How Toto Wolff built the most valuable team in F1

You guys should have a pub here all the time.

Yeah.

Maybe it's a bit dangerous with all the valuable cars. You don't want anyone stumbling and falling over.

As a continental European, I never got the tradition of standing at the bar and having a pint or two or three, and then having a conversation. What do you talk about?

Cheers.

Cheers.

Many people across many jobs are in the talent-spotting business, but you're especially in the talent-spotting business. How do you actually spot a Kimi?

How do I spot a Kimi? I think when it comes to spotting racing drivers, we can judge pretty early on from a kid's karting performance whether that kid has the potential to be a professional racing driver. Even with the tiny ones, you can identify the ones doing better than their peers, especially if they're younger. If someone who's 8 years old beats the ones who are 10 in that group, you can see those very early signs of whether that kid has the potential. You can see when someone is comfortable in the kart, going at 100 kilometers an hour in the rain, and that kid does his first lap and comes around the corner sideways. You think, “Okay, there are the ingredients for being good at it.”

How quantitative is it? In certain sports, there are metrics. In cycling, there's a metric called threshold power, and Tadej Pogačar, the best in the world, is very clearly just the best in the world on this single metric: how much power, for your weight, can you produce? Or is there some number that Kimi and George Russell would stand out on compared to other racers?

This is what makes our sport so unique: there isn't any. With Tadej Pogačar, you can see that the threshold, watts per kilogram or VO2 max, is measurable. But I don't know what Tadej's metrics were when he was 12. Maybe that was not best-in-class. Maybe that came later.

The ingredients of success that you can't measure are personality. How resilient are you to pressure? How much can you play the team game? When it comes to racing drivers, there are obviously similar KPIs: the stopwatch. The stopwatch never lies. But put them in the same car, and the stopwatch is going to decide whether you're being judged good or not.

Underneath the stopwatch, there needs to be technical ability to set your car up in the right way, interact with the engineers, and have some kind of social competence: making sure you have sponsors and treat them well. There have been extremely talented kids who never went anywhere because they were simply bad people or not intelligent enough.

Then there is the overwhelming part, and that is what we call speed. What is speed? It's all of your cognitive abilities and neurosensors, the sheer billions of sensors that a human has, that give you an ability not many have. It's actually the ability to feel what the car does underneath you. You can see that extraordinary drivers feel much more. They feel more connected to the car on the road than anybody else.

One example is an old friend and driver of mine, Lewis Hamilton. You have 2 axles—a front axle, a rear axle—and you have the chassis in between. When you say a car understeers, it means that when you turn the wheel, it goes straight. That happens over the tires and the front axle. It's pretty normal.

But Lewis once said something when talking about the car: “The car understeers from the front axle to where I sit.” That's the middle of the car. How can that understeer? The engineers couldn't really identify what he meant, but that is what his body or his brain told him the car was doing. If a driver is able to have that underlying layer of ability, then that becomes unbeatable. But that is genetics.

The great drivers strap the car onto themselves. They don't sit in the car; there's a connectedness.

Absolutely. Connectedness is the right word. It's actually being one with the car and with the road.

How did you decide that you weren't good enough to be a professional driver, on this topic of talent identification? That's one decision.

Talking about humiliation and trauma as ingredients for later success, when I was a child or a teenager, there wasn't really anything differentiating me or outstanding, academically, in sports, or socially. When I was 18, by sheer coincidence, I ended up with a friend on a racetrack watching an F3 race, which is a junior formula.

When I stepped into this paddock, it was like I'd found my identity. This is what I wanted to be. I wanted to be a racing driver, someone able to tame this machine. This is when I basically started my career as a driver, but I came too late to the party. I didn't have all of that karting background that teaches you the fundamentals of the physics of how to position your car in the race.

But I became a pro. I went through the various stages of junior formula racing into what we call GT cars, touring cars, or sports cars, with a certain amount of success. It's like what you do with your business, I guess. I woke up with that desire and went to bed with that desire. That lasted for quite a few years.

The other, maybe less talked-about part: obviously, there's a huge amount of fixation on driver selection and who will get the next seat and everything like that. Presumably, a lot of what you spend time on is recruiting the right engineers and aerodynamicists and things like that. How does spotting that kind of talent work? Are you trying to pull people from other Formula One teams or from other industries and outside? What have you learned about talent outside of drivers?

When you look at the Formula One team from outside as a fan, you see 2 drivers. You see a guy like me sitting in front of a screen, and then you see the mechanics and sometimes the engineers on the pit wall. This is what you expect the racing team to be.

