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Formula One (FWONA) is having a moment.
The popularity of the glitzy European motor sport has been turbocharged by Netflix‘s (NFLX) “Drive to Survive” show, particularly here in the states. The racing series saw record attendance totals in 2022 and also set records for viewership in the U.S. last year.
And the global race calendar keeps expanding. Here in America there are now three chances to see a Formula One event thanks to the addition of the inaugural Las Vegas Grand Prix this fall.
Netflix Boosts Formula One’s Popularity
The success of “Drive to Survive” has broadened the appeal of Formula One. The documentary series first premiered on the streaming service in 2019. Since then, the motor sport has exploded in popularity.
“Netflix has done wonders for the sport,” McLaren Racing CEO Zak Brown tells IBD. “It’s brought in youth. It’s brought in women. It’s brought in North America, in addition to just globally bringing a lot of exposure to the sport.”
Brown credits Liberty Media‘s (LSXMA) acquisition of Formula One as the spark that ignited the renaissance of racing. The Colorado-based media corporation, which owns an interest in Charter Communications, SiriusXM radio and the Atlanta Braves, acquired the racing series for $4.4 billion. That deal closed in 2017.
“(Liberty Media) put a big emphasis on the fan,” Brown said. “And the fans have just absolutely responded.”
Formula One gets its revenue from several key sources: by selling race rights to different cities across the world, selling broadcast rights for those races to air, and sponsorships.
“We do think that sponsorship advertising is a growth opportunity and it’s an opportunity for Formula One,” says Rosenblatt Securities Senior Analyst Barton Crockett. Crockett’s coverage includes Liberty Media and Formula One.
Crockett says that sponsorships account for about a fifth of the total revenue for Formula One. And that number could grow. Though owned by Liberty Media, shares of Formula One are listed as a tracking stock on the Nasdaq. That listing has gained roughly 8% this year.
“The sponsorships are really more affluent-focused and not as vulnerable to some of the economic headwinds that we’re seeing,” Crockett said. “So there’s a lot of durability to this business.”
Tech Industry Takes Notice
All that exposure has attracted a lot of money. And it’s not just the Formula One fan base that’s expanding. More big-name companies are revving up investments in motor sports.
“Partnerships are the lifeblood of motor sports,” Brown said.
If anyone has mastered the art of the deal, it’s McLaren’s American team principal. The British-based company has one of the more robust sponsorship rosters on the grid. That lineup includes companies that a lot of investors are probably familiar with: Google owner Alphabet (GOOGL), Coca-Cola (KO), Salesforce (CRM) and Cisco (CSCO) just to name a few.
“We’re trying to be the most exciting racing team in the world to fans and the most compelling commercial proposition and opportunity to our partners,” Brown said.
Corporate partnerships are also a key source of income for the 10 teams on the grid. Since their official debut on the 1968 Monaco circuit, Formula One liveries have showcased the logos of everything from tobacco, to oil and gas giants, to spirits and soft drinks.
More recently those sponsorships have taken on a high-tech flavor. That lineup includes chipmakers like AMD (AMD) and Qualcomm (QCOMM) and software companies like VMware (VMW), CrowdStrike (CRWD) and Palantir (PLTR).
Formula One: The Cutting Edge Of Technology
One benefit these companies see in aligning with the popular motor sport is access to a huge global audience. In 2022, more than 1.5 billion viewers tuned in. And Crockett says Formula One’s U.S. expansion makes it an even more attractive property to potential sponsors.
“This is the market with the largest ad revenue opportunity and a large community of sport-loving television viewers,” Crockett said.
But McLaren’s Brown explains that the benefits of corporate partnerships go far beyond the television screens. He says innovation is one of the key motivations for companies that are investing resources in Formula One.
“I think the reason why so many tech partners like to play in motor sports in Formula One is we’re on the cutting edge of technology,” Brown said.
McLaren has some experience with being on the cutting edge. The legendary racing team was one of the first to deploy telemetry units on its cars in 1975 to collect and measure performance data, and also one of the first to put computer chips onboard its vehicles.
The team’s innovations extend far beyond the track. Technology developed in McLaren’s U.K. headquarters has made its way into surgery rooms, airport flight control systems and even toothpaste factories.
McLaren And Cisco: A Case Study In Innovation
One tech partner looking to capitalize on that innovation is Cisco’s Webex platform.
“The biggest benefit that I see in working with someone like McLaren is they’re truly a pioneer and an innovator in their field,” said Cisco’s Jeetu Patel. Patel serves as the executive vice president and general manager of the company’s security and collaboration business segments.
McLaren became interested in the cloud-computing company after the pandemic all but slammed the brakes on the 2020 season. The two inked a partnership deal in 2021 that brought Webex’s collaboration tools into the McLaren garage to stay connected with fans. Webex also helped McLaren’s socially distanced engineering team collaborate on future car designs with hologram meeting technology.
Patel says Cisco has been able to develop and advance its Webex technology because of the partnership with McLaren. That deal was extended last year to include the development of WiFi 6E technology in the paddock.
“The beauty about McLaren is they’re so focused on precision and timing because of the nature of the business that they’re in,” Patel says. “It’s really helped us actually make our product highly fine-tuned for every single edge case that they might have.”
Formula One And The Auto Industry’s High-Tech Future
That development will help Cisco’s Webex enhance its hybrid work products for its auto manufacturing clients.
“We are really excited about the automotive industry in general because it’s an industry going through a massive transformation,” Patel said.
Patel is referring to the electric-vehicle transformation that is reshaping the auto industry. He says the switch from internal combustion engines to battery-operated cars will radically change what consumers expect from their automobiles.
And as cars continue to get smarter, companies are integrating advanced software-enabled features that are available at drivers’ fingertips.
“The role of a vehicle in someone’s life might actually be much more significant than what it used to be,” Patel said.
The electric revolution is also coming to Formula One. Last year, the FIA overhauled engine regulations for the 2026 season to focus on the use of more sustainable fuel and battery power. Those changes brought an American icon back into the fold after 20 years away from the sport.
EV Makers Eye Formula One
In February, Ford (F) announced it would partner with the championship Red Bull team. The Detroit automaker will work with the Austrian racing outfit and its sister team, AlphaTauri, to develop next-gen power units over the next five years.
“We want to be a tech partner in powertrains with Red Bull,” Ford CEO Jim Farley told Siempre Auto at the Feb. 3 partnership announcement.
In exchange, Ford will receive data on how to improve vehicle aerodynamics.
“Turns out in the EV world, aero becomes super important because we can shrink the size and cost of the battery,” Farley said. “And the best aerodynamicists in the world are in Formula One.”
Ford isn’t the only manufacturer eyeing Formula One. Last year, Volkswagen-owned Audi (VWAPY) announced it would become a strategic partner of Alfa Romeo and supply the Italian team’s cars with its power units. Porsche (DRPRY) and General Motors (GM) were also angling to arrange potential partnership deals with Formula One teams earlier this year.
Some estimates put the total cost of developing a Formula One engine at $1 billion dollars or more. But cost caps have leveled the playing field in Formula One and may make it easier for companies like Ford to get a return on their investment.
And the Wall Street Journal reports that as luxury automakers like Mercedes (MBGYY) and Ferrari (RACE) go electric, their historic racing brands might help boost their bottom lines.
“I think there’s a real natural synergy with the tech world and Formula One,” Brown said. “They converge quite naturally.”
Follow Alexis Garcia for more stock market news on X, the platform formerly known as Twitter, @IBD_Alexis.
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