F1: Changing Gears
I’ve always found it interesting to look at how different sports generate revenue and seeing the trends behind it.
Canadian billionaire, Lawrence Stroll spent ￡90 million to rescue the struggling Force India Formula One racing team. Renamed as Aston Martin F1 Team in 2021, the team has gained popularity, attracted new sponsors like Saudi state oil company Aramco, and increased its value.
Just before the first Las Vegas Grand Prix in 40 years, Stroll sold a minority stake in Aston Martin F1 to US investment firm Arctos Partners for over ￡1 billion. This recent deal indicates a shift in how Formula One teams are perceived, moving away from being seen merely as prestigious possessions. Structural changes implemented by Liberty Media , which bought F1 seven years ago, have played a role in this. New financial regulations limit team spending, and the sport's popularity has risen due to factors like social media, expansion in the US, and the Netflix Drive to Survive series.
The limited number of teams on the grid (10 compared to 32 NFL franchises, 20 Premier League football clubs, and 30 NBA teams) adds to the increasing valuations. Despite this positive trend, F1 teams still lag behind American sports franchises in terms of revenue and valuation multiples. The implementation of a budget cap in 2021 aimed to ensure financial sustainability and fair competition. While F1 has expanded its fan base in the US, the dominance of Red Bull's Max Verstappen has made the title race predictable.
The average value of an F1 team has risen from $500 million in 2019 to around $1.9 billion today, according to Forbes. Recent transactions, such as Dorilton acquiring the Williams team and RedBird Capital Partners investing in Alpine, reflect this changing landscape.
Team profitability is becoming a reality, with larger teams like Mercedes showing positive financial results. Under Liberty Media, more money is shared with teams, reaching $1.1 billion in 2022.
Despite these positive developments, there's a debate about whether to expand the number of teams on the grid but existing teams are concerned about potential financial implications as they fear it could eat into prize money that’s paid out by F1. The growing popularity of F1 has shifted discussions towards increasing the entry fee for new teams. Overall, the sport's financial landscape is evolving, making it an attractive space for investors and sponsors.