EVERY SPOKEN WORD
150 min read · 30,037 words- 0:00 – 5:52
Intro
- DRDavid Rosenthal
I was just listening to the F1 theme song to get pumped up.
- BGBen Gilbert
Me too. Were you really?
- DRDavid Rosenthal
Yes. It's so good.
- BGBen Gilbert
I just got new speakers here in Acquired HQ North, and, uh, actually, thanks to a recommendation from a listener in the Acquired Slack, and, yeah, it was bumping.
- DRDavid Rosenthal
Amazing.
- BGBen Gilbert
All right. Let's do this.
- DRDavid Rosenthal
Let's do this.
- SPSpeaker
[singing] Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Sit me down. Say it straight. Another story on the way. Who got the truth?
- BGBen Gilbert
Welcome to the Spring 2026 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert.
- DRDavid Rosenthal
I'm David Rosenthal.
- BGBen Gilbert
And we are your hosts. Today, we dive into a sport that started in the 1930s that began for the pure love of auto racing, extremely dangerous auto racing. Then, after World War II, the British Air Force veterans and mechanical engineers joined the sport to push the limits of technology and physics. It eventually became the sport of rich guys who want to own teams to gallivant around Europe, losing colossal sums of money along the way. And in fact, David, since the sport began, over one hundred separate teams have entered and exited the competition, mostly because they went bankrupt. And today, the sport has been dragged kicking and screaming into being professionally managed and is now owned by the publicly traded US company that has owned the Atlanta Braves, Sirius XM, and Live Nation. That is Liberty Media. And against all odds, Liberty has managed to turn the sport, the teams, and the drivers into real viable businesses. Today's episode, listeners, is on Formula 1, the world's premier motorsport series.
- DRDavid Rosenthal
Woo. I was gonna save this for, um, later in the episode, but do you know what else among the many other, like, hundreds of companies that Liberty has owned, do you know what else they owned? You won't guess it because there's so many. Excite at Home.
- BGBen Gilbert
No way.
- DRDavid Rosenthal
From our Google series.
- BGBen Gilbert
Throwback. That's awesome. Well, listeners, really what we're doing here today with Formula 1, it's three sports in one. It is, of course, the world's best race car drivers showcasing their skills, but it's also the World Cup of engineering. These days, it's fair to say that the races are more determined by the design feats of the thousand plus people that work on each car than the drivers. And Formula 1 is the only motorsport in the world that requires a team to design and build their own car from scratch, which is an insane engineering feat to enter the competition. And as one listener put it to us, it's also the World Cup of office politics, or as another one put it, it's Real Housewives of the Garage, which that makes for a fantastic Netflix show.
- DRDavid Rosenthal
Oh, does it ever. We might talk about that towards the end of the episode here.
- BGBen Gilbert
Yes. The sport itself is completely insane. It is a grid of twenty drivers competing at over two hundred miles per hour in races that last a hundred and ninety miles, and they do this every week or two in a different city around the world. They load the entire circus, the cars, the teams, the hospitality, onto a fleet of seven Boeing 777s between races, and they set up shop in twenty-four different cities from Monaco to Bahrain to Melbourne, Australia. Each car costs twenty million dollars to make and hundreds of millions of dollars to develop. The cars have three to six hundred sensors on them. And shockingly to me as an American, David, I don't know if you knew this before we started researching, it's actually the world's most popular annual sporting series with over 827 million viewers.
- DRDavid Rosenthal
Yeah, I had no idea until we started researching because we're Americans.
- BGBen Gilbert
And, you know, the Olympics and the World Cup don't count because they're every two and four years. So pretty crazy. Listeners, starting in just five days, a season will kick off that's gonna see some of the biggest changes in the sport in decades. So we've got new regulations, which means all new car designs, an expansion to an eleventh team with Cadillac, Audi and Ford are also entering the sport, and a brand new broadcast partner in the US in Apple TV. And while, uh, everything got much more professionalized, it's still owned by a bunch of rich guys who love auto racing.
- DRDavid Rosenthal
[laughs] They're just no longer money-losing rich guys.
- BGBen Gilbert
That's right. So listeners, just like our NFL, NBA, and IPL cricket episodes, this show is about the business of F1. So, uh, we apologize in advance if we don't spend time on your favorite rivalry or regulation detail or the V10 engine sound. You can join the email list to get updates every time an episode drops at acquired.fm/email. You get to vote on future episodes, and the email list is just getting much, much better. So we now have episode summaries, our big takeaways, and exclusive photos from our research process. That's acquired.fm/email. Chat about this afterwards with us, with the whole Acquired community in the Slack, acquired.fm/slack. And before we dive in, we wanna thank our presenting sponsor, J.P. Morgan Payments.
- DRDavid Rosenthal
Yes. And just like how we say every company has a story, every company story is powered by payments, and J.P. Morgan Payments is a part of so many of their journeys from seed to IPO and beyond.
- BGBen Gilbert
So with that, this show is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only.David Rosenthal, where do we dive in?
- DRDavid Rosenthal
Well, first off, we owe a huge thank you to Joshua Robinson and Jonathan Clegg, who are the sports editors over at The Wall Street Journal, and just recently published, I think, the best business history book of Formula 1 called The Formula. It was one of the main sources for this episode, and, uh, they both actually helped us in the research, so thank you,
- 5:52 – 30:43
Origins of F1: Britain, Italy, and Monaco
- DRDavid Rosenthal
guys.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
So Ben, Formula 1 as we know it really started after World War II in 1950. But unlike a traditional company or even many of the sports leagues that we've studied over the years, it doesn't have a exact sort of founding moment. Its origins are really part and parcel with the beginning of motor racing itself. So it didn't take long after the invention of the modern automobile, which is generally agreed upon to be by Karl Benz in Germany in the late 1800s, that people had the idea to start racing them.
- BGBen Gilbert
Racing things.
- DRDavid Rosenthal
Yeah. [laughs]
- BGBen Gilbert
Yeah. [laughs]
- DRDavid Rosenthal
I mean, after all, like, people raced horses. Why wouldn't they race cars, too? [chuckles]
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
So throughout the first few decades of the 1900s, various automobile clubs popped up across Europe, and they would host these races. They'd sell tickets and advertising to fund prize purses, and drivers and manufacturers would travel from all over the world to compete in these races. 1906, the Automobile Club of France, which was the largest in Europe at the time, hosts an inaugural race just to the southwest of Paris called Le Mans, L-E M-A-N-S. And this group of organizers, they decide to call this Le Mans race by a very literal name in order to attract spectators and participants. They call it the Grand Prix de Le Mans, literally translated as The Big Prize.
- BGBen Gilbert
It's great. Carries all the way forward to this day.
