How Mercedes F1 Boss Toto Wolff Became A Billionaire
Huddle Up is a 3x weekly newsletter that breaks down the business and money behind sports. If you are not already a subscriber, sign up and join 99,000+ others who receive it directly in their inbox each week. Today At A Glance:Toto Wolff is the Team Principal & CEO of the Mercedes-AMG PETRONAS F1 Team, and he recently reached a billion-dollar net worth, according to Forbes. So today’s newsletter breaks down the unique deal that ended up earning him $500 million, and how the overall growth of Formula 1 doesn’t appear to be slowing down anytime soon. This newsletter is also available via podcast on Apple or Spotify. Enjoy! Today’s Newsletter Is Brought To You By SoFi!
SoFi is the all-in-one finance app helping you bank, borrow, invest, and save. SoFi’s mission is to help members achieve financial independence and realize their ambition, all in one app. SoFi is transforming the industry and disrupting how the world sees personal finance, and it’s the single app you need to get your money right. I’m a SoFi member, and I love it. SoFi is legit, and they comply with the strict regulatory standards of the FDIC so you can be sure your money is safe. Friends, Formula 1 is one of the most luxurious sports on the planet. Michel Schumacher and Lewis Hamilton have earned hundreds of millions of dollars as racing drivers. The average ticket to the Miami Grand Prix last year was more expensive than the Super Bowl, and it’s not uncommon to see billionaires sipping champagne in the paddock. But Toto Wolff is one of just a few people to actually make a billion dollars from F1. Wolff is the team principal of the Mercedes F1 team. He grew up as a racing driver, became a professional investor, and has spent the last 15 years dominating Formula 1. Wolff has run two different F1 teams — Williams and Mercedes. He currently manages an organization with more than 1,000 employees and annual revenues of $450 million. His teams have won over 100 races, and Mercedes just completed the most dominant run in F1 history, winning 8 consecutive World Championships. And the result? Toto Wolff is officially a billionaire, according to Forbes. But the interesting part isn’t that he’s made a billion dollars — it’s how he did it. Wolff is a part-owner of the Mercedes racing team. He received a significant valuation discount when he was hired a decade ago, and his equity stake has catapulted him from a successful investor into one of the most influential people in Formula 1 history.
Mercedes-Benz has a long (and complex) history in motor racing. The German-based luxury car manufacturer competed in Grand Prix racing from its inception in the early 1900s. They then started racing in the European Championship in the 1930s, and they even won two Formula 1 Drivers’ Championships in 1954 and 1955. But Mercedes withdrew from motorsports entirely after an accident at the 1955 Le Mans 24-Hour race. A collision caused large pieces of debris to fly into the crowd, killing 83 spectators and Mercedes driver Pierre Levegh, and injuring 180 more. “Levegh’s Mercedes was launched into the air and catapulted off the track. It collided with an embankment and disintegrated,” Benjie Goodhart explained in GQ. “Levegh himself was thrown back onto the track, where he died instantly. Debris, including his car’s engine block, flew into the crowd. His bonnet lid scythed through the spectators for 100m, decapitating those in its path like a terrible automotive guillotine. The rear of the car burst into flames, the magnesium alloy adding to the intensity of the flames.” This prompted Mercedes-Benz to withdraw from motor racing for nearly 40 years.
Mercedes then dipped its toes back in the water by supplying engines to F1 teams like Sauber, McLaren, and Brawn GP throughout the late 1990s and early 2000s. And with F1 becoming more popular each year, the legendary brand reentered the sport in 2010. Mercedes purchased the Brawn GP Formula 1 team — but things didn’t go as planned. Despite spending millions of dollars to build a championship-winning car, the newly-launched Mercedes F1 team didn’t win a single race from 2010 to 2012. In fact, the team actually went backward, finishing fourth in the Formula 1 standings in 2010 and 2011 before falling even further back to fifth place in 2012. So they needed to shake things up, which is where Toto Wolff comes in.
Toto Wolff is a former racing car driver that dropped out of Vienna University to start a venture capital firm. He made several good investments and even founded a publicly traded technology company. And he later combined his business knowledge and love for racing to purchase a 16% stake in the Williams Formula 1 racing team. Wolff then spent several years as an Executive Director for the Williams team. They drastically outperformed their expectations on the track — the last time Williams won a race was the 2012 Spanish Grand Prix under Toto Wolff — and everyone took notice. “I received a call from one of [Mercedes’] board members,” Wolff told HBS last year. “He asked me for an assessment of why they were struggling with Mercedes. I told him I did not know the answer, but that if they would give me access, I would give them my opinion. When I went back in to report on my findings, I shared with them that they would never get there with the budget they had. If they had the aspiration to be the number one team, they needed to have the budget to match that aspiration.” So Mercedes decided to go all in. They told Toto Wolff they would be willing to invest whatever it took to become a top team in Formula 1. But more importantly, they asked Wolff if he wanted to run the entire organization — from top to bottom. “I told them I was honored and actually flabbergasted to be asked, but that I felt my future was with the Williams team, where I had an ownership stake,” Wolff told HBS. Of course, Mercedes didn’t take no for an answer. They thought Toto Wolff had all the ingredients to be a successful team principal, so they sweetened the deal, offering him a 30% stake in the Mercedes F1 team for a rumored $30 million. That represented a significant discount to the $176 million Mercedes paid for the Brawn GP F1 team just a few years prior, so Toto accepted the offer and got to work.
