Intangible Asset Valuation at Liberty Media and Formula One

A business school student was preparing for a stock pitch competition. He had developed an interest in stock held by investor Warren Buffet in Liberty Media Corp.’s Series C Liberty Formula One common shares. His research revealed that a substantial part of Formula One’s valuation was accounted for as intangible assets and comprised, in particular, what was known as the 100-year agreement with the Fédération Internationale de l’Automobile, the sport’s governing body. The student was interested in how such an agreement on paper could be worth billions of dollars and how that translated into value for investors. What factors would—and should—Liberty Media Corp. have considered when attributing a value to an asset such as the 100-year agreement that was ten times higher than its original cost? How should investors view these inflated values for intangible assets such as the 100-year agreement and Formula One’s customer relationships and what would be their impact on Liberty Media Corp.’s earnings and future stock value?