๐๏ธ Formula 1 Economics
Not your father's Grand Prix
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Fast cars. Glamorous locations. Drama on and off the track.
The Las Vegas Grand Prix proved that Formula 1 isn't just about racing anymoreโit's a full-blown spectacle. Some say the sport's rising popularity is all thanks to Drive to Survive, the Netflix series that turned handsome drivers and f-bomb-dropping team bosses into reality stars.
But beyond the glitz and good genes, what are the economics fueling this global phenomenon? Let's dive under the hood of Formula 1 and examine the business model behind the world's fastest soap opera.
Today at a glance:
F1 Ecosystem
Revenue Streams
The Netflix Effect
How F1 Group Makes Money
The Liberty Media Era
1. F1 Ecosystem
Formula 1 isn't just about drivers racing cars. It's a complex network of organizations and individuals working together to create a high-octane global event. Here's a breakdown of the major players and their contributions:
๐ก๏ธ FIA: Formula 1 is a sport heavily defined by its strict rulebook. The Fรฉdรฉration Internationale de l'Automobile is a non-profit that ensures fair play, technical regulations, and, most importantly, driver safety.
๐ข Formula One Group: Owned by Liberty Media since 2017, this entity holds the commercial rights to F1. They are the dealmakers, negotiating lucrative contracts with circuits to host races, securing broadcasting rights, and attracting major sponsors.
๐๏ธ F1 Teams: The beating heart of F1, these ten teams design cutting-edge cars and field superstar drivers who battle it out on the track. They each include two cars with a line-up of two drivers. We previously visualized Ferrari.
โจ Sponsors: The brand ambassadors, bringing glamour and big bucks to F1 while promoting their products to a global audience.
๐บ Broadcasters: Bringing the action to your living room! Broadcasters pay a premium for the rights to air races, making F1 accessible to millions of fans worldwide. They include networks like Sky Sports, ESPN, and Canal+.
๐๏ธ Race Promoters: The local heroes, transforming tracks into vibrant hubs and creating unforgettable experiences for race attendees. They are crucial in attracting new venues and growing the F1 fanbase globally.
A Global Spectacle with Local Flavor
The magic of Formula 1 happens on circuits around the globe. From the historic streets of Monaco ๐ฒ๐จ to the futuristic Yas Marina track in Abu Dhabi ๐ฆ๐ช, each race showcases unique local culture and racing history. A record-breaking 24 races in the current season underscores the sport's global expansion.
Interdependence and Success
The F1 ecosystem functions as a well-oiled machine, with each player contributing to the overall success of the sport. Grand Prix events rely on teams, broadcasters, and sponsors, who, in turn, benefit from the high visibility and global reach of F1.
2. Revenue streams
Here's how the sport translates its global appeal into a lucrative business for Formula One Group:
๐ฐ Race Promotion (~30% of revenue): Circuits around the world pay a premium to host a Grand Prix. These fees often increase throughout multi-year contracts, ensuring revenue growth. Race promoters are a diverse group, including circuit owners, automobile clubs, special event organizers, and even governmental bodies.
๐บ Media Rights (~30% of revenue): Broadcasters compete fiercely for the rights to air races, driving up prices and fueling F1's expansion. This lucrative stream includes traditional networks, streaming services like Netflix, and F1's own over-the-top product, F1 TV. Agreements are often region-specific.
๐ค Sponsorship (~20% of revenue): Big brands recognize the value of aligning themselves with the glamour and global reach of Formula 1. Sponsorships come in various forms, from trackside advertising and race title sponsorships to the coveted status of Global Partner.
๐๏ธ Other: This diverse stream includes:
Ticket sales, with the recent self-promoted Las Vegas Grand Prix showcasing F1 Group's ability to directly generate substantial revenue.
Paddock Club hospitality packages (VIP access).
Shipping logistics for teams and equipment.
Television production activities and other licensing deals.
Multi-year contracts across most revenue streams provide F1 with a predictable business.
3. The Netflix Effect
Formula 1's recent surge in popularity and revenue isn't simply a product of fast cars and daring drivers. The Netflix docuseries Drive to Survive, which premiered in March 2019 and is already in its sixth season, has played a transformative role in igniting global interest and fueling unprecedented growth for the sport.
Pre-Netflix plateau (2016-2018): F1's revenue growth had stagnated, indicating a potential market saturation within its traditional fanbase.
The Netflix spark (2019): The series, offering behind-the-scenes drama and focusing on driver and team principal personalities, tapped into a new audience, particularly in the lucrative US market.
COVID setback (2020): The pandemic temporarily caused a revenue dip in race promotion due to the reduced calendar (only 17 races) and one-time revised fee arrangements, as most events were closed to fans.
Accelerated growth (2021 onward): Drive to Survive has acted as a catalyst, propelling F1's growth into overdrive. Increased visibility translated into greater demand for races, higher media rights fees, and a surge in sponsorship interest.
