(Bloomberg) -- For three days next month, a patch of tranquil wine country will be transformed into a cauldron of noise and car fumes when the Sonoma Raceway in California hosts the Velocity Invitational luxury motorsports festival.
The event gives collectors a chance to see how their prized classic race cars measure up on the track. Walmart heir Rob Walton is set to drive a 1961 Ferrari 250 GT SWB Berlinetta, 1956 Maserati 300 S and 1965 Ferrari 250 LM.
The retail scion isn't just a hobbyist. Walton invested in Formula One team McLaren Racing through his family office in December 2020, alongside MSP Sports Capital, UBS O'Connor and the Najafi Companies, according to people familiar with the matter. The size of Walton's investment, which hasn't previously been reported, isn't known. The funding round, which was in the form of warrants and loans that can be converted into equity, valued McLaren at £560 million ($682 million), the company said.
A spokesperson for Walton, 78, declined to comment.
Walton, who owns the Denver Broncos National Football League franchise with champion British racecar driver Lewis Hamilton, is among a growing class of investors pouring money into F1, one of the fastest-growing sports in the US. The sport's high-speed, high-tech races through big cities have thrilled fans and drawn investors and sponsors enticed by the potential of lucrative broadcast deals.
F1's new backers range from wealthy individuals like Walton — one of the world's richest people, with a $70.6 billion fortune according to the Bloomberg Billionaires Index — to US private equity firms and Hollywood stars. In June, Alpine, the team of French car manufacturer Renault, secured €200 million ($210 million) from RedBird Capital and Otro Capital, a RedBird spinout, along with actors Ryan Reynolds and Rob McElhenney — who bought Welsh football club Wrexham in 2021 and turned it into a TV phenomenon. The 24% stake sale valued Alpine at €800 million.
“A Formula One team should be worth like what an NBA or an NFL or a football team is worth — there's no reason why it shouldn't,” said Luca de Meo, Chief Executive Officer of Renault, in an interview at Alpine's headquarters in Oxfordshire, England. “You have 70 million people every Grand Prix weekend that watches the thing. You have a billion fans and it's growing.”
Next month, Formula One will hold one of its biggest US events yet — its first ever Grand Prix in Las Vegas, along the gambling capital's famous Strip.
Driving to Survive
Under Bernie Ecclestone, who kept tight control over financial decisions in his 40 years as CEO, Formula One grew from a sport for amateur enthusiasts to a billion-dollar enterprise. Then, in 2017, John Malone's Liberty Media Corp. bought the circuit for $8 billion from CVC Capital and set its sights on boosting TV audiences in the US.
That effort got a jolt from a Netflix series that turned mechanics into stars and hooked more Americans on the sport. The show, which debuted in 2019 and released a fifth season this year, has produced “an incredible windfall for the industry,” said Jeff Moorad, the CEO of MSP Sports Capital.
“It's not only helped to capture a new fanbase in the US, but has also been a driver of new corporate interest in the sport globally,” said Moorad, who previously was a part owner of the Arizona Diamondbacks and San Diego Padres Major League Baseball teams.
Sponsorship prices have doubled in five years, McLaren Racing Chief Executive Officer Zak Brown told Bloomberg Surveillance in July. The team's newest sponsors are all big US companies, including Alphabet Inc.'s Google, Cisco Systems Inc., Dell Technologies Inc. and Goldman Sachs Group Inc. “These companies were not considering Formula One five years ago,” Brown said.
At the same time, big investors in other corners of the globe have also been stepping up their backing of the sport. Audi acquired a stake in the Sauber F1 team earlier this year, and the team will compete under the German automaker's name starting in 2026.
Spending Cap
Investors say one key to Liberty's turnaround was the introduction in 2021 of a cost cap that made the circuit more competitive. Liberty put a limit on what teams could spend on their cars, most of the team personnel, garage equipment and spare tires.
Liberty also agreed to share profits more evenly with all teams, which are independently owned. They split $112 million in the first quarter. F1's revenue rose 20% to a record $2.57 billion in 2022 and analysts expect it to top $3.2 billion this year.
The cost cap convinced the MSP-led consortium that buying a team like McLaren would be worth the money, according to Jahm Najafi, the billionaire chairman of MSP and part-owner of the National Basketball Association's Phoenix Suns. MSP explored a deal for another F1 team, Force India, after it filed for bankruptcy (it was snapped up by Lawrence Stroll, who launched the Aston Martin F1 team) and also considered buying UK-based Williams Racing when it was up for sale, Moorad said.
“When we looked at a couple of other teams prior to 2020, in each case we passed because anybody who wanted to spend money to become competitive, they could without any restrictions,” Najafi said. “But after the cost cap was established it really made us very interested as investors.”
There have been some drawbacks to the cost limits. Teams that spent more in the years before their introduction still have an edge. And some large outlays, such as driver salaries and engine costs, aren't included under the cap, which was set at $135 million for this season.
Expansion Question
With more capital flooding in, Liberty is considering expanding F1, which features 10 teams with two cars each. Andretti, owned by former US racing driver Michael Andretti, has been cleared by the sport's governing body to enter with backing from General Motors' Cadillac. However, a final decision will be up to F1 after it assesses the potential commercial benefits and drawbacks.
“We need to make sure that the decision is right for the business,” F1 Chief Executive Stefano Domenicali told Motorsport.com in July.
Existing teams are likely to object to Andretti's entry since expansion could dilute the profits shared among the teams. The current teams have also suggested the $200 million entry fee doesn't reflect the rise in F1's value in recent years.
“If I was in it now and I had a franchise and the top ten only get the money, would I want an 11th, 12th or 13th team in there? Absolutely not, why would I?” said Eddie Jordan, who ran the Jordan Grand Prix team that competed until 2005.
In the meantime, investors continue to look for a way to ride the wave. The Aston Martin team has been approached by potential backers, according to Lawrence Stroll. “The Formula One teams appreciated in value significantly over the last few years due to the popularity of the sport, due to cost caps,” he said at an event earlier this month at Aston Martin's F1 headquarters at Silverstone, the home of the British Grand Prix. “So, we've had conversations, but there's nothing on the cards.”
New investment doesn't guarantee victory — as Alpine has discovered, with the team struggling in 2023. Yet success on the track isn't necessarily critical for financial success. McLaren is fifth in the standings, where it ended the 2022 season, but that hasn't dampened investors' spirits.
“From an investment standpoint,” said Najafi, “it seems like we are in the money.”
--With assistance from Albertina Torsoli.
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