It’s no mystery that Formula 1 is financially going through a golden era (although ratings have dropped slightly in recent years). Shares of Liberty Media have done nothing but rise since the pandemic. In 2020, these shares were priced at $20 per share – today, they are steadily around $70.
Curiously, since the news of Andretti’s entry, the value has increased from $62 to $68 in a short time – a capitalization of $27 billion. Liberty Media deserves credit for keeping the sport afloat during the pandemic, putting money on the table helping small teams hang on.
At the time, there was a risk of several teams disappearing. This was instrumental in the budget cap being introduced, which has transformed F1 from a financial black hole into an extremely attractive business.
The teams currently established in F1 are now generating significant revenue and profits. Current estimates suggest that most F1 teams, thanks to the budget cap, can make tens of millions in profits yearly.
For the big manufacturers, this wasn’t relevant in the past. The priority in F1 was to optimise any marketing opportunities and deliver the best results. The likes of Toyota have burned through huge amounts of cash. Others, like Honda, have come and gone with mixed success.
However, this has changed. Team budgets are now subject to financial regulations and then to review by the FIA.
The consensus is now that any team licensed to race in F1 is worth no less than $900 million to $1 billion. Recently, Red Bull rejected an offer for AlphaTauri that wasn’t too far from $700 million.
Andretti receives FIA approval, but F1 could take time before a final decision
Andretti Global received a green light from the FIA after a thorough evaluation process. President Mohammed Ben Sulayem has added pressure on the situation, insisting that F1 needs “more cars on the track and fewer races.”
This clashes with the objectives that FOM is pursuing. In the meantime, the ball has passed to Domenicali to make a decision.
At the moment, there doesn’t seem to be enough for a decision in favour or against to be made. The central issue involves the dilution of the entry fee and team prize money.
Currently, the 2020 Concorde Agreement provides for a distribution of 20 million for each team. However, a new team’s entry would cost those present a reduction of this ‘slice’, which would drop between 5 and 10 million. Unsurprisingly, existing teams aren’t happy with this.
The American team has stated that it has no interest in entering F1 through legal action, well aware that good political relations are essential to their success.
Finding an engine supplier is key for Andretti
The entry of a new team also requires an engine and gearbox supplier. Until 2025, the power units will be unchanged. After the brutal change at the top of Alpine, Renault wants to focus on the new power unit that will be introduced in 2026.
The French outfit is hoping to recover the significant deficit to Ferrari, Honda and Mercedes. Interim Team Principal Bruno Famin has made clear that priorities have changed.
Renault may be obliged to supply Andretti, but this situation is sub-optimal.