Formula 1’s popularity has increased exponentially since Liberty Media’s takeover in 2017. This fame has benefitted the sport from both marketing and commercial perspectives and raised every team’s valuation as well. F1 journalist Joe Pompliano was asked by a subscriber what is the reason behind these inflated valuations. He revealed not only the top teams are worth billions but even the backmarkers are worth $710-750 million and the reason behind it is not just the popularity via the Liberty media expansion.
Pompliano first and foremost addressed the impact of Netflix’s Drive to Survive and the US influence and expansion. Even though that’s a factor, it’s not as significant as one might think. In his YouTube video addressing this question, he revealed this rise in valuations is due to the budget cap and the absence of a relegation system in F1.
He explained, “The more important part is a cost cap. Think about American sports franchises in the NFL and NBA. The reason why those teams are so valuable is because they’re in a closed system with no fear of relegation.”
“They have massive TV contracts and they have player salaries that are capped via the salary cap. Formula 1 essentially has the same thing now with big TV contracts, only 10 teams, and now the cost cap.”, Pompliano added.
Formula 1’s growth under Liberty Media will be studied for decades.
Formula 1 Annual Revenue
• 2017: $1.8 billion
• 2023: $3.2 billion (+78% since 2017)Average F1 U.S. Per-Race Viewership
• 2017: 538,000
• 2023: 1.11 million (+106% since 2017)Formula 1 Enterprise Value… pic.twitter.com/nh5DTAPei0
— Joe Pompliano (@JoePompliano) April 4, 2024
For instance, Haas was battling bankruptcy before COVID. Now, they’re self-sufficient and thriving with a reported valuation of $780 million, as per Forbes. This has been possible because of the budget cap introduced in 2021.
The cap has limited spending but there’s no upper limit on the revenue which has skyrocketed since 2017. This is also exactly why the existing teams aren’t letting anyone else take a piece of this lucrative revenue pie.
The primary reason why F1 teams aren’t letting an additional team become part of the sport
10 teams on the grid, employing 20 drivers competing in over 22 races and spending a little over $135 million each year. Now, these 10 teams are dividing revenue shares from an ever-increasing prize pot, which has affected the sport in two aspects, one positive and the other negative.
Positive: Unlike a decade or two ago, F1 now doesn’t see a frequent change in ownership. The existing teams have an extremely strong hold of their position in the sport. In fact, it’s the strongest it’s ever been with all teams financially stable and easily attracting investment.
Even if the running costs have increased, there are plenty of sponsors in line to lend money and get their name associated with the sport. Moreover, with the budget cap, the spending has been regulated further helping the existing teams to stay afloat.
“What we are asking for is financial stability”
James Vowles gives an open response to the potential addition of an 11th team to the F1 grid pic.twitter.com/V1qihUJhZ9
— Sky Sports F1 (@SkySportsF1) October 6, 2023
Negative: However, this scenario has made the existing stakeholders extremely possessive of their money. An additional team on the grid will mean dilution of the prize pot and no team wants that.
This is exactly why there is reportedly a hefty entry fee for all suitors. Even if the interested parties are ready to pay the inflated sum, the teams are still putting up roadblocks for the entry of an 11th team. This scenario has been made abundantly clear at the expense of Andretti Autosport.
The entire grid combined has seemingly made itself into an exclusive club with “restricted“ entry. This gatekeeping behavior is unsurprisingly motivated by monetary incentives. With the power in the teams’ hands, F1’s future might only allow new brands to enter via acquisitions and strategic partnerships, rather than a brand-new entry.
