Liberty’s arrival marked a significant break with the past, replacing Bernie Ecclestone’s profit-driven, wheel-dealer approach with a broader view of series growth.
Greg Maffei, CEO of Liberty Media, made an interesting point to highlight the growth of F1 over the past five years at the Business of F1 forum hosted by the Financial Times and Motorsport Network in Monaco late last month.
“One of the measures that is a real success is the health of the teams,” said Maffei. “When we entered 2016, made our first investment and closed the deal in 2017, Manor, the 11th team, had just been sold into receivership for £1.
“Today I don’t think you can buy a team for less than £500m, maybe £700m? You can try, but I think it’s going to be difficult. It’s a Incredible increase in value.”
Sitting next to Maffei on the stage was F1 CEO and chairman Stefano Domenicali, who waved at the suggested ratings. It was perhaps ironic, but there was a serious point behind it: realistically, you’d be talking beyond those numbers if you were serious about convincing a team to sell.
Last year, McLaren CEO Zak Brown predicted that in “three, four or five years” we would see “F1 teams exchanging [at] over a billion dollars, assuming someone wants to sell. The fact that no one wants to sell results in a premium.”
It’s a challenge anyone wishing to join the F1 grid must negotiate, as Andretti is currently finding out. A push to take over Sauber, which operates Alfa Romeo’s F1 operation, collapsed late last year, and efforts to secure an 11th entry now have stalled amid uncertainty over to the benefits of the rest of the grid and, it seems, of F1 itself.
But there are a number of key factors that contributed to F1 teams’ valuation even two years ago when Dorilton Capital acquired Williams for $150m – which seems like a bargain now.
Alex Albon, Williams FW44
Photo by: Glenn Dunbar / Motorsport Images
F1 budget cap
The introduction of the F1 budget cap is something that cannot be underestimated in helping to not only protect the value of the teams but also push them to the top.
Introduced last year at $145m and since reduced to $140m for 2022, the budget cap is set to help level the playing field in F1 going forward, making the series more competitive and giving more teams the chance to fight for the very first rank.
But it also capped the majority of the costs of running an F1 team, meaning any potential buyer knows what they’re getting into. There is no longer the same type of volatility as in previous years or the risks of F1 teams turning into money pits.
“We can talk about values, they can be high, but costs are something you’ll get for sure,” Domenicali said. “So the only way to make sure the margin is bigger is to control what is spent. It was a very big step that completely changed the vision of the sport and gave credibility to the system.
“A sustainable business means teams can invest, can grow the whole ecosystem, and everything related to our world is now secure and financially sound. It means we can grow and we can think of a bigger future.”
Sergio Perez, Red Bull Racing RB18
Photo by: Glenn Dunbar / Motorsport Images
The influx of sponsors and big tech
The tobacco era can be widely seen as the heyday of F1 sponsorship, a time when money seemed to flow into the series and fuel many of its free-spending habits. But we are 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 perspective, but also to drive their innovations forward. Ahead of the new season, Red Bull named Oracle, an American tech giant, as its new title partner, and also struck a lucrative cryptocurrency deal with Bybit, with that area also helping to fuel an F1 sponsorship boom on the whole grid.
Maffei said teams are now at a point where they have to turn down sponsors because there is “limited space on the car to put another logo”.
“Look how many of these cars now have a tech sponsor, or even multiple tech sponsors,” Maffei said.
“The growth in interest on many levels is coming from people who really understand the technology, and that’s been a really huge part of getting a feel for this technology and how it’s grown in interest among the tech communities, Silicon Valley and others. .”
But Maffei also felt that the growing popularity of F1 and the wider audience it has now attracted meant that more consumer products were also keen to work with teams. “The growing youthfulness of our fans has brought in a host of consumer products and a whole bunch of other brands that find that appealing,” he said. “So it’s lucky to have all kinds of sponsor interest.”
