🏎️ Formula 1 Showing Signs of Stalling

F1 experiencing windy roads of growth

The 2024 Formula 1 season is upon us and we’ve already seen races in both Bahrain and Saudi Arabia. Next up…the Australian Grand Prix! Even though the season is young, what is the one thing these last two races have in common? Anyone? Clearly no one did their F1 homework last night 🙄. Fine, we’ll provide the answer: the Red Bull Racing Team finished in 1st (Max Verstappen) and 2nd place (Sergio Perez). And that’s not a coincidence because they’re in a warmer Middle Eastern climate. This is a pattern that has shown to be consistent for the last couple of years. And, frankly, we’re unsure when this will stop. So let’s take time to review Formula 1 as a sport. The growth it’s seen throughout the years. The rule changes implemented to “attempt” to make the playing field more even. And what does the future look like as races have become too predictable? Let’s get after it…

I’m new here, what is Formula 1?

• In short, Formula 1 is a racing sport that is considered the cream of the crop for international open-wheel, single-seater racing. The FIA Formula 1 World Championship started in 1950. Currently, the sport features 24 races in a year, where each race is held at a different venue around the world.

  • Races usually occur on Sundays with two days of practice beforehand. The qualifying session the day before determines the grid for the race, with the driver setting the fastest lap starts at the front of the pack (a.k.a. “pole position”).

• 10 teams compete in Formula 1 — they’re either privately owned or run by car manufacturers — and each team must run two cars. So a total of 20 drivers line-up on the grid.

  • You might notice team names such as: Ferrari, Mercedes, McLaren, Aston Martin, etc.

• Each team must build their own car, within the regulations. But a lot of work goes into building these cars. From building built to last tires, to aerodynamic designed cars, to high horsepower + fuel efficient engines, the constructors and crew are just as important as the drivers.

• Drivers score points by finishing in the top 10 for each race. All points are tallied for the Constructors’ World Championship, which will determine the #1 team and #1 driver at the end of the season.

  • 1st place finish = 25 points

  • 2nd place finish = 18 points

  • 3rd place finish = 15 points

  • 4th (12), 5th (10), 6th (8), 7th (6), 8th (4), 9th (2), 10th (1)

What has lead to the surge in popularity?

• In 2017, Liberty Media (owners of SiriusXM and Live Nation Entertainment) bought Formula 1 from private-equity firm CVC Capital Partners for ~$4.5 billion.

  • Liberty took matters into their own hands as they felt the sport wasn’t being run in the correct way. They set out to attract more eyeballs to the track by doing the following:

    • Rebranding the sport to appeal to a younger audience.

    • Increasing F1's presence on social media and video streaming platforms.

    • Introducing the world to the sport and different personalities (drivers, team principals, owners, etc.) in a docuseries format with Netflix’s Formula 1: Drive to Survive.

    • Applying mandatory limits on how each team could spend their money (i.e. to ensure the richest teams couldn’t continue to outspend the others). This included money to develop cars, salaries for drivers and crew members, etc.

    • Bolstering fan interest within the US by announcing a broadcast deal with ESPN in 2018 that’s set to continue through 2025, while also adding more races in the US with Las Vegas (2023) and Miami (2022).

• And to be frank, the Liberty Media purchase has gone really well.

  • F1’s annual revenue increased by 25% to $3.2B in 2023, up from around $2.5B a year earlier.

  • Operating profit also increased by 64% year on year to $392M in 2023.

  • Just the other week, McLaren Racing CEO Zak Brown (not that Zak Brown, cowboy 🤠) spoke at a Bloomberg Power Players event in Jeddah and believes the valuation of every F1 team is now worth “well north” of $1.3B, thanks to Liberty Media’s changes.

Ok all this sounds great, so what are the issues?

• Remember those mandatory spending limits to ensure all teams had an equal chance to compete in terms of budget? Well…that hasn’t necessarily played out according to plan. In 2021, the championship between Max Verstappen and Lewis Hamilton came down to the final lap of the final race, and unfortunately fans haven’t experienced anything close to that since (see Table 1).

• Last year, Verstappen won 19 out of 22 races (and there are clearly no signs of him and his Red Bull team slowing down).

• Overall, there’s a competition problem within F1. Even though Liberty implemented these new rules, we can see “The Big Three” of F1 is still winning the majority of these races.

  • To zoom out even more, over the last 10 years, there have only been two winners of the Constructors’ Championship: Red Bull and Mercedes.