- DRDavid Rosenthal
Yes. The names in this sport are very literal. [laughs]
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
So the success of this Le Mans Grand Prix causes a bunch of similar races to pop up across Europe all throughout the teens and '20s, copying the same rules or formula as the Automobile Club of France. You had Monza pop up in Italy. You had the Monte Carlo race in Monaco. You had the Nürburgring in Germany, et cetera, et cetera, et cetera. You probably heard of all these places.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
Eventually, in the 1920s, all the major European automobile clubs get together in Paris, and they say, "Why don't we centralize oversight of this formula into one international organization?" And that becomes, after a series of name changes over the years, the Fédération Internationale de l'Automobile, or the FIA, which still exists today and still administers the rules of Formula 1. And as Josh and Jonathan point out in the book, the sport is literally named-
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
... after the rule book. [laughs]
- BGBen Gilbert
There's a lot of fighting about the rules in this sport, both when they're setting the rules every few years and in races when they're going up to yell at the race stewards, "Oh, this is illegal. This is not illegal." Anyone who is sort of complaining that this sport is too into the rules needs to remember it is named after them.
- DRDavid Rosenthal
It's named after the rule book. Yes. [laughs]
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
Okay, so at this point, you've got all these Grand Prix and these famous race tracks that you know today, and you have the FIA as this sort of rules body overseeing the common regulations amongst them, but they're all independent events. There's no championship series. There's no league. There's one winner at the end of each race, and then you go to the next race.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
There are a couple attempts before World War II to create a championship series, but they all fizzle, and then, of course, the war disrupts everything. After the war, however, there's renewed interest. Everybody wants to have a world drivers championship, and so in 1949, the FIA announces the inaugural Grand Prix World Championship for Formula 1 Drivers, a global drivers competition of seven of the most prestigious Grand Prix races set to begin the following May 13 with the running of the British Grand Prix at the Silverstone Circuit in England. And that becomes the first race of the first season officially of F1.
- BGBen Gilbert
1950.
- DRDavid Rosenthal
Now, there really are three sort of foundational pillars of this early era of the sport. There's one in the UK, there's one in Monaco, and there's one in Italy. So taking them in turn, first in the UK, Britain was and is the heart of the sport, both in the early days and all the way through to today. So today, 70% of the F1 teams are based in the UK. Really, the only notable exception is Ferrari, which of course is in Italy.
- BGBen Gilbert
Yes. All of these teams, despite having such different cultures and opinions and rivalries, a giant amount of their employees, at least on the technical side, work in a very small area in the English Midlands within tens of miles of each other. [laughs]
- DRDavid Rosenthal
Yes, it's, like, very, you know, seemingly random. So why was the UK and this weird part in the middle of the country, like, the natural home of F1? If anything, given the proto-history, it should've been France or maybe Germany. Well, after World War II, Britain had, Ben, as you alluded to in the intro, absolutely the right set of circumstances for this all to come together.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
One, unlike Germany, they'd actually just won the war, but the country was in bad shape and, like, in desperate need of entertainment and redevelopment. And then unlike France, Britain had a ton of empty airfields and lots and lots of newly unemployed British fighter pilots and mechanics. And what better way to, you know, redevelop the infrastructure in the heart of the rural area of the country than to put all of these people and abandoned airfields to work?racing fast cars.
- BGBen Gilbert
And much like the development of Silicon Valley, which we talked about in our Lockheed Martin episode, there's sort of this positive feedback loop that keeps that area the main area for this. So there's universities that specialize in aerodynamics and engine design and mechanical engineering. It's still the best place to source talent to build an F1 team.
- 30:43 – 37:41
Bernie's Entrance
- BGBen Gilbert
Okay, so David, enter Bernie Ecclestone.
- DRDavid Rosenthal
Bernie Ecclestone. So Bernie was born in 1930, and he was a hardscrabble kid. He grew up in Suffolk, which is to the northeast of London. His dad was a commercial fisherman, and his mom was a authoritarian homemaker, according to [laughs]
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
many biographies about him. Well, you never really know with the legends about Bernie, but [laughs] that's the story, at least as he wanted it told.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
After the war, Bernie ends up getting into the, uh, wheeler-dealer business in London with surplus cars and motorcycles from the war. He opens his own showroom in the outskirts of London, where he starts to specialize in selling luxury automobiles to the newly rich and famous. Basically, he becomes, like, the London celebrity's car guy. You know, you got your jewelry guy-
- BGBen Gilbert
Oh.
- DRDavid Rosenthal
Your clothes guy. You got your drugs guy [laughs] in the '60s. You got your car guy. Bernie's the car guy.
- BGBen Gilbert
People refer to him as a former used car dealer, but that's not really right.
- DRDavid Rosenthal
Yeah. Well, I mean, it is right. He started that way.
- BGBen Gilbert
It's like calling someone else's puzzle dial Rolex a used watch. You know, it's not really used.
- DRDavid Rosenthal
No, no. It's like, "You want a Ferrari or you want a Bugatti? Hold the phone. Let me make some calls and see if I can get you one."
- BGBen Gilbert
Right.
- DRDavid Rosenthal
There's also always been plenty of gossip over the years that Bernie was involved in more, um, underground activities, shall we say, at the time, and Bernie himself would encourage this. So specifically, there was a longstanding rumor that Bernie was the mastermind behind the Great Train Robbery of 1963, where 2.6 million pounds was stolen from a British Royal Mail train. This is, like, one of the most famous train robberies-
- BGBen Gilbert
Hmm.
- DRDavid Rosenthal
In history [laughs] . Bernie loved this speculation, and so in 2005, a long time later, he finally addressed it.
- BGBen Gilbert
When he's, what, 70 years old or something?
- DRDavid Rosenthal
Yeah, 75 years old [laughs] .
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
He gives a quote to the media when asked about it. "There wasn't enough money on that train for me to be involved."
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
"I could have done something bigger." [laughs] You start to get a flavor of, you know, who Bernie is.
- BGBen Gilbert
Which actually is correct, given what he would go on to do.
- DRDavid Rosenthal
Very correct. 2.6 million pounds, that's chump change. So criminal mastermind or not, Bernie is smart. Once he gets into hawking cars to the new money rich folks in London, he doesn't just sell them the cars. He also steers them into financing, which I think is basically how car dealers make money. They mark up the cars a little bit, but then they really get you on the financing and the servicing fees, et cetera, et cetera. And when you're selling really expensive cars, the financing fees start to add up. So this nets Bernie his first small fortune. Now, the deeper that he gets into this luxury auto world, Bernie has the same realization that Enzo Ferrari had a decade or two earlier, which is that motorsport and racing is the legitimizing heritage of all of these fast luxury cars. So just like Enzo himself, Bernie wants to have his dealership and his brand associated with Formula 1. So in the mid-'60s, Bernie starts hanging around with F1 drivers, and being the wheeler-dealer that he is, he pretty quickly becomes the agent for a few of his pals, negotiating better deals for them with their teams for their salaries, you know, for a small fee, of course.
- BGBen Gilbert
Yes, of course.