Charles Leclerc, Ferrari greets the fans
Photo by: Mark Sutton / Motorsport Images
F1’s continued growth in popularity
The impact of Netflix and Drive to survive about the rise in popularity of F1 has been the subject of much discussion in recent years. Still, this success is part of a larger strategy to further open up the series and empower fans to connect more.
The results were astounding. In the F1 fan survey conducted in conjunction with Motorsport Network last year, the F1 fan base was found to be increasingly young and diverse, with a large influx of female fans. This has helped give the series a more well-rounded audience that can be tapped into better.
“We credit Netflix for opening up a lot of people,” Maffei said. “But it’s fascinating how many of these people have come through different ways, like social media and games. You can go on and play Lando Norris and race on the same track as Lando Norris.
“Opening up the sport, making it more appealing, yes, there are elements of exclusivity for sure, but those are elements that all fans can touch.”
James Bower, Williams’ chief commercial officer, felt that Liberty had “lifted the restrictions on teams so they can engage fans directly and help build that fan base”. Williams recently hired the former SVP of NFL Fan Engagement to oversee his North American social and digital interests. “We’re really growing our social media, our content and our engagement with the US fanbase,” he said. “We want to create more value for the brand, but also more value for our partners.”
The big picture that F1 itself and the teams are taking to engage with fans is of huge interest to their partners, again helping to push values up. The TV numbers are moving in a positive direction, especially in the United States, where ESPN continues to bring in record viewership numbers for the races. This, in turn, also helps drive higher fees for broadcast rights, again helping to provide more revenue for teams.
The surge in popularity is also reflected in the calendar, which is expected to reach the current limit of 24 races next year with the additions of Qatar and Las Vegas. The demands of the growing schedule are known to everyone in the F1 paddock, raising big questions about its sustainability. But from a financial point of view, it helps the series generate more revenue, which drives the values up.
Valtteri Bottas, Alfa Romeo C42
Photo by: Alfa Romeo
The “closed” nature of the F1 grid
As contentious as the debate over introducing an 11th team to F1 may be amid continued interest from Andretti, the fact that the grid remains a “closed shop” is a significant factor driving valuations higher.
The fact that no one can create an F1 team helps to increase the value of each slot on the grid, similar to other sports leagues where franchises are limited, such as the NFL. If you want to get involved, you have to buy an existing outfit.
The $200 million dilution fee required under the Concorde deal for any newcomer now looks far too low, with a number of team leaders expressing doubt that a one-off payment would be enough to offset the revenue that would be lost by getting a smaller slice of the pie in the future.
As revenues increase, the cost cap remains stable, and margins theoretically increase, things should only move in one direction. It’s no surprise that no one on the current grid is looking to give up what they have, nor that F1 is looking to compromise them, saying it’s a “great reward” for them to benefit from the current boom.
“They invested in us, and that’s why we think the team community should be respected,” Domenicali said.
“Today it’s not a problem to have more teams, because we have a list. Some of them are more vocal than others, but we have a lot of people or a lot of investors who would like to be in Formula 1. But we have to protect the teams. It’s really another sign of a very healthy system.”
Stefano Domenicali, CEO of F1, Greg Maffei, CEO of Liberty Media, James Allen, President Motorsport Network
Photo by: Steven Tee / Motorsport Images
What will the next five years of Liberty ownership look like?
The first five years of F1 under Liberty have seen huge changes. But looking ahead to the next five years, we are determined to ensure that current growth is not only sustained, but fully capitalized.
“We have the benefit of stewardship of a 72-year-old company, so we’re thinking about the long term and what it will do,” Maffei said.
“We have a lot of interest now, and we want to support the growth of that interest, more broadly. To do things like go to Africa and think about sustainability is thinking about how we will grow this 72-year-old franchise. for the next five years, then the next five years, then the next five years?
“There is huge momentum now. We would like to capitalize on that, not just financially, but for the growth of the sport.”