What Formula 1’s Sponsorship Boom Mean’s For The Future Of Motorsport

Key Concepts

1440 Sports: A London-based sports marketing agency specializing in B2B organizations using motorsport as a go-to-market platform.
Infrastructure Assets: Sports platforms are increasingly viewed as infrastructure assets due to predictable, indexed cash flows from long-term sponsorship and media deals.
Cost Caps: Regulations like cost caps in Formula 1 create predictable Profit & Loss (P&L) statements, enhancing business models.
Institutional Money: The influx of private equity and institutional investors into sports teams and related companies.
B2B vs. Consumer Brand Sponsorship: Different measurement approaches for business-to-business (B2B) and consumer brands in sponsorship ROI.
Global Platforms: The value of global sports platforms like Formula 1 for companies seeking international market penetration.
Formula 1 Growth Markets: Expansion into the US, Middle East, and Asia as key growth areas for Formula 1.
Formula E: A growing motorsport platform offering a global presence with lower price points than F1, emphasizing technology and sustainability.
Austin and Las Vegas Grand Prix: Distinct impacts of these US races on the sports and sponsorship landscape.
McLaren's Partner-Led Model: A strategic shift by McLaren to prioritize building a strong partner ecosystem to fund engineering and performance improvements.
Title Sponsorship: The increasing significance and cost of title sponsorships in Formula 1.
Grassroots Karting: The high cost of developing young drivers through karting and initiatives to make it more accessible.
Golf Landscape: Challenges and uncertainties in the golf sponsorship market due to the PGA Tour/LIV Golf situation.

1440 Sports and its Niche

Ricky Paw, founder and managing partner of 1440 Sports, describes his consultancy as a London-based sports marketing agency with a specific niche. They primarily work with Business-to-Business (B2B) organizations, leveraging motorsport as a platform to reach their target markets. Notable clients include DAOs, TDK, Udemy, Hewlett Packard Enterprise, Trend Micro, Forcepoint, and Fortinet. The agency operates within major global motorsport platforms such as Formula 1, Formula E, NASCAR, and IndyCar.

The Surge in Sports Valuations

Justin Burnbound from Forbes highlights the significant increase in sports team valuations. Over the past 27 years, the 124 franchises across MLB, NHL, NBA, and NFL are collectively worth $453 billion, with average team valuations increasing by approximately 1,800%, outperforming the S&P 500. Paw attributes this surge to sports platforms acting as "infrastructure assets." This is characterized by:

Contractual Indexed Cash Flow: Long-term sponsorship (3, 5, 10 years) and media deals provide predictable revenue streams.
Predictable P&L: Regulations like cost caps in Formula 1 create financial stability and predictable profit and loss statements, making these assets attractive for investment.

The Life Cycle of Sports Valuations

While acknowledging the impressive growth, Paw suggests that the sports market is likely "somewhere in the middle" of its growth cycle, with some leagues, like the English Premier League (EPL), potentially being "a little overheated." He notes a reduction in transaction volume compared to previous years. As an example, McLaren's valuation of $5.3 billion is compared to a mid-pack NBA team, indicating significant global potential and room for growth, especially in markets like the US where penetration is still developing.

The Impact of Institutional Money

The arrival of institutional money, particularly private equity, into major North American sports leagues and surrounding companies is a significant trend. Paw views this influx as generally positive, enabling:

Owner Exits: Providing liquidity for existing owners to exit their investments.
Investment for Growth: Allowing teams to make necessary investments to grow their platforms.
Platform Development: Facilitating the transition from domestically-focused ownership to building more robust global platforms, as seen with some English Premier League clubs.

Paw notes that while this influx has been positive for American investors and British fans, it has also led to fewer opportunities for new investors.

Measuring Sponsorship ROI

Measuring the return on investment (ROI) for marketing and sponsorship can be challenging. Paw explains that for B2B companies, the measurement is more direct:

Relationship Building: Motorsport platforms facilitate access to key B2B clients who might otherwise be unreachable.
Direct Business Opportunities: A day spent with a potential client at an event can lead to significant commercial opportunities, such as $10 million in annual recurring revenue for a SaaS business.
Brand Growth as "Icing on the Cake": While direct revenue attribution is primary, brand growth, employee net promoter scores, and talent attraction are considered secondary benefits.

For consumer brands, attribution is more complex and focuses on building brand equity over time. Paw also notes that the presence of peers in a sport can create a "fear of missing out" effect, making it easier for executives to justify investment to their boards.

