How Formula 1 Teams Make Money

There's no other sport in the world that can give you the feeling of being in the arena where the gladiators are, when really the action is going on. You're trying to imagine scenarios, how the start could turn out and you know the what-ifs. Going racing. It's intense. You can see if you've done things right. If you want to change anything, it's too late on the grid. We're in the prototype business. We're standing still. You're going backwards because everyone's going forward. And the team, we are half glass empty people rather than half full. Maybe our lives are a little bit more miserable than others, but it keeps us on our toes. Formula 1 is the most elite racing league on the planet, and it's doubled in value since U.S.-based Liberty Media bought F1 for some $8 billion in 2017. What's it worth now? The enterprise value is about, floating around, say $16 billion. And together, the ten teams on the grid are reportedly valued at more than $15 billion. Today. I don't think you could buy a team for less than $750 million, and the top teams are valued at $3 billion. That's a total change. It's a rapid rise for one of the world's fastest sports. It's Toto Wolff, everyone. So let's get started. My name is Anita Elberse, but this is really not about me. This is about this man, the most successful team principal of our era. We have ten teams, and those ten teams have been there through thick and thin. We were shaken by Covid and we made it. Formula 1 teams are run by CEOs and team principals. Welcome to the Miami Grand Prix. In some cases, they're both. Toto Wolff of the Mercedes F1 team has his hands full with three roles. You're unique because you are CEO, principal and part owner of Mercedes. Which one takes the most time? While the engineers will always say that I'm spending too much on the CEO side, and I need to remind myself that in our business, it's the stopwatch. If we win, financial success is going to follow. My priority must always be to create a framework where our performance people are able to thrive. 23 race weekends of the year, I'm the team principal of a high-performing sports team, and for the other 52 weeks of the year, from Monday to Friday, I'm the CEO of a high-tech technology business, so it keeps me keeps me busy. You need to know what you're doing technically because you've got a big design team. The technology in F1 is at the forefront. You know, you always develop something and you need to run a business. You need to have that money coming in. So you need to sell sponsorship or report back to the board, to the investor in the team and tell them what you're doing with money. What does the CEO of McLaren Racing Team do? That's what a lot of people on the racing team actually ask. My job is to get the best people to give them the resources they need, the direction they need. On the commercial side, bringing on new corporate partners and most importantly, servicing and making sure our corporate partners are benefiting from their affiliation with McLaren. And then, of course, I've got a board and shareholders. I'm pretty much seven days a week. CNBC is a corporate sponsor of McLaren racing, one of the top five teams in Formula 1. To get to the top of the league – We've now won 27 of the last 31 races — you have to start early. When did you start getting into racing and F1? You're the longest serving team principal, right? Yes, I have that title now, apparently. I started at the age of 11 racing go karts, and then I did some testing as a test driver in Formula 1. But then I retired from driving in 1998, and then Red Bull approached me when they acquired what was the Jaguar Formula 1 team to come and be the first team principal of Red Bull Racing. Racing wasn't part of any of my upbringing. When I was 18, I got invited to a junior Formula race, Formula 3 in Europe, and this is really where I found my identity. You started as a mechanic, right? Correct. I started as a mechanic in '86, in rallying, in world rallying. And how does going from mechanic to now being a team principal inform you? Do you think it gives you an edge? I don't know if it gives me an edge, but for sure it gives me an advantage. I mean, it's very difficult to pull the wool over my eyes. F1 cars are made from scratch. It's part of the reason that operating costs for the teams are sky high. For the Mercedes team, that figure was more than $400 million in 2022, which includes everything from marketing to mechanics to driver salaries. And this is all you can. That's massive. That's massive carbon. It's an aerodynamic miracle in that car. We're trying to have the airflow flowing underneath the front wing and above it, and that airflow then spreads around the car and hopefully provides downforce. Can you put a price on the cars? They cost about $50 million to develop, and they're a couple of million dollars to actually build one. These cars here probably $2.5 million each car. To make? To make. It lasts for one season? It lasts for one season. And then what? And then they go in a museum. R&D is the biggest single investment. If you took the car that starts the year and it was on pole and you didn't touch it, by the end of the year, it would be last. We have new stuff on our car this weekend. We'll have new stuff on our car next weekend. So it's a prototype race. You're never sitting still. And to pay for all that, teams have to bring in the bucks, mostly from sponsor contracts and F1 itself. What about the prize money? How does that work, now that you're at the top? Well, the prize money is essentially split into three columns. So you get one column for participation. You get one column for where you finish in the constructors championship. Then there is a third column that is all has a historical content to it. So for example, Ferrari, benefit the most from that column because they're the longest standing team. Our business today generates about $600 million in revenue, and we are growing with 10% to 15% annually. We have predictable income streams because sponsorship contracts normally between 5 to 10 years. You've got MoneyGram as the title sponsor. How did that come together? I think MoneyGram coming to us was very smart. I mean, it's an American company which wants to get more business globally in the big teams. You