- DRDavid Rosenthal
Eventually, he cooks up a scheme with one of his star clients, who actually drives for Lotus, for Colin Chapman, a driver named Jochen Rindt, to leave Lotus and buy a team together for themselves. They're gonna become not just the talent. You know, Jochen's gonna become an owner. Jochen, at the time, he's one of the best drivers in the world. He's on top of the standings in F1. He's blowing away the field throughout the 1970 season. And then tragically, during his practice session at the fourth to last Grand Prix of the season, crashes and is killed. And Rindt and Chapman were constantly fighting about the safety of the Lotuses that he was driving. Rindt was so far ahead of the pack in the standings when he was killed that he would actually win the Drivers' Championship that year.
- BGBen Gilbert
Oh, he still won, right?
- DRDavid Rosenthal
Yeah, posthumously. He's the only driver [laughs] ever to, um, win a championship posthumously.
- BGBen Gilbert
So he got zero points in all of the races after his death, but he was so far ahead that he still won.
- DRDavid Rosenthal
Bernie, as the story goes, is devastated after Rindt's death, and to honor the memory of his friend, he decides that he's gonna carry through on the plan that they had together, the dream they had. And in 1972, Bernie buys the Brabham F1 team.For 100,000 British pounds, which would be about $2.3 million today. Today, I think every single F1 team is worth at least one and a half billion, I think-
- 37:41 – 50:33
Bernie Consolidates Power
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
So Bernie, when he joins this owner's table, shall we say, pretty quickly realizes a couple things. One, except for Enzo Ferrari, none of these other guys have a lick of business sense. All they care about is fast cars and winning races. Whatever money they have or don't have, it's all going down the tubes-
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
... in pursuit of victory. [laughs] The second thing he realizes is that except for Ferrari, and by this point in time, Enzo has sold half the company to Fiat, so he has major resources behind him in Italy, none of these other guys actually have any real money. [laughs] I mean, for God's sakes, Colin Chapman is about to nearly go to jail over a $8 million embezzlement case with DeLorean. $8 million went a lot farther back in the '70s, but-
- BGBen Gilbert
These cars are quickly becoming very expensive, and the teams are becoming very expensive to run. There is not a sustainable way to run a team. I think the average tenure over the entire existence of Formula 1 is about six years for a given team.
- DRDavid Rosenthal
Just to make this exact point, here is the list of F1 teams in 1972, the year that Bernie buys into the league. Lotus, Tyrrell, McLaren, probably know that, Ferrari, you definitely know that, Surtees, March, BRM, Matra, and Brabham.
- BGBen Gilbert
So there's two that exist today.
- DRDavid Rosenthal
And at that point in time, only one of them is a real business. So Bernie sees this, and he's like, "Dang, there's an opportunity here." [laughs]
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
"All these other guys are focused on winning races. Yeah, I'd like to win, but I really care about getting rich, and there's quite a void of power here that I can insert myself into." So just to paint the picture of the business state of F1 when Bernie came into the league, each individual team negotiated their appearance fees with each individual Grand Prix [laughs] separately. [laughs] So there are, like, a whole bunch of Grand Prix, each with their own race promoters and organizers. There are a whole bunch of teams, nine of them, to be exact, and they're all negotiating separately with each other.
- BGBen Gilbert
Assuming there's, I don't know, 15 races or something, that would be 135 distinct agreements between teams and [laughs] local races.
- DRDavid Rosenthal
Everybody's getting paid wildly different amounts and usually not very much.
- BGBen Gilbert
And these things sort of need to depend on each other because how valuable is a race to go to if the other teams aren't gonna show up to that one?
- DRDavid Rosenthal
Right. I mean, this is, like, the sports business world's worst practice number one. [laughs]
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
Not only is it bad for overall revenue, you know, you have no centralized leverage over the tracks if you're all negotiating separately. To your point, Ben, it's just plain bad for the sport.
- BGBen Gilbert
How are you supposed to sell tickets and tell fans they should come if-
- DRDavid Rosenthal
Right. You don't know if Ferrari's gonna show up or if McLaren's gonna show up. There's no way to know as a fan until you actually showed up at the racetrack who was gonna be there [laughs] .
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
The other aspect of the sport that I say would be in shambles, but wasn't even in shambles 'cause it didn't exist, was broadcast and television and promotion. There was none of it.
- BGBen Gilbert
Yeah. Thankfully, Bernie came along before that became too big. I mean, can you imagine if each of these racetracks was trying to do their own media rights deal?
- DRDavid Rosenthal
I mean, he came along at the perfect time. It was already criminally too late that F1 and the Grand Prix hadn't gotten to television. I mean, we're talking about the mid-'70s. If you look over at the NFL in America, they're already making, like, 50 million-plus a year in broadcast rights.
- BGBen Gilbert
Yeah, it was 10 years into their... I think 1961 was their first national broadcast deal.
- DRDavid Rosenthal
I mean, they'd already launched Monday Night Football in 1970. It's not like there wasn't a playbook for this out there [laughs] .
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
F1, meanwhile, is just as, if not more, popular as a global sport, has great demographics, and is making zero dollars in-Media rights. So Bernie shows up. He's hardly a media professional here, but even he can see that there's room for [chuckles] improvement on both of these fronts.
- BGBen Gilbert
Even before realizing, hey, media rights are gonna be super valuable, the thing that he clearly sees is centralizing these negotiations is going to be the way to extract the most value.
- DRDavid Rosenthal
Yes. There's two opportunities here. The near term easy one is centralize the negotiations with the racetracks, extract the most value, capture a bunch of it for myself.
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
And then there's a longer term play of, like, ooh, what can I do about these television deals? I think it's actually worth one more quick pause here to compare, contrast Formula 1 and the NFL and Bernie and Pete Rozelle, 'cause these are sort of happening at the same time. But Bernie is like the anti-Pete Rozelle. [laughs] You know, Pete Rozelle was this consummate manager, professional media guy from Los Angeles. He started as the LA Rams PR guy, and then he gets drafted by the owners of the NFL to be an employee of the league to serve them and their interests as commissioner.
- 50:33 – 1:08:08
F1 as a Global TV Sport (Except America)
- DRDavid Rosenthal
And two, Bernie and the Constructors Association will control all rights and income from any future televising of F1 races for the next five seasons.
- BGBen Gilbert
Ba-na-na.
- DRDavid Rosenthal
Ba-na-na. No rights to the race organizers, no rights to the FIA, all the TV money flowing through Bernie.
- BGBen Gilbert
Which if you look today, that is the single largest revenue stream of the whole thing.
- DRDavid Rosenthal
Of course. How could it not be?
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
So what's interesting is both sides here actually feel like they're getting a pretty good deal. And to be fair, the reason that they thought that was the TV media rights weren't actually worth anything yet.
- BGBen Gilbert
Well, did they put in that the TV media rights, when they do happen, Bernie still only gets eight percent and the teams get the rest of the 92%, or is that yet to be negotiated?
- DRDavid Rosenthal
Gray area. [laughs]
- BGBen Gilbert
Okay.
- DRDavid Rosenthal
Bernie thrives in the gray zone. So at the time, European and British television was, A, mostly state controlled with organizations like the BBC and its peers all across Europe, and B, very far behind the US in terms of monetization and sophistication of televising sports especially, but any kind of media. And again, these are mostly like the equivalent of PBS in the US. They're public broadcasters.