Toto Wolff made a significant number of changes upon his arrival at Mercedes. For example, he immediately worked with the Mercedes sponsorship and marketing team to elevate F1’s priority as a marketing vehicle over other categories like fashion and golf. He created a young driver program to develop F1 talent for the future, and he implemented a set of rules that drastically shifted the culture within the team. “The first time I went to the bathroom [at the hospitality area during a race] it was dirty, and I thought, ‘That cannot be. This is our home on a race weekend and where our sponsors come with their families,” Wolff told Harvard Business School last year. “So we hired a full-time hygiene manager, Miguel, who travels with us now. I physically showed him how I wanted him to clean the toilet, how to put the brush back, how to wipe the floor, how to put the soap bottles with the front facing forwards, how to sanitize the handle, and so on. And I walked him through what I wanted his schedule for the week to be, and how on Sundays, when it is busy, I want him to sit right next to the bathroom and make sure it was spotless after every guest.” This meticulous attention to detail trickled down to the rest of the organization, from the drivers and engineers to the marketing team and hospitality staff. But nothing was more important than the FIA’s regulation change in 2014. For those who don’t already know, the FIA is F1’s governing body and mandated that all Formula 1 teams change the type of engine that they used for the 2014 season. Mercedes ended up building a significantly better power unit than the other teams, kickstarting nearly a decade of championship-winning dominance. The Mercedes F1 team won 8 consecutive World Championships from 2014 to 2021, including 7 driver championships for Lewis Hamilton and Nico Rosberg. Mercedes also won roughly 70% of all the races they competed in, and that 8-year stretch is considered by many to be the most dominant run in Formula 1 history. And this on-track success has translated to financial success off the track too.
The Mercedes F1 team has seen its workforce increase from 650 employees in 2013 to more than 1,000 employees today. They now bring in annual revenues of more than $450 million, up from $196 million in 2013, and the introduction of the cost cap has helped Mercedes expand its profits from $15 million in 2020 to $75 million today.
The Mercedes team also received about 25% of all TV time during its championship-winning seasons, which helped the Mercedes brand grow 75% in value since 2013. Mercedes Interbrand Rankings (2013-2022)
And when you combine this level of team success with the overall growth of Formula 1 as a sport and organization, the financial results only get more impressive. Liberty Media purchased Formula 1 for $4.4 billion in 2016, and the publicly traded entity now trades at a market cap of $16 billion. Formula 1 also brought in a record $2.6 billion in revenue last year and distributed a record $1.2 billion in payments to F1 teams. And viewership in the United States has doubled over the last 6 to 7 years. F1 Average U.S. Viewership (2017-2022)
This has drastically increased the value of all Formula 1 teams — and no one has benefitted more than Toto Wolff.
The Mercedes F1 team is now equally owned by three parties: Toto Wolff (33%), Mercedes’ parent company Daimler AG (33%), and chemical company INEOS (33%). The organization was last valued north of $1 billion by Forbes in 2019, but the team is probably worth around $1.5 billion today. That’s a 750% increase from the $176 million Mercedes paid for the team in 2010, and it means Wolff’s stake is worth ~$500 million. And once you add in the fact that he has a $25 million annual salary and several other investments — Wolff is the co-owner of a racing driver management company and owns a minority stake in Aston Martin — it’s easy to see why Toto Wolff has quickly become one of the most powerful people in F1. If you enjoyed this breakdown, please consider sharing it with your friends. My team and I work hard to create quality content consistently, and every new subscriber helps. I hope everyone has a great day. We’ll talk tomorrow. Interested in advertising with Huddle Up? Email me. Your feedback helps me improve Huddle Up. How did you like today’s post? Loved | Great | Good | Meh | Bad Want More Detailed Sports Business Breakdowns? Subscribe To JPS.The Joe Pomp Show is a 3x weekly podcast where I break down the business and money behind sports. Think of it as the same high-quality work you read here, just deeper. There are exclusive interviews with people like Dana White, Lance Armstrong, and Troy Aikman, and you’re guaranteed to learn something new. Huddle Up is a 3x weekly newsletter that breaks down the business and money behind sports. If you are not already a subscriber, sign up and join 99,000+ others who receive it directly in their inbox each week.
Read Huddle Up in the app
Listen to posts, join subscriber chats, and never miss an update from Joe Pompliano.
|
