Video game developer Codemasters (CDM) yesterday agreed to extend its contract with Formula One Management (FOM) for the exclusive rights to the FIA Formula One World Championship (F1) franchise from 2021 to 2025, with potential for a further two-year option.

The shares raced 4% higher on the news, as it removed a major risk hanging over the prospect of losing the F1 contract. Codemasters has held the exclusive rights to develop the official F1 franchise since 2008 and since the release of its first game in 2009 has won multiple awards.

THUMBS-UP FROM PLAYERS

The 2019 installment has achieved critical acclaim by scoring a Metacritic average rating of 87 and an OpenCritic rating of 95. The game has been installed on over 12 million devices and went to number one in the racing category in over 150 countries.

Chief executive Frank Sagnier said, ‘the growing number of addressable platforms combined with increased marketing support from FOM and the continued shift to more profitable digital sales and services give us full confidence we can not only continue to thrive as the no.1 sports racing game but also as one of the top global sport gaming franchises.’

PAYING MORE FOR EXTRA REACH

Under the new agreement the company will pay a higher minimum guarantee for the F1 2020 season, which will increase each year of the term of the agreement. In return Codemasters will receive advertising and marketing support across the F1 channels including track-side advertisement at Grand Prix.

Analysts at Jefferies believe that higher revenues and marketing aid will offset the higher fee and therefore not impact margins. In addition the increasing penetration of digital sales (62% of sales in the first half compared with 53% last year) will deliver higher average selling prices and gross margin improvements.

The broker also believes that the success of the company’s own game development titles, DiRT and GRID will result in them becoming a larger part of the portfolio and therefore reduce the company’s historical dependence on the F1 franchise. Therefore they see yesterday’s announcement as a significant ‘de-risking’ of the business.

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Issue Date: 01 Nov 2019