- BGBen Gilbert
There's not a competitive ecosystem. There's really one party to go to.
- DRDavid Rosenthal
Yep. So the teams and the FIA and the tracks, yeah, even though they're giving up all the TV rights to Bernie, they don't look that valuable to them. They're like, "All right, you wanna go have a boondoggle and see if you can figure this out? Good luck to you."
- BGBen Gilbert
Right. And to be honest, it sounds hard to film. You've got these racetracks with 15 turns and cars that whiz by real fast and crappy technology at the time to try to film them, and you wanna go do business with the government to try to get them to broadcast? Okay.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
Have fun.
- DRDavid Rosenthal
So Bernie, unclear if he had a vision for this all along or if he was like, "Ooh, here's something I can grab. Let me go see what I can do with it." Either way, he basically executes it perfectly. So once he gets the TV rights, he goes to an umbrella group of all the public broadcasters all across Europe called the European Broadcasting Union. It represents 92 different countries' national public broadcasters, including the BBC in the UK, and says, "Hey, you have a lot of F1 fans in your respective countries. It's a big sport in Europe. I now have the rights to broadcast this sport. How about I'll sell them to you for super, super, super cheap, a couple million a year for all 92 countries?" So, like, amortized in aggregate, basically nothing-
- BGBen Gilbert
Yep
- DRDavid Rosenthal
... for any individual broadcaster to take these rights. "The only thing I want them all to do is promise to show every single race on the calendar, not just the ones that are in their home country."
- BGBen Gilbert
Hmm.
- DRDavid Rosenthal
So seems like a pretty good deal, right?
- BGBen Gilbert
So he's in grow the sport mode, right? Not capture value right here. This is a growth opportunity.
- DRDavid Rosenthal
Yep.This is a long game. So they all say yes, and then Ben, as you were saying a minute ago, it pretty quickly becomes clear, hey, all 92 public broadcasting entities don't really have the expertise or the interest in figuring out how to televise this sport. Seems hard.
- BGBen Gilbert
It's still true today. The way that most of the broadcasters around the world take F1 is they take one main feed that is produced, and then they do more stuff on top of it.
- DRDavid Rosenthal
So this is when that starts. Bernie says, "All right, no problem. I'll take the risk. I'll fund the investment upfront personally to create a central single television feed for each race that Formula 1, quote unquote, slash me, Bernie."
- BGBen Gilbert
Yeah. What is Formula 1 at this point?
- DRDavid Rosenthal
Yeah. What is Formula 1? [laughs] So we should say Bernie loved to operate without contracts. Here's his exact quote, "I carry out my business in a very unusual way. I don't like contracts. I like being able to look someone in the eye and then shake them by the hand rather than do it the American way with 92-page contracts-
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
... that no one reads or understands. If I say I'll do something, I'll do it. If I say I won't, I won't."
- BGBen Gilbert
Yeah.
- 1:08:08 – 1:19:24
F1's Incredible Engineering Achievements
- DRDavid Rosenthal
Okay, so we're in this era now where team owners have a lot more resources at their disposal, and boy, are they deploying it. [laughs] Ben, what are some of the crazy things that they start doing during this time?
- BGBen Gilbert
So in nineteen sixty-eight, Colin Chapman from Lotus had become a really big believer that the way that his drivers could go faster in the turns was applying more downforce, so they'd have better traction on the road. And they put the first airfoils, or wings, on the car. And in sixty-eight, that was just really small wings. They almost look like early Formula One, the cars that were just these, like, long tubes, but with, like, little hints of what Formula One would become on them. It's this kind of amazing transitional period. We'll link to it in the show notes.
- DRDavid Rosenthal
And then don't they go to, like, big wings before-
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
... the FIA regulates those out of existence, right?
- BGBen Gilbert
There is a lot of experimentation, yeah, that happens in this period. It's really fun. In the email, we'll put a bunch of pictures of crazy F1 cars that were technically within regulation when they were first tried, before all these tactics were made illegal. But it's probably time to stop and do a little physics lesson here. I never really understood this, so this is listeners education for me. Lighter cars are faster. So why would you wanna put a spoiler on a car that pushes it into the ground harder? You don't want a heavier car, and so you sort of have to separate this idea of downforce, pushing down on the ground, from just weight. There are ways to get downforce which can be good that is different than a heavy car.
- DRDavid Rosenthal
Yeah, it's funny. Before doing this episode and learning all this alongside you, I always just sort of assumed that, like, at least road car manufacturers put this stuff on cars to make them look cool. [laughs]
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
Not to actually do anything.
- BGBen Gilbert
Right. But you want downforce to make it stick to the road better on turns. But the issue, of course, is that with a big spoiler, yeah, you're creating downforce, but you're actually creating a ton of drag also. So the car is facing resistance to going forward as a byproduct of what you're attempting to really do is force the car down. So if you focus too much on optimizing for downforce on the turns, you end up slowing yourself down in the straightaways. So the takeaway from lesson number one here is downforce good, drag bad.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
So let's flash forward nine years from that nineteen sixty-eight initial aerodynamics experiment. So we're now here in the late nineteen seventies. Lotus is still working on this issue. They were trying to figure out a way to produce downforce that doesn't produce a lot of drag. And what followed is the stuff of F1 lore. You will hear racing nerds talk about the Lotus 78 and the Lotus 79 as if these are, like, gilded vehicles.
- DRDavid Rosenthal
Mythical beasts.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
Yeah. [laughs]
- BGBen Gilbert
So the first breakthrough is, "Well, wait, what if we can turn the whole car into a wing?" I mean, rather than our traditional shaped car with a wing slapped on top, what if we made it actually part of the body style itself so the whole thing gets pushed down? And when you look at the Lotus 78, it really does look like one big wing. I mean, Google it. We'll put it in the email. It's really cool. The second breakthrough is a fun one from the world of fluid dynamics. Everyone listening is probably familiar with how airplanes generate lift. The wing is shaped in a special way such that when the plane moves forward, you generate high air pressure underneath the wings, low air pressure over the wings, and thus the airplane is pushed up into the air. Well, what if you did the opposite? That is what the Lotus team did. They shaped a car like an upside down airplane wing. So the bottom of the car had a special skirt on it that shaped airflow to speed up under the car, squeezing air into a very small space since it's super close to the road as the air molecules move along at high speed under the car, which creates that low air pressure zone and then carefully control the air with a gradual upslope and a diffuser to guide how the air comes out from underneath the car in the back. The effect this had was to create low air pressure under the car, high air pressure over the car, and essentially suck the car onto the ground.And in physics, this is called the Venturi effect, so the areas under the car are called Venturi tunnels.
- DRDavid Rosenthal
Ah, that's why. It is funny, when you and I were at the Vegas Grand Prix and we kept saying, "Oh my God, these are like fighter jets on the ground." They actually are like fighter jets on the ground.
