A Very Profitable Sport Now With Budget Caps Involved


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MSP Sports Capital has invested what will be $370 Million over two years buying 33% of McLaren Racing. It sounds like a lot of money that is more of a gamble if it will pay off or not. Other teams notably Mercedes also relinquished shares that were sold to Ineos valued at $450 million.

One would have to ask why companies and investors are ploughing money into something that has never been seen as something really profitable. Formula One has a budgetary cap in place these days set at $145 Million excluding drivers and senior management, but is a far cry from the $300 or $500 Million that some teams were spending every season.

What formula One has done is made the teams a franchise that has a business model that should now be profitable for everyone involved. before the budgetary cap the smaller teams could not realistically compete against the big spenders backed by a car giant such as Ferrari, Mercedes and Renault.

Ferrari used to spend staggering amounts that didn't always materialise to wins on the track as we saw over the last two seasons and possibly one could argue over the last 10 years. The technology that the money is spent on is supposed to make it's way back into their sports cars so they can maintain a competitiveness in the market place.

Looking at the make up of the various teams and each one having high end facilities with state of the art facilities the spend has already been made and $145 Million should see them get by comfortably each season.

If we look at the various teams and what they earned in 2019 you can see why it is rather lucrative even for the very small teams. I just don't get it why teams don't look for the best drivers available as scoring points is literally banking money and big money. Hamilton asking for $40 Million for the season sounds like a huge amount but he is bringing in 10 x that over a season plus his extra work he does with helping to advertise Mercedes with the television adverts.

In 2019 Mercedes raked in nearly $680 million (spent $442 Million) so if you apply the $145 Million budgetary cap plus the salaries there is a huge profit to be had. The same applies to Ferrari who raked in nearly $900 Million over that same period spending $460 Million in the process. If we look at the smaller teams on the grid who don't win very much and not much is expected of them a team like Haas will still walk away with $280 Million which is nearly double the budgetary cap when they were spending in the region of $130 million per season anyway.

With the sport only getting bigger and bigger you can see where these figures are heading and why the FIA is trying to make the racing more exciting. This season won't see many changes to the car but as of next season the racing should be more competitive with the change to aerodynamics making it easier to overtake. I think whoever has invested in the various teams will see decent returns and is sound business. I can now see why Williams was bought out by Dorilton Capital another Investment Group who have entered at just the right time to make decent returns.



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