Liberty Media ‘s arrival in Formula 1 marked a major break with the past, replacing Bernie Ecclestone ‘s focus on business and profit with a broader view of the growth of the series.
Greg Maffei , the company’s CEO, made an interesting point to highlight F1’s growth over the past five years when he spoke at the Financial Times/Motorsport Network F1 Business Forum in Monaco later this month. past.
“One of the measures that is really successful is the health of the teams,” Maffei said. “When we entered 2016, we made our first investment and we closed the deal in 2017, Manor, the eleventh team, had just been sold in receivership for a pound [just over a euro].”
“Nowadays, I don’t think you can buy a team for less than €585m, maybe €820m? You can try, but I think it’s going to be difficult. It’s an incredible value increase.”
On stage, seated next to Maffei, was also F1 CEO and President Stefano Domenicali, who waved his hand upwards at the suggested figures. It may have been a joke on his part, but there was a serious message behind it: realistically, you’d have to talk about even bigger numbers if you really wanted to get a team to sell.
Last year, Zak Brown , McLaren’s managing director, predicted that in “three, four or five years,” we would see “F1 teams trading [for] more than a billion dollars [about €930 million], assuming that someone wants to sell. Because the fact that no one wants to sell is also an extra boost”.
It is a challenge that must be faced by anyone who intends to enter the F1 grid, as Andretti is proving. Its bid to acquire Sauber, which runs Alfa Romeo’s F1 operation, fell apart late last year, and efforts to now secure an 11th entry are stalling amid uncertainty over what benefits it would bring to the rest. from the grid and, apparently, to F1 itself.
However, there are a number of key factors that have helped raise the economic valuation of F1 teams, even as far back as two years ago when Dorilton Capital acquired Williams for €140m, something that now seems like a bargain.
The budget limit of Formula 1
The introduction of F1’s budget cap is something that cannot be underestimated to help not only protect the value of the teams, but push them up.
It was introduced last year with a cap of €135m and has since been lowered to €130m for 2022. The budget cap is intended to help achieve a more level playing field in F1 going forward, looking to make the most competitive series and giving more teams a chance to be part of the fight at the front.
But most of the costs involved in running an F1 team have also been capped, meaning any potential buyer knows what they would be getting into. There is no longer the same kind of volatility that there was in previous years, nor the risk of F1 teams becoming bottomless pits of money.
“We can talk about values, which can be high, but the costs are something that you will surely have,” Domenicali said. “So the only way to make sure that the margin is higher is to control what is being spent. That was a very big milestone that has completely changed the vision of the sport and given credibility to the system.”
“That a business is sustainable means that the teams can invest, they can grow the entire ecosystem, and that all the elements that are related to our world are now safe, and financially strong. It means that we can grow and that we can think about the future elderly”.
The irruption of sponsors and technology companies
The tobacco era may be seen as the heyday of F1 sponsorship, a time when money seemed to pour into the sport and fuel its very high spending habits. However, we are now in the midst of another boom period.
Big tech companies around the world are increasingly interested in the benefits that F1 can offer, not only from a marketing point of view, but also to help drive their innovations.
Before the season began, Red Bull named Oracle, an American tech giant, as its new title sponsor, and also secured a lucrative cryptocurrency deal with platform Bybit, a new realm that also helped fuel a boom in cryptocurrency. sponsorship throughout the grid.
Maffei claimed that teams are reaching a point where they have to turn down sponsors as “there is not enough space on the car to put another logo”.
“Look at how many of these cars now have one or more technology sponsors,” Maffei said. “The growth of interest from multiple levels is coming from a lot of people who really understand the technology, and that has played a really huge role in making sense of that technology and how that interest has grown across all the tech communities, Silicon Valley and Similar”.
But Maffei also felt that F1’s rise in popularity and the wider audience it has now attracted meant there are more consumer producers willing to work with teams.
“The youthful rise of our fans has attracted a lot of consumer products and a lot of other brands that find it attractive,” he said. “So it’s been lucky to have interest from all kinds of sponsors.”
The sustained growth in the popularity of Formula 1
In recent years, much has been made of the impact of Netflix and Drive to Survive on the rise in popularity of F1. However, its success has been part of a broader strategy to further open up the category and gain the means to connect more with fans.
The results have been amazing. Last year’s F1 fan survey conducted in conjunction with Motorsport Network showed that the F1 fan base is getting younger and more diverse, with a large influx of women. This has contributed to giving the series a more complete audience that can be better utilized.
“Netflix has the merit of opening up to a lot of people,” Maffei said. “But it’s fascinating how many people have come through different avenues, like social media and gaming. You can go into a game, play Lando Norris and run on the same track as Lando Norris.”
“Opening up the category, making it more attractive, yes, it certainly has elements of exclusivity, but they are elements that all fans can touch.”
James Bower , Williams’ chief commercial officer, felt that Liberty had “taken the restrictions off teams so they can engage fans directly and help build that fan base.”
Williams recently hired the former NFL first vice president of fan engagement to oversee its North American social and digital interests. “We are developing our social channels, our content and our engagement with American fans,” he explained. “We want to create more value for the brand, but also more value for our partners.”
The comprehensive vision that F1 itself and the teams are taking to engage fans is of great interest to their partners, which also contributes to increased value. Television figures are moving in a positive direction, especially in the United States , where the ESPN network continues to post record viewing figures for races. In turn, this also contributes to higher broadcasting rights fees, which also helps provide more revenue for teams.
The rise in popularity is also reflected in the calendar, which is set to reach the current limit of 24 races next year with the additions of Qatar and Las Vegas . The demands of an ever-increasing number of events are known to everyone in the F1 paddock, leading to big questions about their sustainability. However, from a financial point of view, it is helping the series to get more income, which makes the value go up.
The ‘restricted zone’ nature of F1
While the debate over adding an 11th team to F1 may be contentious amid continued interest from Andretti, the fact that the grid remains a ‘restricted zone’ is a major factor driving valuations higher.
The fact that not just anyone can create an F1 team helps increase the value of each spot on the grid, similar to other sports leagues where franchises are limited, such as the NFL. If you want to participate, you have to buy an existing team.
The €186 million dilution fee required by the Concord Pact for any newcomer now appears too low, and several team bosses have expressed doubts that a one-time payment would be enough to offset the income that would be lost by obtaining a smaller share of profits in the future.
While revenues grow, the cost cap remains stable, and margins theoretically increase, things can only move in one direction. It’s no wonder that no one on the current grid wants to give up what they have, nor that F1 wants to compromise them, as they say it’s a “great reward” for them to benefit from current growth.
“They have invested in us, and that’s why we believe the team community has to be respected,” Domenicali said.
“Today, it’s not a problem to have more teams, because we have a list. Some make more noise than others, but we have a lot of people or a lot of investors who would like to be in F1. But we have to protect the teams. That is, Actually, another sign of a very healthy system.”
Stefano Domenicali, CEO of F1, Greg Maffei, CEO of Liberty Media, James Allen, president of Motorsport Network
What will the next five years of Liberty Media look like?
F1’s first five years under Liberty Media have seen big changes. However, looking ahead to the next five, there is a determination to ensure that the current growth is not only maintained, but fully exploited.
“We have the benefit of managing a 72-year-old entity, so we think long-term and what that will do,” Maffei said.
“We have a lot of interest now, and we want to keep that interest growing, more broadly. Doing things like going to Africa and thinking about sustainability is thinking about how we grow this 72-year-old franchise over the next five years, and then the next five years, and then the next five years?”
“Now there is a lot of momentum. We would like to use it, not only financially, but for the growth of the sport.”
