Liberty’s arrival marked a significant break from the past, replacing Bernie Ecclestone’s wheeler-dealer and profit-focused approach with a broader view to growing the series.
Greg Maffei, the CEO of Liberty Media, made an interesting point to highlight F1’s growth over the past five years when speaking at the Business of F1 Forum held by the Financial Times and Motorsport Network in Monaco at the end of last month.
“One of the measures that is a real success is the health of the teams,” Maffei said. “When we entered in 2016, we made our first investment and closed on the deal in 2017, Manor, the 11th team, had just been sold in 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 hard. It’s an amazing increase in value.”
Sat next to Maffei on the stage was F1 CEO and president Stefano Domenicali, who waved his hand upwards at the suggested valuations. It may have been tongue-in-cheek, but there was a serious point behind it: realistically, you’d be talking beyond those figures if you seriously wanted to get a team to sell up.
Last year, McLaren CEO Zak Brown predicted that in “three, four or five years' time”, we would see “F1 teams trade [at] over a billion dollars, assuming anyone wants to sell. The fact that no one wants to sell drives a premium.”
It’s a challenge that anyone with designs on joining the F1 grid must negotiate, as Andretti is currently finding out. A push to take over Sauber, which operates Alfa Romeo’s F1 operation, fell apart late last year, and efforts to now secure an 11th entry are stalling amid uncertainty about the benefits from the rest of the grid and, it would seem, F1 itself.
But there are a number of key factors that have helped charge the valuation of F1 teams, even from two years ago when Dorilton Capital acquired Williams for $150m - something that seems like a bargain now.
F1’s budget cap
The introduction of F1’s budget cap is something that cannot be underestimated in helping not only protect the value of the teams, but push them upwards.
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 in the future, making the series more competitive and give more teams the chance to fight at the very front.
But it has also placed a ceiling on the majority of costs involved in running an F1 team, meaning that any potential buyer knows what they are getting into. There is no longer the same kind of volatility there was in previous years or risks of F1 teams turning into money pits.
“We can talk about values, they can be high, but costs are something you will have for sure,” said Domenicali. “So the only way to make sure the margin is bigger is to control what is spent. That was a very big milestone that has changed the vision of the sport completely, and given the system credibility.
“Sustainable business means the teams can invest, can grow all the ecosystem, and all the elements that are related to our world now is secure, and financially strong. It means we can grow and we can think about a bigger future.”
The influx of sponsors and big tech
The tobacco era may be widely seen as the heyday for F1 sponsorship, a time when money appeared to pour into the series and fuel many of its free-spending habits. But we are in the midst of another boom period.
Big tech companies across the world have become increasingly interested in the benefits F1 can offer not only from a marketing standpoint, but also to help further their innovations. Ahead of the new season, Red Bull named Oracle, a US tech giant, as its new title partner, and also secured a lucrative cryptocurrency deal with Bybit, with that realm also helping fuel a boom in F1 sponsorship throughout the grid.
Maffei claimed that teams are now at a point where they are having to turn sponsors away as there is “only so much room on the car to put another logo”.
“Look at how many of those cars now have a technology sponsor, if not multiple technology sponsors,” Maffei said. “The growth in interest from multiple levels is from people who really understand the technology, and that has played a really huge part to get a sense of that technology and how that has grown in that interest among the technology communities, Silicon Valley and the like.”
But Maffei also felt the increased popularity of F1 and wider audience it has now attracted meant that more consumer products were also eager to work with teams. “The increasing youth of our fans has brought in a load of consumer products and a whole bunch of other brands who find it appealing,” he said. “So it’s been lucky to have all sorts of sponsor interest.”
F1’s sustained growth in popularity
The impact of Netflix and Drive to Survive on increasing F1’s popularity has been talked about extensively in recent years. Yet it success has all been part of a wider strategy to open up the series more and give the means with which to connect to fans more.
The results have been staggering. In the F1 fan survey conducted in conjunction with Motorsport Network last year, F1’s fanbase was shown to be getting younger and more diverse, with a big influx of female fans. It has helped give the series a more well-rounded audience that can be better tapped into.
“We credit Netflix for opening up for a lot of people,” said Maffei. “But it’s fascinating how many of these people have come in through different ways, like social media and gaming. You can go on and play Lando Norris and race the same track that Lando Norris does.
“Opening up the sport, making it more appealing, yes, it’s got elements of exclusivity for sure, but it’s elements that all fans can touch.”
James Bower, the commercial director of Williams, felt Liberty had been “taking the restrictions off the teams so they can engage the fans directly and help build that fanbase”. Williams recently hired the NFL’s former SVP of fan engagement to oversee its North American interests on a social and digital side. “We’re really building out our social channels, our content, and engagement with the US fanbase,” he said. “We want to create more value for the brand, but more value for our partners as well.”
The big-picture view that F1 itself and teams are taking towards engaging with fans is a huge interest to their partners, again helping to push values up. TV figures are moving in a positive direction, particularly in the United States, where ESPN continues to report record viewership numbers for races. In turn, this also helps to drive bigger fees for broadcast rights, again helping to provide more revenue to the teams.
The surge in popularity is also reflected in the calendar, which is set to hit the current limit of 24 races next year with the additions of Qatar and Las Vegas. The demands of the growing calendar are known by all in the F1 paddock, leading to big questions about its sustainability. But from a financial perspective, it is helping the series bring in more revenue, nudging the values up as a result.
The ‘closed shop’ nature of the F1 grid
As contentious as the debate over bringing an 11th team into F1 may be amid Andretti’s continued interest, the fact the grid remains a ‘closed shop’ is a big factor that drives valuations upwards.
The fact that not anyone can set up an F1 team helps to boost the value of each berth of the grid, similar to other sports leagues where franchises are limited, such as in the NFL. If you want to get involved, you need to purchase an existing outfit.
The $200m dilution fee required under the Concorde Agreement for any newcomers now seems far too low, with a number of team bosses expressing their doubt that a one-time payment would be enough to make up for the revenue that would be lost by getting a smaller slice of the pie moving forward.
As revenues grow, the cost cap remains stable and margins theoretically get bigger, things are only set to move one way. It’s little surprise no-one on the current grid is looking to give up what they’ve got, nor is F1 looking to compromise them, saying it is a “big reward” for them to benefit from the current boom.
“They’ve invested in us, and that’s the reason why we do believe that the community of the teams has to be respected,” said Domenicali.
“Today, it’s not a problem of having more teams, because we have a list. Some of them are more vocal than the others, but we have a lot of people or a lot of investors who would like to be in Formula 1. But we need to protect the teams. This is really another sign of a very healthy system.”
What will the next five years of Liberty ownership look like?
The first five years for F1 under Liberty have seen some huge changes. But looking ahead to the next five years, there is a determination to ensure the current growth is not only sustained, but fully capitalised upon.
“We have the benefit of the stewardship of a 72-year-old enterprise, so we think about the long-term and what it will do,” said Maffei.
“We have a lot of interest now, and we want to sustain the growth of that interest, more broadly. Doing things like going to Africa and thinking about sustainability is all thinking about how do we grow this 72-year franchise for the next five years, and then the next five years, and then the next five years?
“There’s a huge amount of momentum now. We’d like to capitalise on that, not just financially, but for the growth of the sport.”
