GM Team May Be Additive on Margins, But Expansion Dilutes F1’s Core Value Prop

GM Team May Be Additive on Margins, But Expansion Dilutes F1’s Core Value Prop

Formula 1 recently announced a deal in principle with General Motors and TWG to add an 11^th team in 2026. The Cadillac-branded American outfit will reportedly pay a $450mm anti-dilution fee, more than twice the legislated price tag ($200mm), to join the exclusive grid.

The fact that the sport is expanding at all, never mind at that price, speaks to how far it has come under Liberty Media control.

"A few years ago, the discussion was [around] 'would Formula 1 still have 10 teams and be able to fill [those spots]’,” Curry Baker (director, media and entertainment equity research, Guggenheim Partners) said. 

Now, it is adding an 11^th team.

The move was made, in large part, to expand the sport’s presence —and fan base— in the U.S. The short-term payday that the teams will collect likely didn’t hurt, either.

But at least some industry insiders believe Liberty’s decision to approve GM’s bid dilutes the property’s core value proposition—its scarcity (think: 10 teams, 20 drivers, 23 races). 

“That’s what makes [F1] the most premium, the most exclusive,” Ricardo Fort (founder, Sport by Fort Consulting) said. “The moment you break that principle, [you hurt the product and threaten to alienate the core fan base].

The former Coca-Cola and Visa executive added that expansion is “a clear sign Liberty Media [has run] out of ideas [to grow the sport]. The definition of ‘milking the cow.”

FWIW, Mario Andretti has sparked rumors a 12th team could be on the horizon too.

Liberty’s ability to add an 11^th team at nearly a half billion dollars reflects the immense value it has brought to the F1 ecosystem.

“Whether it's the teams’ [P&Ls, which are now more sustainable thanks to a cost cap, or] franchise values, [which have skyrocketed from next to nothing to being worth over a billion dollars, the growing number of OEMs], the FIA, Formula One, even at the promoter level, [the sport] is probably in the best shape it's been in decades," Curry said.

And that includes here in the U.S., where there are now three high-demand races on the annual schedule (see: Austin, Las Vegas, Miami).

“If you look at [requests] for tickets [on] the sponsor side, the American races are second only to Monaco," Fort said.  

So, it’s logical that Liberty would look to continue capitalizing on the momentum.

“It’s a natural evolution of the sport to become more American,” Fort said. “Everybody would agree that [trying to broaden appeal in the U.S.] is the right thing to do.”

North America remains F1’s largest near to mid-term opportunity, and the Haas team, which is headquartered in North Carolina but maintains race operations in the U.K. and design, aerodynamics, and computational fluid dynamics (or CFD) in Italy, has not captivated the fans’ imaginations.

“High level, [Liberty’s goal is] directionally positive,” Baker said.

There is seemingly less consensus on how the publicly traded media, communications, and entertainment conglomerate went about pursuing it; and that’s putting aside the rejected Andretti-GM bid.

“Adding another team is [problematic] because it increases the [total] number by 10%,” Fort said. It would be “like the NFL adding three new franchises.” 

There’s no guarantee that having a U.S. branded team will draw more Americans under F1’s tent, either. The teams are rarely the entry point to the sport.

“What attracts new fans is the idea of it being international, the glamour and the destinations. It’s not everyday racing, it's fancier," Fort said. “So, having a domestic team [won’t] necessarily add value.”

Especially, one that appears to be an outlier in a lineup of the most premium car manufacturers in the world. 

“You cannot put Cadillac on the same grid as McLaren, Aston Martin and Ferrari,” Fort said.

And Americans like winners. The GM-backed team is not expected to compete for championships out of the gate.

There are other paths that Liberty could have gone down to try and achieve its desired outcome before introducing an 11^th team.

“One [would have been] to [require] 50% of [all team] sponsors to be American,” Fort said. “Another [would have been] to [add some] American drivers” to the sport.

There are a disproportionate number of American tech companies currently investing in the F1 (see: HP’s title sponsorship of Ferrari or SalesForce’s partnership with McLaren). But no team employs a U.S. born driver. 

GM reportedly plans to have at least one American driving for its Cadillac branded team.  

Of course, young sports fans in the U.S. tend to root for star athletes. And there are no high-profile American drivers to immediately plug in.

So, Liberty went with what appears to be the easiest solution to growing the U.S. market.

“Having a GM-Cadillac banner is probably helpful directionally to exposing more Americans to the sport,” Baker said.

And the path that came with the largest check; money that will be used, at least in part, to offset future dilution in team payments. For context, the 10 teams will collectively divvy up ~$1.34 billion in 2024 (+47% from 2018).

But it’s hard to see how adding GM-Cadillac is going to be meaningfully additive to the circuit beyond that.

Sure, F1’s U.S. media rights come up for negotiation next year and having an American team (and driver) makes the property more attractive on the margins.

Remember, the U.S. auto manufacturer is also expected “to put a lot of money into promoting Formula One and their team," Fort said. "So, that could [add] some second level implications to [the upcoming rights negotiations too]."

Of course, that assumes an extended deal term.

“If [Liberty does another] three-year deal, it probably doesn’t matter at all,” Baker said. “Cadillac won’t be competing with [its] own engines until 2028.”

GM’s increased presence could help draw other blue-chip advertisers to the sport. 

And perhaps it is a catalyst for other "teams, writ large, to push the envelope on what they're willing to do in terms of monetization," Baker said, which would benefit the sport overall.

But the upside associated with expansion brings some risk to the teams.

They’re “kind of banking on [this addition] driving growth going forward just given that [they’re] now splitting the pot 11 ways versus 10,” Baker said.

That may mean further additions to the race schedule.

Or perhaps some of the European teams agree “to do less heritage stuff in Europe and go to a more rotational [scheduling] basis and do more fly away again to push the economics and continue to drive team payments,” Baker said.

And that’s where skeptics see the sport going off the track (pun intended).

“This is the typical death by a thousand paper cuts,” Fort said. Liberty "added races [and] none of the teams [wanted that]. Then they started racing at 1am local time in some [cities]. Now it is adding a new team, and [that team is] Cadillac. So, there are a lot of things [building on top of one another]."

Everyone understands F1 is a publicly traded business. And no one is faulting Liberty for trying to grow shareholder value.

"But the moment you start [making] all your decisions [based on increasing] revenues, [it begins to negatively impact the quality of the sport],” Fort said.

And unfortunately, oftentimes the byproducts of those decisions —and the damage done— do not surface until it’s too late.

The risk is, eventually, “the sport [begins to] look like something different and [that it is no longer as] interesting to [its] most avid fans,” Fort said.