As Formula One descends on Miami this weekend, previous owners of the franchise may be wondering why they never scheduled a race there. Around 300,000 fans are expected to attend, each paying between $150 a day for a campus pass and $1,225 for a view of the chequered flag. Some will even have splashed out on a “premium experience” offering exclusive access at a rate of $15,000 per head. “The ticket revenue for the race is about 25% more than the entire Dolphins season,” Grand Prix Managing Partner, Tom Garfinkel – who also runs the Miami Dolphins American football team – said in a recent podcast. Combined with Austin in October and Las Vegas in November, the US market has become big business for the Formula One enterprise. 

But it wasn’t always so. In 1983, after positioning itself as the “Monte Carlo of the United States”, race organisers at Long Beach pulled their venue off the calendar, claiming that Formula One was too expensive and risky. For a few years in the late 80s and early 90s, Phoenix filled the gap, but poor attendance led to its cancellation and the US didn’t host another event through the rest of the decade.

When Formula One finally returned in 2000, it didn’t end well. The race was held in Indianapolis but a series of tyre failures in 2005 led to 14 of the 20 cars withdrawing and the track never recovered its reputation. Between 2007 and 2012, Formula One didn’t feature in the US, which added to the 90s void to give rise to “a whole generation thinking that America was not involved in F1,” according to F1 statistician Sean Kelly. 

Since returning for a second time, initially to Austin and then to Miami in 2022 and last year to Las Vegas, the sport has snowballed in popularity. One reason is the success of the Netflix docuseries Drive to Survive. Now into its sixth season, the show converted millions of Americans into F1 fans. Miami’s inaugural Grand Prix, held while season four was streaming, drew in 2.6 million TV viewers – the largest live audience ever for an F1 event on American screens. 

Another reason is the “festivalization” of the sport. Fans turn up not just for the race but for the activities around it. Ed Sheeran will be performing in Miami this weekend, John Summit will be DJ-ing; there’ll be food stands, beach clubs, a variety of entertainment on offer. The concept has been encouraged by Formula One owner, Liberty Media, which bought the business in 2017 and whose CEO Greg Maffei has “Super Bowl aspirations for all our Grand Prix events.”

Liberty has invested heavily in the US market. In 2022, it spent $241 million on land next to the Las Vegas Strip to build the Grand Prix Plaza; it pumped in another $150 million in capital expenditure and up to $448 million in operating expenses to put on the Vegas event. Unlike other races, Formula One directly promotes the Las Vegas Grand Prix rather than working with partners, making it a more capital-intensive project. So far it has paid off. Vegas contributed positively to F1 earnings in 2023 even on those costs, as revenues — sourced from race promotion fees, media rights fees and sponsorship fees — exceeded $3.2 billion globally.¹

Yet even while they ignored the US market, the prior owners made a lot of money. CVC Capital Partners bought the business in 2006 for around $2 billion and agreed to sell it ten years later at an enterprise value of $8 billion. Along the way, they injected debt and took out cash. Their initial purchase was funded with $965 million of equity and $1.1 billion of debt. Within eight months of assuming control, they took out a larger loan, sufficient to pay themselves back their equity. By 2014, they had crystallised around $4 billion through dividends and stake sales, while still retaining a 35% controlling stake they eventually sold to Liberty.  

After taking over, Liberty’s newly-installed CEO observed that “the sport has been under-served by a perpetual very short-term focus so it really hasn’t had a strategic plan or an attempt to invest.”

CVC would likely disagree. The firm consolidated the Formula One franchise by bringing together the broadcast and race promotion sides of the business with the sponsorship and hospitality sides while also acquiring other series in the sport; it introduced a more robust governance structure; and it improved relations with F1 teams that looked broken when it initially invested. It also grew revenues beyond initial expectations. Its original offer letter forecast $1.1 billion of revenue by 2013; the company actually did $1.6 billion (albeit on a different scope). 

But the criticism has merit and it’s one that’s frequently made against private equity (including by guest author Dan Davies here two weeks ago). CVC made its Formula One investment out of its fourth fund, raised in 2005. Lifted by that investment, the overall fund returned 2.4x to investors, putting it in the top quartile among peers. But the life of a fund is short – CVC targets a total fund life of 8-12 years. The success of this fund – visible early in the case of the Formula One investment because of the refinancing – enabled CVC to raise a fund almost 80% larger three years later and go again.

Over a decade on, CVC is now on its ninth fund. At €26.5 billion ($28.5 billion), it is the largest private equity fund ever raised. Formula One is long gone, but the firm now owns 130 companies including stakes in LaLiga, Six Nations and the Women’s Tennis Association and is on the lookout for more. Last month, it released full financials of its business as part of its stock market listing in Amsterdam. For a detailed look at CVC and how private equity works from the inside, read on...