- BGBen Gilbert
Yes, they really are like upside down fighter jets. So did it work? Absolutely. Mario Andretti, upon driving it, said that it cornered as if it was painted to the road, and he won both the Drivers' Championship, and Lotus won the Constructors' Championship in 1978. Interestingly, by the 1980s, it was producing so much downforce that the drivers could take these corners at super fast speeds, and it actually became a safety hazard, especially because if the car would go up on a curb or the skirt slipped in any way, the cars were then going way faster than they otherwise could have without that sort of, uh, sucking to the ground, the ground effect, to cause the traction. So in 1983, these ground effects were outlawed, and regulations were updated to say that you must have a flat-bottomed car.
- DRDavid Rosenthal
Hmm. Interesting.
- BGBen Gilbert
Yes. But for fans of ground effects, they would make their way back for the 2022 to 2025 regulations, which that's what we saw in Vegas, David. It was crazy cool to watch because I think 70% of the downforce from those cars is created by the ground effects, not from the pushing down of the spoiler, but the sucking of the car onto the track. And so it was kicking up all that dirt, especially during qualifying, 'cause it's driving around on these Las Vegas roads that just have sand and dirt and silt that sort of builds up and creates these just, like, huge clouds of dust in the air from all the sucking.
- DRDavid Rosenthal
And then qualifying in the rain was insane, seeing, like, all the rainwater just shooting up off of these cars.
- BGBen Gilbert
Yeah, the rooster tails, as they call it. And I think it was two years before we went in Las Vegas, one of the cars even sucked up a drain cover that had been welded shut and basically wrecked the car. But these cars produce so much downforce that if you drive over even a welded shut manhole cover, chunk, it sucks it right up.
- DRDavid Rosenthal
Wild.
- BGBen Gilbert
Yeah. So ground effects, very, very powerful. There are a few other just giant leaps forward that would happen in areas other than aerodynamics also. So engines over the years have gotten way more fuel efficient, with only 50% of energy in an F1 engine lost to heat, compared to 70 or 80% in a road car being lost to heat. So this obviously is something that F1 teams care a lot about because if it's more efficient, you can carry less fuel, have a lighter car, go faster. So huge, huge advantage. They've also gotten a massive increase in horsepower, tripling from three hundred something horsepower engines when we first started in the '50s to a thousand-ish horsepower coming out of these engines today.
- DRDavid Rosenthal
Insane. In cars that are light enough that you could basically pick them up. A half to a third as heavy as, like, an average road sports car.
- BGBen Gilbert
The F1 cars are that light 'cause of all the carbon body work.
- DRDavid Rosenthal
Yeah. So a thousand horsepower in something that's basically light as a feather as far as cars go.
- BGBen Gilbert
And then, of course, there's turbochargers, which are an insane invention. This harnesses the unused energy from the exhaust gases to spin a turbine and then use that to compress the air that is going into the engine, which ultimately means then there's more oxygen in each engine cycle, so you can have a more powerful combustion every single engine cycle and thus more power again in the car.
- DRDavid Rosenthal
Which actually raises a important point too. It's not like any of these teams, even the ones that were backed by actual car manufacturers, were doing this with the goal of advancing technology for consumer road cars. But as a byproduct, a lot of this technology over the years did make its way into the consumer landscape.
- BGBen Gilbert
Yes, and it did become an intentional strategy over time, and it provided a air cover for a lot of spend, especially for these constructors that were also consumer car makers. If they could say, "Oh, this is R&D, and stuff's gonna go into cars." And it did. I mean, you had paddle shifters and carbon.
- 1:19:24 – 1:33:19
Senna's Crash and a New Era for Safety
- BGBen Gilbert
innovations. And sadly, early in that nineteen ninety-four season, the racing world would witness its most infamous and fatal crash in that Williams car.
- DRDavid Rosenthal
Yeah, which was obviously Senna's death in nineteen ninety-four, which becomes this global moment. I believe still to this day, Ayrton Senna's funeral in Brazil is the largest attended public funeral in history.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
I think three million people showed up in the streets-
- BGBen Gilbert
I think that's right
- DRDavid Rosenthal
... for his funeral.
- BGBen Gilbert
It's this horrible tragedy. He had just sort of gone from rising star to clearly the best race car driver in the world, just this natural talent. There's a beautiful documentary released in twenty ten for anybody who's interested to go learn about his life and this crash.
- DRDavid Rosenthal
I mean, one, it shined this light on just the sport in general in a way that hadn't happened since the modern television era began.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
Two, it specifically shined a light on how unsafe it still was.
- BGBen Gilbert
Yeah, so it's interesting because by this time, the fatalities had really dropped off. So we mentioned-- I'll just go through the counts here by decade. Nineteen fifties, there were fourteen. In the sixties, there was another fourteen. In the seventies, there were twelve.
- DRDavid Rosenthal
Yeah. Yeah, more than one a season.
- BGBen Gilbert
Yes. So then they start implementing a bunch of obvious stuff. The FIA has to inspect every track and make sure it is complying to all the rules before every race. You can't have straw bales anymore.
- DRDavid Rosenthal
That's right. The barriers [chuckles] used to be straw bales.
- BGBen Gilbert
Yes. Now you need these guardrails. They have to be double reinforced. You need separation on the pit walls. There was a lot of stuff going on sort of near the pits that drivers were going too fast or accelerating too fast. Finally, you get fireproof overalls in the nineteen seventies. You get fuel safety cells, mandatory seat belts, multi-point harnesses, so big steps in the seventies.
- DRDavid Rosenthal
Yeah. This is one of the craziest things to me in doing the research was for a long period of time, F１ drivers actually refused to wear their seat belts because they wanted to get thrown out of the car so they didn't catch fire [chuckles] after it crashed.
- BGBen Gilbert
Right.
- DRDavid Rosenthal
Insane.
- BGBen Gilbert
They didn't wanna limit their options in a dangerous situation. So after all that, then in the nineteen eighties, you have four deaths. A lot better than fourteen or twelve. And in the nineties, the only two deaths were this one weekend, Roland and Senna. And so it did kinda come as a shock because I think people felt like, "Oh, we're through this era. Things are a lot safer." But obviously, they still have a long way to go. So what happened after Senna's death from a safety perspective, and what impact did it have? The biggest one is they just slowed down the cars.
- DRDavid Rosenthal
Right.
- BGBen Gilbert
I mean, all this R&D and sticking to the road and getting crazy traction and taking high-speed turns, the faster you go, the more dangerous it is. And so interestingly, F１ racing today is not that much faster than it was in nineteen fifty. The top speed is, like, forty miles per hour faster than the old top speed. I would have thought, "Oh, all this R&D, these cars are probably two, three, four times faster." No, they're not. And so right after Senna's death, they limited the aerodynamics of the cars. You couldn't use as big of wings. You couldn't use as big of diffusers. In nineteen ninety-eight, a few years later, they grooved the tires to reduce cornering speed, so they actually looked a little bit more like the tires we use on the roads instead of the flats or the slicks that you see real race car tires. There were also some structural things they put into the cars, so deformable crash structures, survival cells, front impact testing, higher sides on the cockpits, and they changed the tracks, too. A lot of corners were given larger runoffs and upgraded barriers. So that all did help. But in the twenty tens, there were also two fatalities, and so this is when the really big noticeable change happened.
