maffei, President and Chief Executive Officer]

Well I would say in general, we look at some of the metrics that people talk about the third-party valuations. You’re right, teams are often not valued on EBITDA, partly because many baseball teams do not make significant many money. We’re in the blessed position of actually having a profitable team, partly based on dangle around and partly based on some of the other things we’ve done around things like the Battery and we’ll see how that all plays out. I don’t think there’s an obvious answer John, which how to do it because we’re relatively rare item obviously the only publicly traded team with an unusual structure and an incremental asset in the Battery, so it’s a little hard to look at apples and oranges.

[John Tinker, Gabelli]

And could you just -- given the new developments you’ve had with thyssenkrupp and now on Aloft, so how much land has been developed and how much has left to develop?

[Greg Maffei, President and Chief Executive Officer]

We’re -- everything that we can we’ve locked and set out either -- I mean either pinned down or we’ve announced the plan. Of course there’s not an infinite supply of the stuff out there, it’s pretty valuable location.

[John Tinker, Gabelli]

And the IRR 22% that you’re targeting for the sale of the residential properties. Is that something you think crosses over the rest of the Battery development? Or is that you're sort of most successful part so far?

[Greg Maffei, President and Chief Executive Officer]

We'll see but clearly if you just look at the market residential is probably harder than something like retail for example. The nature of the deal we’ve got and the nature of that how it works will unlikely to get that kind of return on the hotel portion. But those of the two, it will be probably the lesser end in residential than the higher end but there are others I think office market is pretty good, there will be a range.

[Operator]

And that concludes today’s conference call.

[Greg Maffei, President and Chief Executive Officer]

Thank you, operator. Yes, I think we're done with today. Thanks everyone for joining us. And hopefully we will talk to you next quarter if not before.

[Chase Carey, Chairman and CEO, Formula One]

Thanks a lot, everybody

[Operator]

And that conclude today's conference call. Thank you for your participation. You may now disconnect.