How F1 opened the door to a $1 billion value for the fleet

With the increase in the number of spectators, the increase in event value and the introduction of budget caps, has F1 entered such a golden age: owning a team has become a profitable business instead of burning the fastest money in the world The fire pit?

On the recent weekend of the US Grand Prix, the topic that the team value will eventually exceed $1 billion has become the focus of discussion. And this may not be accidental.

During the COVID-19 pandemic period, the paddock was officially opened for the first time, with an endless stream of VIPs and guests from existing and potential sponsors. The stands and lawn tickets are overcrowded, which truly reflects the propaganda effect of Netflix.

This land also gave birth to the National Football League, Major League Baseball and National Basketball League. In these events, sports franchising is a major business, and its commercial value has risen sharply in recent decades.

Coincidentally, the Dallas Cowboys of the National Football League topped the list with an astonishing $5.7 billion on the Forbes 2021 list of the world’s most valuable teams. Its cheerleaders happened to have participated in the pre-match performance in Austin.

Therefore, for those team owners with a positive attitude, the COTA track is a suitable place to “answer” questions about the potential future value of their assets.

The key to their collective optimism is that the $145 million budget cap introduced this year will drop to $140 million and $135 million in the next two seasons. As we all know, although spending in many areas has exceeded the limit, this undoubtedly has a major impact on the way the top teams do business.

In the past few years, some people desperately opposed all forms of restrictions, and then when restrictions were unavoidable, they questioned the specific numbers. This was at the peak of the outbreak of the new crown virus last year. When the team did not know what season it would eventually face or how much revenue it would have, the final figure was pushed down to the current level.

Out of the original intention to maintain a competitive advantage, the team may resist this. But they have realized that in the next few years, it will be beneficial to control their own costs.

This used to be a bottomless pit before. The money you spend is the money you think other people are spending the same, or the money you think it takes to beat them.

In addition, the new Concorde agreement signed last year is also more beneficial to the team. There will be 23 games planned in 2022, and the “free pass” was not adopted last year to ensure the integrity of the calendar, which means that sponsors will receive considerable income protection if the new crown epidemic permits.

In addition, most important broadcast agreements are stable and are being implemented. After a slow start, Liberty Media has established its own sponsor system.

The current situation should be attributed to Liberty Media and former F1 CEO Chez Kelly. He reached the Concord Agreement with the support of Jean Todd and the FIA ​​and pushed for the adoption of the budget cap. Now this has indeed become a powerful move for the team to save itself.

The budget cap is also particularly important for those teams that are behind in the starting area, regardless of whether their expenses originally exceeded this amount or were below this amount. Their bosses are well aware of the constraints of big teams now, and therefore have a glimmer of hope to narrow the performance gap.

These fundamental changes, coupled with the current prosperity reflected by the interest of car fans and the track in the sport, have attracted the attention of financiers all over the world.

In the past few seasons, those who have gained a foothold in F1 in time may realize that they have made a very objective deal.

For example, Aston Martin’s Lawrence Stroll, Sauber’s Finn Roussing or McLaren’s Michael Latifi, etc., all have personal reasons to invest their wealth in F1. They are not the kind of people who waste money on a whim, but their immense enthusiasm for F1 has contributed to their investment in the sport.

Mercedes’ Jim Ratcliffe, Williams’ Dollyton, and the Saudi and American supporters who joined McLaren at the end of last year are less emotional. They foresee the development direction of this sport.

Existing team bosses have come to similar conclusions. Gene Haas may be frustrated and vacillated by lack of grades. But he decided that since he has reached this point, he might as well stick to it.

“I think we are at a very good time to develop F1 because the audience is growing,” said Toto Wolff, the head of Mercedes sports. “The popularity of the sport has been rising and we are Slowly but firmly marching to the Americas, Stefano (Domenicali) and Liberty Media have also been doing very good work.”

“So I can only speak for ourselves, but our revenue has grown substantially. The budget cap has brought us a bottom line, and this is what the sports team should do. It shouldn’t be just a marketing campaign and a cost center. It should be a profit center, just like other sports teams in the United States.”

“Obviously, we have done it. I believe, or I very much hope that all the teams will be profitable soon. I think this is very close. You know what your costs are. You cannot spend more than 145 million this year. U.S. dollars, and that number is still declining.”