The Netflix Advantage
The docuseries effectively humanized the sport, attracting new fans drawn to the high-stakes competition, team rivalries, and compelling personal narratives.
According to a 2023 YouGov Sports whitepaper, Drive to Survive reached 7 million viewers globally, with a third of the viewers under 30. Nearly one in four F1 fans say the show is a โmajor reasonโ they became fans of the sport.
If you missed it, hereโs the teaser for Season 6.
Hollywood Takes Notice
F1's surging popularity hasn't gone unnoticed by Hollywood:
๐ซ๐ท Alpine investment: A-list stars like Ryan Reynolds, Rob McElhenney, and Michael B. Jordan invested โฌ200 million in the Alpine F1 Team, netting them a 24% stake. It clearly signals the sport's crossover appeal and growing cultural cachet.
๏ฃฟ More content incoming: Brad Pitt is reportedly attached to a Formula 1 movie project from Joseph Kosinski, director of Top Gun: Maverick (2022). Apple Studios secured the rights for over $100 million.
4. How F1 Group Makes Money
Let's look at the financial engine driving this global phenomenon.
FY23 Revenue grew +25% year-over-year to $3.2 billion:
๐ฐ Race promotion grew +28% Y/Y to $0.9 billion
๐บ Media rights grew +11% Y/Y to $1.0 billion.
๐ค Sponsorship grew +33% Y/Y to $0.6 billion.
๐๏ธ Other income grew +42% Y/Y to $0.7 billion.
Gross margin was 30%.
Cost of revenue and operating expenses include:
Team Payments: $1.2 billion.
Other costs (hospitality, FIA annual fees, commissions): $1.0 billion.
Selling, general and administrative expenses: $0.7 billion.
Depreciation and amortization: $0.2 billion.
Operating margin was 12%.
Team payments: As the lifeblood of Formula 1, teams receive a substantial portion of the revenue to ensure their competitiveness and the sport's overall quality. Factors such as historical results, team agreements, and bonuses influence these payments.
So, what to make of all this?
Revenue boost from the new Las Vegas Grand Prix: F1 Group directly promoted the inaugural Las Vegas Grand Prix in 2023. Instead of outsourcing, the company was responsible for developing and operating the circuit and paddock facilities. As a result, F1 received the revenue from ticket sales and other commercial agreements.
A low gross margin profile: 38% of F1โs revenue went to F1 Teams, and another 32% to the FIA and other variable costs. So F1 Group only keeps roughly 30% of its every dollar in revenue.
Low marketing spend: F1 is a marketing machine in and of itself. So, itโs not surprising to see no significant advertising costs in the P&L.
Healthy profitability: F1 Group's operating margin demonstrates the efficiency of their model, allowing for reinvestment in growth, innovation, and the overall fan experience.
5. The Liberty Media Era
๐ F1's history: In their book The Formula, Joshua Robinson and Jonathan Clegg detail Formula 1's often controversial pre-2017 past, marked by figures like Bernie Ecclestone and questionable dealings. Liberty Media, the current owners, are keen to distance themselves from this history.
๐ Niche appeal: Formula 1 was once a predominantly European sport, inaccessible to a broader global audience. Viewed as entertainment for the wealthy or diehard racing fans, its marketing and fan engagement were limited, resulting in stagnant growth.
๐ค Enters Liberty Media: In 2017, Liberty Media, owned by billionaire John Malone, acquired Formula 1 in a $4.4 billion deal. With a track record of investments in entertainment and sports franchises, this media giant was determined to rebrand and revitalize the sport.
๐ฐ Not their first rodeo: Liberty Media recently spun off their stake in the Atlanta Braves baseball team. Beyond Formula One Group (FWONA), the companyโs portfolio includes stakes in SiriusXM (LSXM) and Live Nation Entertainment (LYV). They just announced a MotoGP takeover.
๐บ๐ธ A breakthrough in the US: The addition of races in Miami (2022) and Las Vegas (2023), along with a targeted media strategy, have propelled F1's American popularity. ESPN data shows that the average viewership has doubled since 2018 to 1.1 million viewers per race.
๐ฅฝ Innovation ahead: Liberty Media constantly explores new avenues for fan engagement. Virtual and augmented reality experiences, expansion into new markets like Asia and the Middle East, and turning races into multi-day entertainment festivals similar to the Superbowl are some initiatives underway. The economic impact of the Las Vegas Grand Prix approached $1.5 billion, according to Clark County officials.
๐ฎ Future change of owner? Given the sport's rapid growth and expanding global footprint, Formula 1 could change hands once again. Saudi Arabiaโs Public Investment Fund (PIF) is a likely contender. Liberty Media CEO Greg Maffei said an F1 sale is โnot in our cards.โ No matter what, Liberty Media is well-positioned for a substantial return on its investment.
Thatโs it for today!
Stay healthy and invest on!
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Disclosure: I am long AAPL and LYV in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here ๐๐ผ): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
Awesome ๐๐ป very insightful read. Thank you
Great read