Interview Synopsis

Formula 1 Teams – business model analysis and investment opportunities

  • Private Equity
  • Consumer
  • North America

As the Formula 1 season heats up, so too is investment in the sport. Earlier this month, it was reported that Calvin Lo, chief executive of insurance broker RE Lee International, is looking at F1 investment opportunities, following in the footsteps of Dorilton Capital and MSP Sports Capital.* According to a former executive at Williams Grand Prix Engineering Ltd (Williams Racing), “buy at the bottom” remains a good mantra for anyone looking to invest in the sport.

Formula 1 promises investors a ride in the fast lane

In an Interview with Third Bridge Forum, the specialist began by evaluating two recent F1 investment deals  – Dorilton’s acquisition of Williams Racing and MSP’s 33% investment in McLaren. They told us Dorilton would have been attracted to Williams given the team’s “long-term decline” but nevertheless “significant skills…facilities” and “quintessential British brand”. However, the specialist “doesn’t understand” MSP’s investment in McLaren given the limited synergies between the two – although this could change if MSP instigates a full buy-out.

The specialist also deconstructed the different teams by their financial performance. They told us classic sole manufacturers such as Williams, AlphaTauri and Alfa Romeo are financially “precarious” due to the teams’ limited resources impacting their ability to earn prize money and sponsorships. McLaren, Alpine and Aston Martin were described by the specialist as “midfield” teams that are also likely making a loss – the only outlier being Haas due to its different business model. The highest tier, according to the specialist, includes Ferrari, Mercedes and Red Bull. They said that all three teams could run at a profit but currently do not. 

Meanwhile, the specialist said it would be “extremely challenging” to start a new F1 team, with USD 200m the minimum needed. After breaking down the costs of running a team, the specialist told us it would be more beneficial to invest in an underperforming team that has both human and physical capital. They also emphasised that a “quality” HR department would be a “significant determinant of success”. 

However, the specialist also erred on the side of caution regarding any Formula 1 investment. While they said the sport “is growing”, they acknowledged that to see significant returns investors would need to invest in an F1 team for a minimum of 5-10 years, and that those returns are likely to come through tie-ups with other companies that wish to be associated with the brand – not the team’s performance itself. 

They also warned that the current macroeconomic environment would affect F1, and that the “significant investment of money, time [and] management” made it risky – much like the sport itself. 

Click here to access all the human insights in Third Bridge Forum’s “Formula One Teams – Business Model Analysis & Investment Opportunities” Interview.

* Reuters

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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