“I think that with the arrival of Liberty Media, we have changed our dynasty,” McLaren CEO Brown said. “They are sports investors. In the process of investing in many businesses, I think they have realized that this is one thing. This is a huge global sport. Through some new management methods, new structures, and new leadership, they can truly tap the potential value of this sport.”

“So I think Chez did a good job and fully meets Liberty’s requirements, which is to take over the sport and prepare for the future. He did a great job. He has given it to Stefano now. Now this The sport has a huge momentum.”

At the same time, Brown emphasized that the ownership of the team is undergoing tremendous changes.

“I think this sport started as entrepreneurs, and later OEMs entered,” said the American. “I think there are still many sports investors who have personal wealth and then jointly create funds and things of similar nature. Continue to invest in these fleets.”

“Investors entering this sport are rigorous people. They are sports investors and have large-scale enterprises. If you look at the value of other sports franchises in the world, the value of F1 teams is underestimated, I think That’s why you see people entering the sport.”

“So now is a good time for buyers to enter, but there may not be many sellers at the moment. This creates a good motivation for increasing the value of the franchise, so I think F1 is in a very advantageous position.”

Brown also emphasized the changes in the past few years: “I think the condition of the team has never been as healthy as it is now. I don’t remember how many times there are always one, two or three teams suffering financial crisis.”

“Now, every team, all 10 teams, is a very healthy organization. The owner of the team is someone who can see through his team. I think this is a great place for the sport.”

This financial health represents an extraordinary transformation. In the past few years, when debts continued to increase, both Williams and Sauber were nearly bankrupt. Even as part of a larger department including the road car department, the mighty McLaren has been walking on thin ice for a period of time. But this situation has now changed.

“McLaren will become a profitable team in the near future,” Brown said. “Before the budget cap came out, I don’t think you would say that, because in this sport, you have to spend the same money as the biggest spenders. So franchising is more about who can bear the biggest losses.”

“For many people, this is not a very attractive franchise model. So I think fundamental things are changing. I think this is why you see real sports investors like MSP and UBS. , They invested in McLaren, they have a long history of participation in basketball and baseball, so they have successful experience to judge future value.”

Brown, who was born and raised in the United States, insists that now is the time to compare F1 teams with other sports industries.

The average value of Forbes’ top 50 is US$3.7 billion, including European football giants such as Barcelona and Real Madrid, which are ranked fourth and fifth. These figures dwarf even the most powerful F1 teams.

“If you look at the size, scale and importance of F1, compared to other leagues, you will be a little confused. Why are some teams more valuable than McLaren, Mercedes or Red Bull?” said the Austrian.

“Historically, I think the answer is that this sport consumes money financially, but now that Liberty has changed this structure, I think that’s why you will see real sports investors coming in, and it’s very common. “

“I think in the next three to five years, if someone wants to sell, we will see the F1 team’s turnover exceed $1 billion. The fact that no one wants to sell drives the premium.”

And this is the key. We don’t know all the details of why Michael Andretti’s bid for Sauber would disappear, but there is news that someone close to the main shareholder Rosin convinced the Swedes of the potential value of the team, and this number is only It will get higher and higher.

“Nowadays, whoever buys an F1 team knows exactly how much they need to spend to stay competitive, because we can’t spend more money,” Wolff said.

“So this is a very good business opportunity for me. I will not sell a team. On the contrary, with the addition of Ineos, I bought another 3% stake, which I am very happy about.”

Wolf agrees that the value of the team will only continue to grow from now on.

“I think that under the constraints of the budget cap, we are entering a situation where we have real numbers and the team will be valued based on the same metrics, just like other sports teams,” said the Austrian.

“If the limited franchise is sustainable, if the source of income is sustainable in the long term, I think F1 as a model is very attractive because we have signed a sponsorship agreement of three to ten years.”

“We have also signed a track and TV contract for 5 to 10 years, so as a business case, it is very attractive in itself because you can easily discount future cash flows.”

“I think that when we are profitable, you can use the same valuation metrics as your peers. That’s why I agree with Zach-it depends on our own revenue and profit.”

In the next few years, who will be keen to join the F1 family, and which team shareholders will decide to cash it out, let us wait and see.

Translation/Peter Pan