Formula 1 chief executive Stefano Domenicali has made the clearest suggestion yet that the cost of getting new teams on board is likely to rise well above currently mandated levels.
The FIA started an application process for new teams in March, which is not yet complete and should lead to a result in June after all applications have been examined. Currently, if a new entrant is accepted, they must pay a $200 million “anti-dilution levy,” which is split among the ten existing teams.
Officially, this figure is meant to reflect the potential losses each team will suffer if an additional team gets a slice of the Formula 1 revenue pie. It is also believed to be related to the approximate value of a team like Williams at the time the last Concorde agreement was signed, according to some sources, but times have changed.
New amount at 600 million dollars?
However, thanks to the budget cap, the success of the Netflix series Drive to Survive and a strong recovery from the COVID years, the sport is in much healthier shape today than it was when the $200 million was agreed and the Team values have increased accordingly.
Incumbent teams have been pushing for a new number that equates the cost of entry to the theoretical value of an existing team, with figures as high as $600 million being cited. However, this can only be about the value of midfield teams, since the value of resource-strong teams such as Red Bull, Mercedes, Ferrari or even McLaren is likely to be $1 billion or even more.
Domenicali: It is our duty to protect the business!
Domenicali, who has always insisted that any new team must add value to the sport, stresses that times have changed since the original figure was set. “The process of having another team was initiated by the FIA,” Domenicali told Formula 1 investors. “In our governance, in our Concorde agreement, there is an opportunity to do that.”
“But the evaluation has to be done together, to see if a new team brings any benefit to the league and the sport from a technical and sporting point of view, and to get the big picture. And there will be a different position.”
“I want to come back to one point: the so-called anti-dilution payment was set at $200 million a few years ago. At the time, no one expected the value of this sport to increase so much. Today, the situation is very different, that’s for sure . And it’s our duty to make sure we protect the business as best we can and have a bigger picture.”
How big could the financial loss be?
In 2022, Formula 1 rights holder Liberty Media paid out $1.157 billion to the ten teams, with teams getting different slices of the pie depending on their constructors’ championship placement and historical bonuses.
However, assuming that Liberty Media pays out $1.2 billion and splits the amount fairly among all ten teams, each team would receive $120 million. If an eleventh team were added, it would only be $109 million.
To protect against dilution, each existing team would receive a one-off payment of 20 million dollars, but the calculation shows that the effect has already evaporated after less than two years. Of course, this is a problem, especially for the small teams that are not quite or just about working at the budget limit.
Increasing the dilution fund from $200 million to $600 million would extend the protection to five to six years, giving teams time to find future lost revenue elsewhere.
Liberty Media CEO: “The world has changed dramatically”
While Andretti/Cadillac’s offering is the best-known, Domenicali notes that several potential entrants have expressed interest. “Today there are so many who would like to come,” he says. “There are teams that are louder than others, some are much quieter, but they really show an interest.”
“Like anything in life, someone has to make that assessment. And we’re part of that process, and we’re going to do the right thing at the right time this year.”
Liberty Media CEO Greg Maffei echoes Domenicali’s words, noting that the value of the teams has increased: “Back to the $200 million point,” he says. “Manor was the 11th team. And just before we got into F1 (late 2016) it went bankrupt in the UK and was sold for £1. The world has changed dramatically.”
How much added value would have to be created?
When looking for an eleventh team, there is always a lot of talk about the “added value” that has to be created, but how high is this actually? So, using the simplified math from earlier, how much does Liberty Media have to pay out to teams to keep all teams receiving $120 million? The solution: around 1.35 billion dollars.
The eleventh team would have to add so much value that Liberty Media could distribute an additional $150 million to the teams. Basically, historically, half of Liberty Media’s revenue goes to teams, so the eleventh team would need to make Liberty Media $300 million in incremental revenue. Not an easy task.
