Chapter 1: What is the chaotic history of Formula 1?
I was just listening to the F1 theme song to get pumped up. Me too. Were you really? Yes. It's so good. I just got new speakers here in Acquired HQ North. And actually, thanks to a recommendation from a listener in the Acquired Slack. And yeah, it was bumping. Amazing. All right. Let's do this. Let's do this. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now?
Welcome to the spring 2026 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal. 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 100 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 U.S. 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 One. the world's premier motorsport series. Woo! I was going to save this for 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. No way! From our Google series. Throwback. That's awesome.
Well, listeners, really what we're doing here today with Formula One, 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 One 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. Oh, does it ever.
We might talk about that towards the end of the episode here. Yes, the sport itself is completely insane. It is a grid of 20 drivers competing at over 200 miles per hour in races that last 190 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 24 different cities from Monaco to Bahrain to Melbourne, Australia. Each car costs $20 million to make and hundreds of millions of dollars to develop. The cars have 300 to 600 sensors on them.
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Chapter 2: How did Liberty Media transform Formula 1's business model?
David Rosenthal, where do we dive in? 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 One called The Formula. It was one of the main sources for this episode, and they both actually helped us in the research.
So thank you, guys. Yep. So, Ben, Formula One, 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 an 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 Carl Benz in Germany in the late 1800s, that people had the idea to start racing them. I mean, after all, people raced horses. Why wouldn't they race cars, too? 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. It's great. Carries all the way forward to this day. Yes. The names in this sport are very literal.
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. Yep.
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 Federation Internationale de l'Automobile or the FIA, which still exists today and still administers the rules of Formula One.
And as Josh and Jonathan point out in the book, the sport is literally named after the rule book. 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. It's named after the rule book, yes. Okay, so at this point, you've got all these Grand Prix and these famous racetracks 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.
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Chapter 3: What are the key elements that make Formula 1 unique?
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. 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.
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 have been France or maybe Germany. Well, after World War II... Britain had been, as you alluded to in the intro, absolutely the right set of circumstances for this all to come together.
One, unlike Germany, they'd actually just won the war, but the country was in bad shape and 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. 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. Yeah, even the teams that are owned and nominally operated by companies in other countries, most of them still base their actual operations in the countryside in the UK for this reason. Yep.
So one of these newly unemployed Royal Air Force pilots is a man named Colin Chapman. who also happened to be a mechanical engineer in addition to a former pilot, and who, along with Enzo Ferrari, probably did more than any single person to shape the first era of F1.
So Chapman founded the Lotus Racing Team in 1952 with 25 pounds as his initial startup capital in a set of empty stables in North London. Even then, 25 British pounds was not enough to build a car capable of racing an F1. So he had to have another way of making money.
In parallel, he also started the Lotus road car business, which quickly became, you know, look, hey, it's not Ferrari, but like decently successful. In fact, the first Tesla Roadster was based on a Lotus Elise chassis. That's right. So in 1958, Chapman finally has enough capital together to build an F1 car. He enters his first car in Formula One. And he revolutionizes the sport.
I mean, today teams are super professional operations with hundreds of engineers and tons of equipment. Back then, it was much more like the early days of the NFL. You have like one or a couple people who are team owners, managers, coaches, and sometimes also players or drivers. Yes. And it says a lot that there actually was not a Constructors' Championship when it first got started.
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Chapter 4: How did Bernie Ecclestone's actions affect F1's financial structure?
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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... He had another 25 years at least in him. At least because he's still alive in 2026. Yep. 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. 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. 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 play in here.
So it just so happens here in the mid to late 90s that we're in the height of the dot-com era. Wait, that plays into this? Oh, yeah. So what's the natural thing to do? Bernie's going to IPO F1. Oh, I've totally missed this. 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 U.S. dollar. This is a very IPO-able business.
If it were a, you know, regular business. Yes. 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 going to transfer his ownership of that new company to his then second wife, Slavica, for tax reasons.
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Chapter 5: What led to the IPO plans for Formula One?
Wow. Uh, we should also note here, too, we being 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 pound payment to the Crown in back taxes and fines. And he also received a, I think, 17-month jail sentence, which was then suspended for
probably in large part to his advanced age. Crazy. 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. 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. Good point.
Yeah, does the crown sue one of their own? I don't know. Hmm. Anyway, as he starts formulating all these plans with Solomon Brothers, they're like, well, I see your revenue. I see your EBITDA. And what were those again? 250 million British pounds of revenue and call it 50 plus percent EBITDA margins on that. Good business. 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, 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.
And to be clear, these are all income streams... I mean, so of course we've talked about the meteorites, 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. Yep. So conveniently, right at this same time as they're doing IPO preparations, it comes time to negotiate the fourth. agreement with the teams and the FIA.
In this new agreement, Bernie swaps in a new entity called Formula One Constructors Association Administration Limited, a new company owned by Bernie, FOCA-A, for the original FOCA, so that he can now legally have all the rights to everything in He's doing. And remember who the new president of FIA is that just got installed. Max Mosley. Yeah. So he's just going to rubber stamp it. Of course.
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Chapter 6: How did Liberty Media transform Formula One after acquiring it?
Or that's at least the belief. Yeah. Well, it passes. Let's just say that the path is now paved to IPO, except there's one snag that comes up. News of the plans, as well as Bernie's recent sort of consolidation of legal power, gets leaked to the press. And this causes the European Union antitrust investigators to start poking around. You don't say.
Bernie is doing so much self-dealing here that there's no way he's going to survive an investigation. So Bernie shelves the IPO idea and also resigns from his official role as a vice president of the FIA. And the combination of those two things is enough to at least get the EU off his back for the moment. But he needs another plan for getting liquidity. So he switches banks to Morgan Stanley.