know, it's all about the big team. And with us I think they get more about them. We are still the youngest team. Why did you think this was a good idea? We were known as a traditional 80-year-old brand that is a retail cash business. One thing we looked at from a marketing perspective was how do we amplify the characteristics and the brand attributes that we were becoming more and more, which is around innovation and technology, safety, speed, etcetera. And then what really pops out about F1 initially is that they race in, at the time, in 20 different countries, and we looked at those countries in that particular year, it overlapped with 70% of our send revenue. So while we're a U.S. company and it's our largest market, we do more business outside the U.S. than we do inside. Are the Formula 1 fans MoneyGram customers? Yeah, we typically interact with consumers that are 25 to 35 years old. They're oftentimes migrant communities that have left their home countries and they're gone to find employment sending money back home. And so the connection with a racetrack, the connection with the driver, the connection with the sport itself really binds them and connects them in many ways. It's a global sport. MoneyGram is, you know, connecting people financially all over the world. And I think all these synergies, synergies are there. One third of what we do is, you know, PR-sponsored stuff, marketing media. It's a big, large part of it. It's what keeps us racing. You know, it's a small privately owned team and all these partners that we have on board, you know, they're the ones that, you know, make this possible. How do you determine the placement of the sponsor? So we measure precisely how much exposure a sponsor gets by being on the car. So depending on the size of the sponsorship deal you're getting more spaces. But to be honest, the sticker on the car is just the icing on the cake. It's more the relationship that you have. How can we help them to increase their sales or help them with their marketing targets? What we're doing is tailor made for the specific partner. Does the success of F1 and the team have any bearing on Mercedes sales? For the consumer? I think it's a long-term branding exercise where people say, okay, what is what is it that I think about Mercedes? We are being given the responsibility of carrying the star, the automobile. You know, it's not like a sponsorship platform, like we're doing tennis or golf. We are building race cars and we're building road cars. The first ever Mercedes was a racing car. Why does Red Bull, an energy drink maker, need a Formula 1 team? The shareholders have always been passionate about racing and Formula 1, and they saw it as the perfect platform to market their brand. And it's the most viewed sport in the world outside of the Olympic Games and the football World Cup. But of course, they only happen every four years. Formula 1 is every two weeks. Is it a profitable investment for them? It depends how you view it in terms of the recognition for the brand globally, what that would cost to advertise. Absolutely. It's a huge success in the amount that it's promoting the Red Bull brand. And I think as the sponsorship and partnerships and the income improves and cost caps take effect, we're seeing the intrinsic value of Formula 1 teams just increase dramatically. The cost cap that Liberty Media introduced limits how much each team can spend on building and developing cars. Set at $135 million in 2023. Is the budget cap a good thing? Absolutely. Anybody investing in it knows how much you're going to spend before somebody's investing in a race team didn't know if he would spend $200 million a year, or half a billion a year. There was everything in between. We're now profitable. We were losing seven, eight, nine figures when I got started. And now we're a profitable sports team. The blueprint was the American leagues, where when the salary caps were introduced, the businesses became sustainable. That was introduced two years ago, with also the aim not only to make the business sustainable, but also to create a more leveled playing field. Small teams basically having the same budget like the big ones. Long term, there will be many more teams capable of winning races, but also it made our business very profitable. So how do you spend it most wisely and how do you boost the performance? That's that's the name of the game. Before, if we wanted to develop a new front wing, you could develop ten and pick the best one. And you didn't mind that you kind of wasted money on nine front wings. Now you don't want to develop ten to land on one, because that nine wings that you've wasted money on, that's money that you should be spending somewhere else. Becoming profitable, I hope we achieve it this year or next year. You know that will be one – It's not profitable now? Not in the moment. In the moment, I think we are close to a break even. But we will become profitable because every business to assure that you continue, you need to be profitable because it cannot be just an investment project. And with profitability comes a surge in team values. Recently, a group of celebrity investors took a 24% stake in alpine racing, putting that team's value north of $900 million. We've got a lot more newer, younger audience now, which I think people are really excited about the sport and where it's going. I used to come out to the States particularly, and I would explain what it is I do, and I never could understand why people didn't love the sport like I've grown up to love it. And now I'm seeing people having that experience that I've had. As this season winds down, it's all eyes on next spring. How should we look to 2020 for the next season? Do you have a good sense that you're going to be back in the hunt for the title again? We have completely changed the concept of our car. It seems like all our tough learnings of getting it wrong so many times now makes sense. So I think the car is going to be in a good place. Is it good enough to beat the Red Bull? Is it good enough to beat Max Verstappen? I don't know, but the aim is definitely to be right up there. That rivalry between you and Mercedes, you and Toto. Where does that stand right now? Well, they'll be quiet at the moment, but they'll be back. It's a bit like The Terminator.