Surprising Sponsors and New Markets

While many sponsors are logical fits, Paw mentions some "outside the box" entrants into Formula 1, such as lottery providers like Allwyn, whose data and technology focus makes them a more sensible partner upon closer examination. Barilla Pasta is cited as another example that might initially raise eyebrows.

The expansion of Formula 1 into new markets like the US, Middle East, and Asia is highly beneficial for sponsorship. For US-based B2B technology companies, having multiple races in the US is advantageous. More broadly, global platforms like F1 allow companies to enter new markets and engage locally. This is more efficient than fragmented sponsorship across multiple sports and leagues.

Formula 1's Growth Trajectory and Formula E

Paw believes Formula 1 is far from reaching its growth ceiling. He highlights Formula E as a platform that will significantly benefit from this trend. Formula E offers a global motorsport platform with strong teams, racing, technology, innovation, and sustainability, at a more accessible price point than F1.

The Impact of US Grand Prix Events

Paw differentiates the impact of the Austin and Las Vegas Grand Prix:

Austin: Historically a convening platform for technology and large American companies, it has evolved into a business platform, akin to "Davos in October," transcending sport into lifestyle and business.
Las Vegas: Adds "sizzle" and celebrity draw, but is still defining its identity. Challenges remain regarding broadcast schedules and integration with local businesses and residents. Paw personally enjoys the Vegas race for its street circuit appeal and star power.

McLaren's Sponsorship Success

McLaren's success in attracting sponsors is attributed to a strategic shift initiated by Zak Brown, who focused on building a commercial and partner ecosystem. Unlike many teams historically run by engineers prioritizing on-track performance, McLaren prioritized creating a strong platform for sponsors. This partner-led model generates funds that are then reinvested in talent and infrastructure, creating a virtuous cycle.

Title Sponsorships in Formula 1

The upcoming title sponsorship of McLaren by Mastercard, the first since Vodafone in 2013, is viewed by Paw as a significant visibility opportunity, similar to a shirt sponsor in football, rather than a fundamental change in the team's strategy. He estimates that nine-figure annual deals (in excess of $100 million) are becoming the norm for top-tier Formula 1 title sponsorships, with Cadillac reportedly seeking deals in the $60-70 million range.

The 11th Team and Market Growth

The addition of an 11th team, particularly an American brand like Cadillac, is seen as a positive development. It is expected to drive growth in the US market and provide new opportunities for brands and sponsors. While the Concord Agreement and anti-dilution issues needed resolution, the net impact is considered positive.

Formula 1's Future Growth Potential

Paw remains optimistic about Formula 1's continued growth, citing several factors:

Untapped Markets: Asia, the Middle East, and the US remain largely untapped.
Viewer Delta: The significant difference in average viewership between NFL (12 million) and Formula 1 (1.2 million) in the US indicates a 10x opportunity for growth.
Predictable Economics: Forward cash flows, cost caps, and expansion opportunities contribute to the sport's financial attractiveness.

Engaging Younger and New Fans

Beyond "Drive to Survive," Paw emphasizes the need for more immersive fan experiences to convert casual viewers into dedicated fans. He suggests:

Accessibility: Making the sport more affordable for fans to attend races and engage with.
Off-Track Experiences: Developing engaging experiential opportunities outside of the track.
Grassroots Development: Addressing the prohibitive cost of grassroots karting, which can reach $30 million by age 18, limiting the talent pool. Initiatives like Rob Smedley's "FAT Karting League" offering affordable karting ($3,000/year) and a pathway to Formula 4 are highlighted as crucial disruptors.

Valuation Trends and Undervalued Assets

The average Formula 1 team valuation has seen a dramatic increase, from $500 million in 2019 to $1.88 billion in 2023 (a 276% rise). McLaren's $5.3 billion valuation is still considered by Paw to be potentially undervalued when compared to major US sports franchises like the Lakers ($10 billion), suggesting significant room for further appreciation. The presence of cost caps and predictable revenue streams further bolsters these valuations.

The Golf Landscape

The golf landscape is currently experiencing a "hard patch" due to confusion surrounding the PGA Tour and LIV Golf. Paw believes golf lacks a singular global platform, which LIV attempted to provide but has not gained the expected traction. Sponsors are also reportedly wary of the male dominance in the sport, although platforms like the LPGA are highly regarded. Until the situation with the PGA and LIV is resolved, sponsors are expected to remain cautious.