Not bad considering these valuations were done last year and already Mercedes has risen by another 18% in 12 months.
Toto Wolff the CEO of Mercedes Formula One and a 33% shareholder is selling a 5% if his own shareholding which represents 1.66% of the total team ownership. The price is what is quite staggering being $75 million for the 1.66% which represents a valuation of the team at $4.5 Billion.
Not that long ago back in 2022 INEOS under Jim Radcliffe purchased a 33% share holding in he Mercedes team for £208m which is $272 Million. This would represent an invest return of around 700% in 3 years or a $1.228 Billion profit.
When INEOS purchased the 33% share I thought at the time this was a steal mainly due to the cost cap having turned this sport from a cost center into a cash cow. The $145 million cost cap per year has transformed the sport where prior to the cost cap teams were making zero profit.
The only time the owners made any money was when they sold the team and has many similarities with football. Most football clubs operate at a loss and very few make any profit which is how the football business works. I read a while back that only about 1% of all the teams in Europe make profit. Putting that into context there are 1170 professional football clubs across 40 leagues and we are talking less than 10 teams. Owners cash in when the clubs are sold otherwise they use debt to their advantage.
Formula One has a cost cap to level the playing field so teams cannot spend whatever they want and giving the bigger teams with bigger pockets an advantage. The top teams can earn over $500 million per season which when you subtract the $145 million cost cap gives them working capital and profit for the items not included in the cost cap.
The items not included are the teams top 3 salaries plus drivers salaries. Travel costs for the entire team excluding transport for the FI cars equipment which F1 covers. Licensing fees per team which is $1.5 million per season and marketing costs. If one had to guess and create an example these costs would be less than $150 million per season even if the top driver was on $60 million.
Teams generate money from sponsorships and technology they have developed which they sell on so the earning ability is endless if you are continuously developing new technology. A top team could earn upward of $500 million per season compared to a lower placed team who would still cover their costs and at least have some profit.
If we use Mercedes as an example knowing their valuation is around $4.5 billion we can guestimate their annual revenue. The team has not been winning races and dominating the constructors championship like they used to, but are still in the top 3 or 4 each season.
2022 the team earned 515 points or $515 million with points equaling $1 million each. Cost cap of $145 million left the team with $375 million besides the teams expenses not included in the cost cap. We do not know the sponsorship deals the team has, but we know INEOS being one of 3 main sponsors paid Mercedes $60 million in 2023. Again a thumb suck ,but Mercedes must be generating between $350 and $450 million profit per year.
This would mean that as an investor you could expect to see your return within a 10-12 year period and who knows by that time how much the team would be worth. It would not be far fetched to think over the next 10 years the team valuation could double whilst paying back the investment which is a good deal. This is why any investment in Formula one today is still regarded as a profitable investment and buying shares in a smaller team would be very desirable. This is why there are investors queuing up to get involved with the only problem being those holding shares reluctant to sell.