And convinces them that instead of IPOing, they should issue debt on F1 and use the proceeds from the debt to pay himself and his new offshore entities a special $1.4 billion dividend. What? secured by the future TV rights streams, by the revenue streams from the future TV rights. This deal actually happens. It's called the Bernie Bonds.
It is always something you should be a little bit worried about if a company is raising a giant amount of debt principally to pay out its primary shareholder a special dividend. Yes, especially if it's Bernie. Why would you buy that debt? That's a really good question.
The offering, I believe, was intended to be $2 billion, but there was not enough demand and Morgan Stanley could only rustle up $1.4 billion worth of money that was willing to do this deal. Either way, the deal happens on a Friday. All gets done. Debt's issued. Bernie gets his dividend. Money gets transferred to the offshore entities.
On the following Monday, Bernie calls up his bankers and says, Oh, there was something else that I didn't tell you. I'm having triple bypass heart surgery today. Okay. Today. So they just did the debt deal, just issued the special dividend, took $1.4 billion out. Three days later, Bernie is having triple bypass heart surgery.
The entire future success of this thing is heavily dependent on Bernie being in the seat. Yes. Fortunately for him and everybody else, he survives the surgery. Gives a quote to the press from the hospital room. I have disappointed so many people. which later one of his principal bankers would recall her response being, if you make it out alive, I'm going to come kill you myself. Oh, man.
Well, Bernie survives. Later that year, we're in 1999 now, his wife Slavica, i.e. really Bernie, starts selling off equity stakes in SLEC holdings to various private equity firms. including, cannot make this up, in February of 2000, they sell a 37% stake in F1. to Hellman & Friedman, the giant private equity firm based in San Francisco.
H&F then goes and buys out some of the other minority owners that Slavica slash Bernie had been selling stakes to, and Hellman & Friedman collectively gets a 50% ownership stake in F1. And then they go negotiate with Slavica and Bernie an option to buy another 25 percent from them for 600 million pounds and gain 75 percent majority ownership of F1. So they get the option. The option's papered.
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Chapter 7: What unique challenges did Lewis Hamilton face in Formula 1?
There were no other black athletes before or since. All the things that Lewis Hamilton is. He, being a native millennial, wanted to have an Instagram account. And that's underselling, like being one of the most fame-savvy individuals. That too. And what he had that he brought into Liberty's office was a stack of cease and desist letters.
That Bernie kept sending him to take down posts on his Instagram because he was, quote, illegally distributing F1's intellectual property. Yeah. That's how bad this was. Nothing sums it up better than that. Yeah. So Liberty immediately is like, yes, please, Lewis, post as much as you want on your Instagram. Yep. And then finally, and related, there was also just a whole basket of...
low-hanging fruit opportunities to grow the sport. So one of these was esports and video games. There had been an independent video game studio in the UK that had been making official F1 video games for several years. Shortly after Liberty acquires F1, that studio gets acquired by Electronic Arts, makers of Madden.
and FIFA that do billions of dollars of revenue for EA and their league partners every year. Liberty works with them. Another initiative, again, remember Chase and the whole crew, they're coming from the NFL world. Among the many things that the NFL has done so great over the years is turning all the off-season content into exciting, marketable events like the NFL Draft.
Chapter 8: How did Liberty Media transform Formula 1's marketing strategy?
Well, what's the equivalent of the NFL draft for F1? The testing period. Let's televise the testing period. Let's make it an event. Let's generate revenue and grow the sport. Can we generate narrative out of it?
I mean, all the sports journalists who cover F1 right now can't stop writing about how little track time the Aston Martin team has gotten because of the new crazy stuff that, by the way, Adrian Newey is now designing for Aston Martin. He's team principal now. So he's got some new crazy design that isn't, I guess, super reliable yet.
And so there's all these great stories being talked about of how are the drivers going to do when they've had so little time to actually practice with all the other drivers. This is exactly what you want. Yep. And all that was just falling on the floor before. No engagement, no revenue, no utilization of that. Yep. So then the last bucket is also pretty obvious.
We should probably go start courting Hollywood. Racing movies seem to be pretty popular. Yeah. They're medium, medium popular. People like them. I mean, especially for the budgets that they've been made for in the past. Certainly this is a sport that lends itself to visually compelling narratives.
I think you're right that the initial thing was, oh yeah, people like racing and this is visually compelling. That was actually wrong. That is not the correct thesis, but it is the place to start. Yep. Of course, what we're getting at is they end up With, I think, the most impactful piece of sports media in history. Ever across any sport. Absolutely. And that is Netflix's Drive to Survive.
Oh, yeah. All right. So they go to Netflix. These clever F1 guys, and they say, hey, I think you should do a series. And the initial idea, David, like you're saying, is race cars are cool, visually compelling, people like racing. Seems like a no-brainer. And what it would evolve to, really, it's a human drama. Yes.
It's about, when we said there's three concurrent competitions, there's a driving competition, there's the World Cup of Engineering, and there's the World Cup of Office Politics. It turns out the World Cup of Office Politics is an amazing, amazing thing for effectively a reality TV show. It's the most compelling television product.
When you then, as secondary flair elements layer in race cars going super fast... Occasionally crashing. Yes, attractive mid-20s dudes in the most extravagant, amazing places on earth, swimming and being on yachts and partying the night before your big race. And it's just perfect. It's incredible. But the human story, that is the killer unlock of Drive to Survive.
And it was so perfectly made for what everybody in the sport needed at the time. Because if you had made Drive to Survive for, I don't know, let's take the NBA. Sure, it would have succeeded on a lot of the dimensions you just mentioned. But the hardcore fans would hate it. Because they'd say, like, this isn't basketball. Come on. Right. This is just fluff for attracting new audiences.
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