Life in the fast lane

Formula 1 has long been viewed as an exclusive European sport boasting luxury sponsors. However, in recent years the sport has been made more accessible to the masses leading to a surge in popularity. This pivotal switch in strategies came after Liberty Media’s purchase of F1 in 2016 and the subsequent removal of its longtime chief executive Bernie Ecclestone. FWONA is a stock that tracks the value of the Formula One Group, which, similar to BATRA, is owned by media-mogul and investor John Malone through his company Liberty Media.

What do you need to know?

• Much of the last decade in Formula 1 has been dominated by Lewis Hamilton and Mercedes. Hamilton won 6 Drivers' Championships during a 7-year span from 2014 to 2020 and Mercedes won the Constructors Cup every year during that time. Red Bull has been the biggest competitor to Hamilton and Mercedes, having won the Constructors Cup for 4 straight years from 2010-2013 with Sebastian Vettel and again last year in 2021 with Max Verstappen.

• Until now, Formula 1 had never fully captivated the U.S. audience. Much of the new interest in F1 coincides with the launch of the popular Netflix show Formula 1: Drive to Survive, which debuted in March 2019. The show is now in its 4th season, with a 5th planned for 2023, and is continuing to put up impressive viewership numbers. In its first full week on Netflix it was the 4th most watched show with 29 million hours watched.

• Success in Formula 1 has historically been tied to the amount of money spent by the teams. In 2019, Mercedes won the Constructors Cup with a budget of over $450 million. Ferrari and Red Bull spent similar amounts that year while teams with the smallest budgets spent between $130 and $140 million. However, in 2021, a spending cap of $145 million was introduced to level the playing field and will fall even further over the next few years.

• New car specifications were announced ahead of the 2022 racing season. In short, Formula 1 cars are designed to create what is known as downforce, which keeps the car low to ground and gives it better traction at high speeds. However, F1 cars leave a trail of dirty air in their wake that makes it difficult for other cars to follow closely behind without sustaining significant drops in downforce. Thus, new specifications have been implemented to make it easier for cars to follow closely without losing too much performance.

Why should you care?

• In 2019, the Formula One Group signed a 3-year broadcasting deal with ESPN for $15 million. This year the deal expired and has reportedly been renegotiated with ESPN for between $75 and $90 million per year for the next 3 years. The massive increase in this new deal is a clear indication of the future expected value of F1. Many other companies also put in bids for the broadcasting rights, including Netflix, Comcast and Amazon--who reportedly offered $100 million per year. If the newfound popularity of F1 in the U.S. holds, the value of the next broadcasting deal to be negotiated in 2025 could be even higher.

• The number of races is expanding as popularity grows, particularly in North America. This is good for revenue. Originally the U.S. hosted one race, the U.S. Grand Prix, at the Circuit of the Americas in Austin, Texas. However, a second race, the Miami Grand Prix, was added in 2022 with plans for a third race, the Las Vegas Grand Prix, to be added in 2023. The new races have been met with great reception, posting record viewership and attendance numbers.

• In 2026, Audi and Porsche will join Formula 1. Audi will work with McLaren and Porsche will work with Red Bull. This is the same year that new regulations requiring fully sustainable synthetic fuel take effect. While parent company Volkswagen Group will not put its name to any F1 teams, participation in the sport should provide added visibility and prestige to its brands as well as provide a testing ground for future automobile technologies. Broader commercial interest in F1 is a positive for the sport.

• Engaging new audiences is vital to the future of the sport. The introduction of new car specs and a budget cap has already leveled the playing field this season and helped increase on-track competition. Further, engagement on social media under the expert direction of John Malone and Liberty Media has attracted younger fans across the world.