Compared to other team sports, the valuations in F1 are still cheap

Under Liberty Media, Formula 1 is growing in value – but it’s clear that valuations in F1 are still cheap compared to other team sports.

As the Formula 1 teams get ready for the start of pre-season testing for 2022, the sport is moving into new territory with the budget cap and the increased revenues of the teams combining to make the sport a great deal more attractive to investors. In recent days, there have been interesting stories suggesting that some big sports investors are looking to buy into the sport.

The reality is that, for now, no one seems willing to sell and while starting a new team is theoretically possible, it really makes little sense – as it’s still cheaper to buy an existing operation, once you add up all the costs involved in a new team, especially considering that it takes a number of years to build up a competitive operation.

This was all quite logical, but it hasn’t been easy to achieve and Liberty Media must be given credit for making it happen. The aim was to make all the teams profitable and of value to their owners – and, of course, to potential buyers.

The big teams, however, have not lost their taste for spending money (or rather buying success by outspending their rivals) and continue to try to get the budget cap raised, or the exclusions expanded.

This is probably a passing phase, and they will eventually be told by their owners that they have to live within limits.

So, what’s an F1 team worth? The answer, inevitably, is ‘whatever someone is willing to pay for it.’ The one thing that is certain is that none of the F1 teams – even those who have achieved the least – are cheap. Those days are over. We will not see a team changing hands for $136 million any time soon.

There was talk last year that multi-billionaire Finn Rausing, who owns Sauber, was interested in selling the team to Michael Andretti, but it’s clear that the American did not have the money that Rausing wanted for 80% of the business. The word at the time was that the asking price was $400 million, but with a requirement to spend another $300 million in bank guarantees over the next five years to ensure that the team would have a stable financial base. 

The sale of 33% of McLaren Racing in December 2020 for $245 million, which valued the team at just over $740 million; and the sale of Williams in August 2020 for $180 million, which was including about $50 million in debts, are the other big transactions to consider, while the sale of 33% of Mercedes AMG Petronas to Ineos is believed to have valued the team at around $1.28 billion.

On paper, the most valuable team in F1 remains Ferrari, with a valuation said to be around $1.5 billion (obviously not including the car company).

For big US sport’s, multiple billions are not seen as a barrier to entry. Investors have access to money, but the biggest problem is understanding the ins and outs of the business – what to do and, more importantly, what NOT to do.

Valuation is a complex game, but it’s clear that F1 is still cheap compared to other sports. The biggest sports team valuation is reckoned to be the Dallas Cowboys NFL team, which is valued at $5.5 billion. This is ahead of the New York Yankees baseball team at $5 billion and three basketball teams: the New York Knicks ($4.6 billion), the Los Angeles Lakers ($4.4 billion) and the San Francisco-based Golden State Warriors ($4.3 billion).

The highest value soccer team is reckoned to be Real Madrid at $4.2 billion, with the remaining top 10 teams being the New England Patriots NFL team ($4.1 billion), the FC Barcelona soccer team ($4 billion), the New York Giants NFL team ($3.9 billion) and Manchester United FC at $3.8 billion.

The only other non-American team in the top 25 is Bayern Munich. No F1 teams are in the picture.

The value of the teams is based largely on their revenues and is generally around five or six times that figure, or around 20 times their annual earnings.

The problem for Formula 1 is that TV deals are tiny when compared to the numbers generated from US channels, and while top NFL teams can have the same number of games per season as there are Grands Prix, they keep all of the ticket money, which averages out to about $7 million per event. F1 teams earn far less than that. The percentages paid to the teams have increased over the years, but the Formula One Group still takes the lion’s share.

Perhaps if the teams got together and bought the F1 Group, as equal partners, that would help but most of the teams could not afford to do that.

F1 itself is looking at better promotion to boost ticket revenues, aiming to turn every Grand Prix into ‘a Superbowl’ event, with 300,000 spectators per weekend. They are also dallying with promoting their own races, which might increase revenues, but would also increase risks and costs.

So the idea that F1 teams could be worth multiple billions should be treated with care, but it is clear that the numbers can increase and some will get to be over a billion in the course of the next five years.

The key is finding the buyers who can see a way to make a decent return on their investment – and the days of such opportunities may be gone. In reality, the teams need to have value other than pure equity. The real value kicks in when an F1 team is used to promote other businesses, as is the case with Ferrari, McLaren, Aston Martin, Alpine, Red Bull and so on.

The road ahead is long, but the inherent value of F1 is clearly growing – and that’s good news for the sport.

Joe Saward has been covering Formula 1 full-time for over 30 years. He has not missed a race since 1988.

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