• Liberty Media did a great job tapping into the US market, but one of the issues as to why we saw peak viewership in 2022 (see Table 2) might be because the US has not developed good American-born drivers.

  • Logan Sergeant joined the grid in 2023 with Williams Racing but only managed to receive 1 point the entire season (he’s the first American to race since 2015).

  • An American has not won an F1 grand prix since Mario Andretti at the 1978 Dutch Grand Prix 😬. (Americans don’t like not dominating a sport) 

Where can F1 go from here?

• The women like what they see. Drive to Survive helped American fans connect with a European-heavy sport in a way that doesn’t rely on just racing. It has also led to more diverse F1 fan demographics (younger and more females). A 2021 global survey of F1 fans reported that more than 18% of respondents were women, up from 10% in 2017. But interest in the sport can only go so far if engagement doesn’t continue to increase. And F1 knows they can’t just rely on Netflix…maybe we see a women-only racing team in the future?? 🤔 

• Growing the grid nice and slow (very slow). Sometimes sports leagues need a shake-up to increase the number of teams within the league. This usually happens because of increase flow of revenue, increase talent within the league, ability to reach another market, etc. So why not shake things up by adding another F1 racing team? Michael Andretti (son of Mario) tried this by forming an Andretti and Cadillac joint bid. Unfortunately, F1 rejected the bid which means they can try again in 2028. Ultimately, he’ll need to prove he can come in and be competitive from Day 1, which shows the sport understands the need for competition to grow instead of just adding more teams.

• Tap, tap, tap into those markets. McLaren CEO, Zak Brown, also mentioned the need for adding more races and expanding into new markets, specifically Asia, India, and South Africa to gain a more global footprint which leads to increased viewership. But of course, tapping into more markets means more travel, higher expenses, more logistical turns, etc. It’s why each F1 team will currently spend nearly $100M while traveling 75,000 miles and transporting 1,500 tons of equipment (you gotta spend money to make money, right??).

• Rewrite the rulebook. The up and down nature of Formula 1 growth might come down to competitiveness. And we’ve spoken about the work Liberty has done to equate the playing field in terms of spending. But maybe more rules need to be changed. We’re not Formula 1 rulebook experts, but just how the MLB needed to change game rules to increase viewership, Formula 1 will need to do the same. Maybe constructors can only use certain types of materials to build the car? Maybe change the point system? Whatever it is, it needs to be done ASAP.

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Quick Hitters

• 🐻 Stand up Chicago! The Bears aren’t moving to the ‘burbs! The NFL team confirmed Monday it intends to remain in the city of Chicago, and it is focusing on a lakefront site in downtown Chicago that is currently a parking lot next to Soldier Field. The team originally had plans to move to Arlington Heights and actually already purchased property in 2023 for $197 million (the property taxes ended up being a tad high 😂). It’s an important development for the league and team as Chicago is the country’s third-largest media market but, has been shut out of hosting major events such as the Super Bowl and Final Four, as it does not have a large-scale domed stadium.

• 🦬 We know Prime makes it rain in Boulder, but in the wake of Deion Sanders’s arrival, the University of Colorado says it has had a 20% overall increase in applicants, and over 50% more Black applicants. According to the school’s assistant vice chancellor of admissions, Jennifer Ziegenfus, this year’s applicants are the most diverse group Boulder has ever seen, with applications up ~25% among Hispanic and Latino students, and 15% among American Indian and Alaskan Native students. Overall, non-white applicants are up almost 30% over last year 👏.

• 😈 With Selection Sunday just around the corner, wouldn’t it be great to launch sports betting in a college basketball feeding ground? Yep, North Carolina thought so too! On Monday, NC became the 30th state to legalize mobile and online sports wagering just in time before March Madness begins. It’s almost like this was planned! Get ready DraftKings and FanDuel, the Tar Heel State has been drooling from the mouth to bet when a Duke player intentionally trips their opponent.

• ⚽️ The NWSL is deepening its relationship with Amazon as the league announced a new multiyear deal that will make Amazon its “exclusive retail partner” and an official league licensee. Under the deal, fans will be able to buy hundreds of officially licensed products (hoodies, t-shirts, hats, etc.) on Amazon. The timing is surely interesting, especially since Fanatics has been dominating the sports apparel market. Maybe Amazon’s new Fan Shop would like a word 😉.