Formula 1 teams have historically been financial death traps for institutional investors. Of the over 170 teams that have competed since 1950, more than 150 of those have gone out of business chasing performance in an arms race with no spending limits.
A team’s financial model was simple: throw money at the problem, and if you couldn’t keep up, you disappeared.
Things changed in 2021, when F1 introduced a cost cap that coincided with revenues exploding, thanks mainly to Liberty Media’s overhaul of the sport’s commercial strategy, which birthed the likes of Drive to Survive and lucrative media rights deals.
Since then, team valuations have skyrocketed and seven out of ten teams are now profitable. More on why in the article below.
As a result, private equity firms are paying attention.
What is Private Equity?
For the uninitiated, PE firms pool capital from institutions and wealthy individuals to acquire significant stakes in companies, usually with the goal of improving operations, accelerating growth, and exiting at a higher valuation within a set time frame (often 5-10 years).
Their playbook tends to favor businesses with predictable cash flows and clear opportunities to professionalize, scale, or optimize operations.
PE is often spoken about as a monolith but in practice, it isn’t. Sometimes it’s constructive. Sometimes it’s problematic. It’s often unsexy.
Sports has only recently emerged as a viable asset class for PE, largely due to the professionalization and financial stabilization of leagues and teams.
Some early credit goes to Jerry Jones, whose purchase of the Dallas Cowboys in 1989 marked one of the first signals that sports could be a worthy investment.
2006 brought what is considered the first official PE investment in sports, when three American funds bought the majority of soccer team Paris Saint-Germain.
Over the past two decades, sports franchises have consistently outperformed the S&P 500. One thing PE firms love to promise their investors? They beat the market.
Private Equity in Formula 1
PE’s interest in F1 is not entirely new, though the focus has shifted.
