Due to the increase in popularity, F1 teams are richer than ever before. But can they really spend as much money as they want? Zak Brown recently shared some fascinating insights about the finances of teams, considering how all 10 of them are currently valued at over $1 billion. However, that figure can be deceiving.
High valuations don’t necessarily mean these teams are sitting on huge profits. Brown explained the same by talking about his team, McLaren, who despite having a $2.65 billion valuation, don’t have a lot of excess cash.
McLaren prioritizes reinvesting in the business over generating large dividends or stacking reserves. “Well, we don’t make a lot of money,” Brown said on the Business of Sport podcast. “Every employee here, we race for trophies, we don’t race for money… We’ve only recently been profitable, and there’s no guarantee you’re going to be profitable.”
Teams cannot use valuation to spend money. For that, they need good revenue, which is what makes them profitable, the point Brown emphasized. In layman’s terms, valuation is what the worth of the company is deemed to be, whereas revenue is what a team earns.
Brown, who has been CEO of McLaren since 2018, further spoke about the importance of financial preparation, referencing unexpected challenges like the COVID-19 pandemic, which brought the world to a standstill. For that, he stressed the need to constantly reinvest in the team’s growth and competitiveness, whether it’s about upgrading facilities or adding new talent. McLaren, under Brown, ensures that its earnings are spent wisely.
Why have the valuations increased?
Today, even Haas, the least-valued team on the grid has a $1 billion mark next to its name. Just a year ago, that figure was around $780 million, which shows just how far the sport has come in such a short period.
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While the surge in popularity can be credited to Liberty Media’s marketing activities and the release of Drive to Survive on Netflix, Brown has a different explanation for the increase in the teams’ valuation — the cost cap. “The cost cap has made every team more competitive and profitable,” Brown shared.
“Now you’ve got sporting parity… That’s made Formula 1 more attractive to investors. With the cost cap, we’re limited on how much we can spend, but we’re not limited on how much we can raise,” he added. Essentially, teams can now generate more commercial revenue than spend, creating a sustainable model that benefits both the investors and the teams.
