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June 29, 2023

Editor Note: JohnWallStreet and Guggenheim Securities' Michael Morris hosted the first of what will become a regular series of sports investing 'mini-camps' earlier this week.

The event was an overwhelming success. Investors representing more than $1.1 trillion worth of institutional capital turned out alongside thought leaders from Allen & Co. and Verance Capital for an interactive conversation on sports investment and media distribution with former Goldman Sachs partner and NFL VP Eric Grubman. 

The dialogue flowed so freely we never really got around the topic of sports betting. That's OK though. Chris Grove (co-founding partner, Acies Investments) is leading the conversation at our next mini-camp on July 12. 

RedBird, Otro Will Look To Double Alpine EBITDA Over Next 5-7 Yrs

Photo Credit: Renault Future Tour Presentation

RedBird Capital and Otro Capital are leading an investment syndicate that is purchasing a 24% stake in Alpine Racing. The deal values the Formula One team at more than $900 million.

But this LP sale isn’t like some of the other high-profile stake deals announced in recent weeks (see: QIA/Monumental Sports, HBSE/Joe Gibbs Racing). RedBird and Otro will have a hands-on role in the franchise's operations moving forward.

They plan to install their proven commercial playbook (think: sponsorships, hospitality, merch, content) and will try and double team EBITDA over the next five to seven years.

There was no auction process associated with this sale. That’s because Renault, the French automotive giant who owns Alpine Racing, wasn’t looking for liquidity; Sportico reports the team posted a

in ’22, and it is believed to be generating significant free cash flow.

It was out to find a strategic capital partner capable of driving commercial revenues, and specifically sought out RedBird due to its reputation as a best-in-class sports operator. It was aware of the U.S. firm because of a referral from the management team at Toulouse F.C. The group’s efforts have helped transform the business side of that club in just two years.

Renault also wanted a partner who could help raise the profile of the Alpine car business in North America. The company recently announced plans to roll out a new five-car lineup over the next half decade.

They should get that in a syndicate that includes RedBird, Otro, Ryan Reynolds’ Maximum Effort Investments and Paul Wachter’s Main Street Advisors. Reynold’s presence should be particularly helpful from a content generation and brand activation standpoint (see: Wrexham, Aviation Gin, Mint Mobile).  

~70% of RedBird’s investments to date have been in sports, media, and entertainment, or in experiential consumer (think: hospitality, licensing). The other ~30% have been in financial services. In order to maintain portfolio diversification, RedBird spun off Otro, a group that will continue to focus on sports investments. 

RedBird and Otro have a ‘tiger-cub’ like relationship. RedBird will continue leading its own sports investments. It will also back Otro-sourced deals. RedBird LPs will own a stake in Otro and RedBird founder and managing partner Gerry Cardinale will have a seat on its board and advisory committee.

This new group, led by Alec Scheiner, Brent Stehlik, Niraj Shah and Isaac Halyard, will raise additional capital as well. Eventually Otro will have its own fund.

Alpine is the first deal the two firms are doing together.

F1 used to be a no-fly zone for RedBird. Spending was out of control and teams were losing boatloads of money.

But Liberty Media’s decision to institute a cost-cap in the last Concorde Agreement altered the sport’s economics. Teams are now limited to spending $135 million on the car build, and cash flowing as a result.

The two firms are bullish on the sport’s macro. They see upside in media rights and sponsorship revenues, both in the U.S. and abroad. Viewership is climbing, and the audience is more female, diverse, and has a higher net worth, than many other properties.  

An investment in Alpine gives them one of just ten seats at the Formula One table.

But RedBird and Otro also see a team that is primed for commercial growth.

The investment firms will maximize sponsorship revenues by putting its assets out for RFP the way an NFL team would. They will also look to increase event revenues by offering enhanced hospitality experiences (think: On Location), and by revamping the team’s merchandise offerings.

Renault bought Alpine for ~$1.50 in 2015. So, a $900 million plus valuation may seem staggering; particularly since there haven’t been any institutional trades since.

The truth is opportunities with modest EBITDA multiples are increasingly rare in professional sports today, as are stakes in F1 teams. And there is likely to be some natural value appreciation with these teams too as institutional capital begins to enter the sport.

Alpine’s French roots matter to F1 purists. But to RedBird and Otro, it being a works team (i.e., it builds its own engines) mattered more. That reality gives the franchise a massive infrastructure advantage.

The only other works teams in the sport are Red Bull, Ferrari, and Mercedes. And investors can’t buy into any of them right now.

It should be noted that costs are only capped on the car build. Engine costs, while regulated, are excluded; as are driver salaries.

That makes winning on the track difficult. Red Bull has won all eight races this year.

But RedBird and Otro aren’t particularly concerned. They view Alpine as a premium brand with a history of winning, which should assist in their ability to grow the commercial business.

They’ve seconded Nick Frasco, the former CRO of OneTeam Partners and the Memphis Grizzlies prior to that, to lead those efforts.

And nothing lasts forever. F1's Concorde Agreement is renewed every five years and car schematics and processes change over time. Just a few years ago Mercedes dominated the sport.

Come ’25, Red Bull, and every other team, will be forced to reinvent itself.

Alpine is getting a jump on doing that off-the-track now.

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