- DRDavid Rosenthal
The Halo?
- BGBen Gilbert
The Halo. So in twenty eighteen, in response to the twenty fourteen crashes, the FIA says, "Enough is enough. We are [chuckles] gonna mandate that every car has this really, really rigid, robust, heavy thing that you put right on top of the driver." And there's a giant bar directly in the center of the driver's field of view, so there's a giant compromise here. But it has saved at least three people's lives since then because it can protect a driver even when a car is upside down and skidding. These innovations have made it so we've had zero fatalities since twenty fourteen. It's, I think, the longest stretch in F１ history without a fatal accident.
- DRDavid Rosenthal
Yep. It certainly seems like the sport is a lot safer these days.
- BGBen Gilbert
Yeah. It's still dicey, but over the last seventy years, they've observed all the lowest hanging fruit of ways that they can protect the driver.
- DRDavid Rosenthal
Yep. So bringing it back to the business narrative here, one of the kind of great ironies here of the obvious right decision to focus on safety and slow the cars down is it just further fuels this sort ofA spending spiral amongst the teams, because the harder you make it to go fast, the more they're gonna be incentivized to spend every last dollar and look in every last little corner and find every last little loophole to get an advantage.
- BGBen Gilbert
Yeah. I mean, when the sport first started, there were giant gains to pick up left and right, and you could sort of do all sorts of crazy stuff. And we were talking about all the different car designs with spoilers that are up on giant poles and, I mean, truly wacky ideas. There was a six-wheeled car-
- DRDavid Rosenthal
That's right
- BGBen Gilbert
... at one point.
- DRDavid Rosenthal
That's right. [laughs]
- 1:33:19 – 1:57:48
The Many Owners of F1, and Bernie's Liquidity Drama
- DRDavid Rosenthal
So Bernie's many sales and monetization opportunities. Here in the mid-'90s, he starts exploring liquidity options for himself. And in particular, he wants to funnel that liquidity into a new set of offshore vehicles to avoid British estate taxes for his family after he dies. And, you know, this is like a natural activity for somebody approaching their 70th birthday. What Bernie didn't foresee, or anybody else, is that-
- BGBen Gilbert
He had another 25 years at least in him.
- DRDavid Rosenthal
At least, 'cause he's still alive in 2026.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
Now, also to be somewhat fair here, protecting his estate from the heavy British inheritance taxes is a legitimate concern because otherwise there would be no way that his family could keep control of F1 after his death. It would have to be broken up and sold just purely to fund the estate taxes.
- BGBen Gilbert
Hmm. And so if you actually are a team, this is starting to become kind of an existential risk of what if Bernie dies suddenly, and then they have to sell F1 off into different parts with different owners.
- DRDavid Rosenthal
And you say, you know, if you're a team owner. It's not just if you're a team owner. If you're a team owner or a race promoter, you want to plan here. So it just so happens here in the mid to late '90s that we're in the height of the dot-com era.
- BGBen Gilbert
Wait, that plays into this?
- DRDavid Rosenthal
Oh, yeah. So what's the natural thing to do? Bernie's gonna IPO F1. [laughs]
- BGBen Gilbert
Oh, I've totally missed this.
- DRDavid Rosenthal
Oh, yeah. Oh, there is so much delicious chaos that gets unleashed here. By this point in time, Bernie's various companies, and there are even many more than we have talked about on this episode, just for simplicity, collectively they're earning about 250 million British pounds a year in revenue, and they have 50%-plus EBITDA margins. And remember, this is at a time when the British pound is worth, call it, 60% to 70% more than the US dollar. This is a very IPO-able business if it were a, [laughs] you know, regular business.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
Nonetheless, times are so crazy that Bernie hatches a plan with his bankers at Salomon Brothers to consolidate all the various F1 companies that he owns into a single holding company called SLEC Holdings, S-L-E-C Holdings. And he's gonna transfer his ownership of that new company to his then second wife, Slavica, for tax reasons, so SLEC was short for Slavica Ecclestone.
- BGBen Gilbert
Hmm.
- DRDavid Rosenthal
And float it in a dual-listed IPO [laughing] in the US and England with an anticipated valuation of around $4 billion. [laughs] Uh, we should also note here, too, we're being a, a little glib in this episode. In 2023, Bernie ultimately pleaded guilty to tax fraud as a result of all the machinations we're about to talk about and had to pay a £653 million payment to the Crown in back taxes and fines. And he also received a, I think, 17-month jail sentence, which was then suspended.Probably in large part to his advanced age.
- BGBen Gilbert
Crazy.
- DRDavid Rosenthal
All of this lurking in the background may have been part of the reason that famously he turned down several offers of knighthood throughout his life.
- BGBen Gilbert
Mm.
- DRDavid Rosenthal
Yeah.
- BGBen Gilbert
Although you'd think it would actually bode better for you if you're a knight going into some lawsuit with the government over owing the government money.
- DRDavid Rosenthal
Good point. Yeah, does the Crown sue one of their own? I don't know. [laughs]
- BGBen Gilbert
Hmm.
- DRDavid Rosenthal
Anyway, as he starts formulating all these plans with Salomon Brothers, they're like, "Well, I see your revenue. I see your EBITDA." [laughs]
- BGBen Gilbert
And what were those again?
- DRDavid Rosenthal
250 million British pounds of revenue, and call it, uh, 50-plus percent EBITDA margins on that.
- BGBen Gilbert
Ooh, good business.
- DRDavid Rosenthal
Yeah, great business. What they don't see is any sort of formal legal control or document that he has from anybody giving him the actual rights to a lot of this. You know, he's got the actual rights to the TV stuff, but the promoter fee stuff, the transportation, uh, we haven't even mentioned the paddock club that gets set up along the way here. There's a lot of money flowing through that.
- BGBen Gilbert
And to be clear, these are all income streams to Bernie. I mean, so of course, we've talked about the media rights, but what a race promoter does is if F1 is thinking about going to a racetrack, the person who owns the racetrack or a company affiliated with the racetrack or a government affiliated with the racetrack pays a giant amount of money to Bernie for the privilege of having a race there. That's a promoter fee.
- DRDavid Rosenthal
Yep. So conveniently, right at this same time as they're doing IPO preparations, it comes time to negotiate the fourth Concorde Agreement with the teams and the FIA. In this new agreement, Bernie swaps in a new entity called Formula One Constructors Association Administration Limited [laughs] , a new company-
- BGBen Gilbert
FOCA A
- 1:57:48 – 2:05:07
FOTA: The attempted breakaway series
- DRDavid Rosenthal
In 2009, eight of the 10 teams threaten to pull out of the sport and start a rival breakaway league called FOTA, the Formula One Teams Association.
- BGBen Gilbert
Yeah.
- DRDavid Rosenthal
And they announce that they're doing it, and they're creating their own series starting in 2010.
- BGBen Gilbert
Yeah. So the Formula One Teams Association, or FOTA, was really two things in one. One, it's can we band together as a team to negotiate as one to get leverage in whatever we're negotiating over? And in this instance, it's we don't want a cost cap. The other thing is it is a legitimate breakaway series.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
Which would be a really hard thing to start. I mean, to go figure out how to sign all these new deals with the best tracks in the world and media rights deals, there's a lot of value in what Bernie and the series are actually doing.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
So it works. The cost caps didn't happen. They did impose a 10-year freeze on engine development. And so in the short term, this is kind of how these negotiations go. The teams got what they wanted without actually having to leave by having a credible threat to leave.
- DRDavid Rosenthal
Yep. And specifically, what they got was Max Mosley's resignation from the FIA, or at least agreement not to stand for re-election.
- BGBen Gilbert
It's hard for them to actually link arms for too long because kind of two reasons. One, Bernie and Max could offer different things to different teams to get them to individually cave. So, like, they can go to the Brawn team, and we'll talk about the Brawn team in a minute, but there was this shoestring budget team, scrappy upstart. Bernie had been withholding their payments from the previous year when they had raced as Honda because Bernie's opinion was, "Well, you're not the same team, so you don't deserve your payout." And so Brawn-
- DRDavid Rosenthal
Oh, save it, save it. [laughs]
- BGBen Gilbert
Brawn really needs the cash, so it's very easy to go and get them to capitulate when you owe them a few million bucks and you're gonna wire the money immediately as long as they break ranks with the other team. That's a great way to bust a strike. But the biggest thing is it's just this kind of misaligned incentives where all these constructors actually have very different reasons for racing and different incentives, and so it's hard for them to be unified on anything given the wildly different incentive set.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
So I don't know if you knew this, David. I talked to Zak Brown, the CEO of McLaren Racing, to prep for this episode, and I specifically asked him why teams don't form a breakaway series now. And we'll talk about the economics of what the business looks like today, and he had a great answer. So he said prior to Liberty's acquisition of F1, there had been many discussions and even attempts at a breakaway series. Of course, the teams would unite around the sport themselves, but it always fell down when the teams had to discuss how to share the pie. And, you know, it's one of these things where Ferrari is gonna say, "We're entitled to this and our heritage for the sport," and McLaren and Mercedes, they're gonna say, "Oh, we're really good, so we deserve more." So yeah, they just never would agree on how to divide up the pie.
- DRDavid Rosenthal
Yep. The net of this is that team and league relations in F1 are at a all-time low-
- BGBen Gilbert
Yes
- DRDavid Rosenthal
... here at the end of the 2000s.
- BGBen Gilbert
Yeah, and we didn't even talk about if you're a fan of F1 during this time period, you know about, uh, Spygate and Crashgate. Uh, both of these, uh, M-McLaren magically wound up with a giant binder full of the complete specification of Ferrari's car for that year, and there was this h- whole giant hullabaloo and case-- uh, court hearings and everything about the, the-these stolen documents, and did they use them to win? Uh, at the same time, you have Crashgate.
- DRDavid Rosenthal
Yeah, this is bad.
- BGBen Gilbert
Where it ended up looking pretty conclusive that a team intentionally had one of their drivers crash in order to get a safety car to come out, which would advantage their other driver to do better in that race, putting one of their driver's life at risk.
- DRDavid Rosenthal
Not just one of their drivers, like other drivers too-
- BGBen Gilbert
Yes
- DRDavid Rosenthal
... could be involved in the crash. Yeah.
- BGBen Gilbert
So, and, and they're covering it up, and they're-
- DRDavid Rosenthal
These are major sports integrity issues that are-
- BGBen Gilbert
Yes. Public trust is at an all-time low.
- DRDavid Rosenthal
Yeah. Yeah, yeah, yeah. So ironically, miraculously, and certainly despite all of Bernie's best efforts to the contrary, pretty much this whole situation gets fixed by two new teams that enter Formula 1 who nobody saw coming [laughs] . One of which was a auto manufacturer and a dark horse re-entrant into the sport.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
The other was a, well, I was gonna say energy drink manufacturer, but I don't think we can say manufacturer because they don't actually make the drink [both laughing] .
- BGBen Gilbert
An energy drink company.
- 2:05:07 – 2:42:33
RedBull, Mercedes, and Reinventing the Sport
- BGBen Gilbert
All right, so David, uh, you mentioned an energy drink company.
- DRDavid Rosenthal
[chuckles] Yes. So let's start with Red Bull. The Red Bull company story itself, like, absolutely deserves its own Acquired episode someday because it is truly insane. So briefly, Dietrich Mateschitz was an Austrian toothpaste salesman for Unilever and P&G who goes on a business trip to Thailand in 1984, decides to radically change his life, and brings back a local Thai energy tonic to start bottling and selling or, or again, I can't even really say that because he outsources [laughs] manufacturing, bottling, and selling it, and turns it all into a company that now does over $10 billion a year in annual sales. Like, astonishing. The key pillar of what Red Bull the company actually does is, of course, marketing, and one of the main pillars of its marketing strategy has always been extreme sports.
- BGBen Gilbert
Red Bull, their entire business model is, "Yeah, we sell these drinks, but really you're buying the drinks to associate with a lifestyle-"
- DRDavid Rosenthal
Yes.
- BGBen Gilbert
"... and we need to, uh, educate you about the lifestyle that you are, uh, you know, associating yourself with."
- DRDavid Rosenthal
So in 1989, like, I mean, actually five years pretty quickly after Dietrich starts the company, Red Bull sponsors its first F1 driver, and then they steadily grow their investment in the sport until ultimately they become the title sponsor of the Sauber team in 1995. And-
- BGBen Gilbert
Is that the team that's now Audi?
- DRDavid Rosenthal
Yes. Yes.
- BGBen Gilbert
Sauber Stake.
- DRDavid Rosenthal
Sauber Stake. Yep, yep, yep, yep. This is where Red Bull starts.
- BGBen Gilbert
Huh.
- DRDavid Rosenthal
The Red Bull entrance into F1 [laughs] was so perfectly timed because this is right as the EU regulation is coming online, forcing tobacco finally out of-
- BGBen Gilbert
Mm.
- DRDavid Rosenthal
... the sport.And so the great irony is that it's actually like an energy drink company that replaces the, the cigarettes. There's a great quote that Josh and Jonathan have in The Formula. "Two decades after Marlboro execs looked at F1 drivers and saw the heirs to the American cowboy, Mateschitz recognized them for what they really were: over-caffeinated adrenaline junkies with scant regard for their personal safety. It was a match made in marketing heaven." [laughs]
- BGBen Gilbert
Perfect. Perfect.
- DRDavid Rosenthal
So Red Bull totally breaks the mold of what an F1 sponsor should be doing. Previously, the sponsors were all leaning into, like, the prestige aspect of the sport, you know, the, the, the luxury, the aristocratic-ness of it, you know, all the Monaco stuff, the oil companies, the watch companies. None of these sponsors are rocking the boat. [laughs]
- BGBen Gilbert
Right.
- DRDavid Rosenthal
And importantly, just like F1 and Bernie itself, none of these sponsors, except maybe the cigarette companies, are interested in younger audiences. Bernie has a great quote about this when he's asked about the challenges F1 faces of its aging demographic. He says that younger audiences are not a priority because they, quote, "Don't buy Rolexes." [laughs]
- BGBen Gilbert
Yet.
- DRDavid Rosenthal
Yet. Yet. That is the key thing, Bernie. Yet. Yet. [laughs]
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
Anyway, Red Bull, though, of course, is the opposite of this. They are all about young people, the extreme lifestyle. They don't just sponsor F1, they sponsor all these extreme sp-sports, like jumping out of planes in the stratosphere, you know? [laughs]
- BGBen Gilbert
Yep. Balloons.
- DRDavid Rosenthal
Yeah. They're, uh, unique among the F1 sponsor set. The problem, though, for Red Bull is that Sauber isn't very good. [laughs] So there's another great quote from Mateschitz in, in The Formula. "If an insurance company sponsors a team and that team loses, people don't change their insurance company. But when the Red Bulls lose, people get a new drink." [laughs]
- BGBen Gilbert
Yeah.
- DRDavid Rosenthal
In 2004, Red Bull dumps Sauber and makes the radical decision that rather than sponsoring another team, they are going to directly get into the business, and Mateschitz and Red Bull buy the failing Jaguar racing team, which was, at this point in time, owned by Ford because Ford had acquired Jaguar, and with it came the F1 racing team. Jaguar was going through all sorts of trouble, as was Ford during the financial crisis and the lead up to it. Things are so bad for the team that Ford is willing to sell the whole team to Red Bull for one British pound. [laughs]
- BGBen Gilbert
Really? I didn't realize that.
- DRDavid Rosenthal
Yep. The purchase price that Red Bull paid was one British pound to establish Red Bull Racing. Now, the problem is they still gotta make the team good, but... [laughs]
- BGBen Gilbert
Can we talk about the, like, amazing full circle moment of this year now that Ford is-
- DRDavid Rosenthal
Yes. Yes
- 2:42:33 – 3:05:03
Liberty Media buys F1 and Brings it to the Modern Era
- DRDavid Rosenthal
So in September of 2016, it finally gets announced that the American media company Liberty Media is acquiring F1 for $4.4 billion of equity value and assuming all of the outstanding debt that the company has for a combined total enterprise value of eight billion dollars. Now, the way they do it is interesting. Uh, Liberty and John Malone and Greg Maffei, we've talked about Liberty many times over the years on Acquired. They are masters of deals and financial engineering. The way they do it, they initially acquire a, like, 18, 19% stake in F1 from CVC, so enough to make them the largest shareholder. And then [laughs] they actually change the whole name of Liberty Media the company, the publicly traded company-
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
... into the Formula 1 Group, create a new tracking stock to track the value of F1 Group.
- BGBen Gilbert
FWONK or FWONK as the-
- DRDavid Rosenthal
Yes
- BGBen Gilbert
... investment community refers to it.
- DRDavid Rosenthal
FWONK. I know. It's so great. And then they issue FWONK shares to the remaining equity holders, including CVC and Bernie, et cetera, such that 100% of the company is now liquid and publicly traded.
- BGBen Gilbert
The completely fascinating thing about Liberty Media today is it sort of doesn't exist anymore. They bought-F1, then they did enough other spinoffs through the Atlanta Braves spinoff, through Liberty Live, the, the Live Nation spinoff. At this point, like 90% of Liberty itself is Formula 1, and the stock is actually Formula 1. It's like they spun out everything else that was left, and so the holding company is actually basically Formula 1 now.
- DRDavid Rosenthal
And so the plan that they announce is that former Fox and News Corp executive Chase Carey, who had been president and COO of News Corp, would become chairman of F1, but that Bernie would remain as CEO. Now, Chase Carey had been a total legend at Fox. I mean, I remember him when I worked at News Corp and at Dow Jones. Chase helped Rupert launch Fox Sports and built the whole Fox NFL program [laughs] .
- BGBen Gilbert
Mm.
- DRDavid Rosenthal
Like, da, da, da, da, da.
- BGBen Gilbert
Da, da, da, da.
- DRDavid Rosenthal
Da, da, da, da. That was Chase. So he's the right man for the job, and he brings over a team of, like, all the NFL OGs, uh, Fox and NFL OGs. So Sean Bratches, who had been one of the key people who had built ESPN during its kind of parallel rise with SportsCenter and comes and joins the team. And the whole thesis is that Formula 1 is this incredible sport, incredible fan base, incredible asset, and we can see with what's going on at Red Bull and at Mercedes that, like, it's gonna crush in the modern era. It just needs the right management to, like, get out of the way and let this happen.
- BGBen Gilbert
And that Bernie had sort of systematically underinvested-
- DRDavid Rosenthal
Yes
- BGBen Gilbert
... which, which created opportunity. So-
- DRDavid Rosenthal
Yes
- BGBen Gilbert
... there was almost no US market development. I mean, they, by this point, they had Circuit of the Americas in Austin, uh, but no other US races yet. There was very limited sort of storytelling around the sport and digital investment. There was no social media presence. The property was mostly behind, like, a closed paywall with restricted ac-access, especially in the US, and really it was about old white guys with money as the demographic. So it was this, like, if you kind of, like, looked at it with a modern media company approach, you're like-
- DRDavid Rosenthal
There was this incredible-
- BGBen Gilbert
... oh, there's, there's low-hanging fruit everywhere here.
- DRDavid Rosenthal
Yeah, asset just waiting to be unlocked.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
[laughs] So pretty quickly when Chase and Liberty come in, um, it becomes clear that there's not enough room for two bosses [laughs] in F1 of Chase being chairman and Bernie remaining as CEO. I mean, really, there, as long as Bernie's there, there's not room for anyone else to run anything. [laughs]
- BGBen Gilbert
Mm-hmm.
- DRDavid Rosenthal
So on January 23rd, 2017, after they had announced the acquisition the p-previous fall, Liberty announces that Bernie is stepping down as CEO. He will become honorary chairman emeritus and an advisor to the board of directors of F1, but not actually on the board. So in other words, Liberty fires him. I mean, they had to. There's no way that they could do what they wanted to do and, and what needed to be done as long as he was still there holding the reins.
- BGBen Gilbert
This is a classic what got you here won't get you there situation.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
Uh, all that stuff that Bernie did no doubt built the sport and created the sport, and the way in which it needed to go from here, uh, Bernie could do almost none of those things and was probably holding it back at this point.
- DRDavid Rosenthal
Yep, yep.
- BGBen Gilbert
So I was doing the math on his run. What year did he sort of start becoming the steward of Formula 1?
Episode duration: 4:28:32
Install uListen for AI-powered chat & search across the full episode — Get Full Transcript
Transcript of episode MyFzfgrZUYg
Get more out of YouTube videos.
High quality summaries for YouTube videos. Accurate transcripts to search & find moments. Powered by ChatGPT & Claude AI.
Add to Chrome