But this is just the tip of the iceberg. It's about 150 people who go to the tracks, including marketing. It's 90 technical and operational people. But we are 2,500. Here in the UK, we have 2 hubs: one that does the engine, and the other one that does what we call the chassis. That is the works team. We are 2,500 people in an organization that's quite vast when you look at the 2 cars.

For me, the selection process for the people I want to work with is the same, or similar in terms of the pattern, as it is for racing drivers. I always say there aren't 2 superstars in the team. There are 2,500, and I treat all of them equally. We've learned from the All Blacks, 10 or more years ago. They have a saying on their training ground: “No dickheads.” And we have continued to run that motto.

The extraordinary scientist or engineer who hasn't got the right values—humility, integrity, honesty, and enthusiasm—will have no future in the organization. We're trying to filter that out pretty early. Sometimes you find out later, but there's no place for the genius asshole.

You're describing the need for people to collaborate within the organization and the teamwork. But what's interesting is you have these different domains: aerodynamics, battery systems, the internal combustion powertrain, traction, and everything.

The R&D almost entirely goes towards cars where you know the rules. There isn't much room for general R&D because you just don't know. You're not going to work on batteries before you know exactly what will be permitted when it comes to batteries and things like that. You have to know the target you're designing against.

We did it a long time ago, but Formula One introduced the cost cap a few years ago. Every resource that you deploy into engineering is counted against the cost cap, which is $200 million and a bit a year. Therefore, long-term R&D work and lab work are actually, unfortunately, very limited, because you need to decide between deploying compute power in a front wing that you might have in 3 months and some long-term feature.

For all F1 teams, one of the things the cost cap changed is that speculative R&D just had to go, because ultimately you have fixed dollars, and you have to put absolutely everything you can towards this season and next season.

I wouldn't say all of it had to go. You still need to find the right balance between what you think future cars are going to benefit from and the lap-time effect it can have versus the current cars. Unfortunately, that percentage of R&D development, of science and lab work, which I love, has a more limited scope.

You have not only the overall cost cap, but also limits on the number of wind tunnel runs and CFD simulations. Isn't it a bit weird that you can't spend your R&D budget exactly as you want to?

There are 2 sides to that coin. The first one is that Formula One was always unlimited-budget and therefore ultra-sophisticated machinery, which led to a situation where the big teams—Mercedes, Ferrari, Red Bull—were leapfrogging all of the other teams. For us, we had those big motherships behind us, with either a shareholder that was extremely keen, like Red Bull, or Mercedes, which said, “This is a huge branding exercise for us, and the spending is relatively low in comparison to all of our marketing.”

What happened is that only these 3 teams actually won races. So Formula One said, “We want everybody to compete on the same budgets.” That was the reason why it was introduced. Now, you can see that it limited the science aspect of Formula One very much, but it also brought more competition. That's one of the positive effects.

The other one is that Formula One's CEO back in the day, Chase Carey, said, “We need to protect you from yourselves.” Obviously, I was against the cost cap because I knew that, at Mercedes, we had the might, and that probably the worst-case scenario was to lose against Ferrari or Red Bull, but not against McLaren or Williams or anybody else.

He said that to me. Eventually, it was take it or leave it.

You’re investing, trying to eke out tiny advantages in the car. One of the interesting things is that there are the rules, things that are clearly against the rules, things that are permitted, and then there’s a spectrum of gray areas between them. One of the challenges is defending something you think is great and clearly allowed, only to have it banned mid-season or in the next season. Was all that effort really worth a trivial advantage? Maybe, maybe not.

I think the lesson we’ve learned is that you need a dialogue with the governing body. If you feel you have an innovation that has passed the first red face test within the organization, then the leading engineers—and sometimes I’m at the table too—hold a mock trial. The people who invented the loophole or opportunity play the prosecutor, so they have to argue against their own idea. On the other side, engineers defend the innovation, and our general counsel, Carrie, and I are the judges.

You try to see how convincing the defense is?

Yeah, exactly. How convincing is the defense, and how can you destroy the argument that it’s actually legal? That would be an extreme case where the engineering community struggles to define something. But obviously, dialogue with the FIA is important, and you need to bring them in very early.

If you have a very secret, proprietary improvement that you don’t want to unveil, it will be totally top secret within Mercedes, but you’ll also bring the FIA into it?

If we think it’s 100% defensible, crystal-clear defensible, then we’ll deploy it on the car and make the argument for why it’s right. Normally, the FIA will say, “We don’t like it.” They could say, “We like it, but it circumvents the principle of the regulation, so we’re going to ban it because the principle of the regulation is to have the most equal competition.” If they’re fair, they’ll say, “Ban it next year.” If they believe it’s really powerful and not what they wanted to see or intended to define, then it could be banned much earlier. This is where the politics come into play.

Basically, if they think it’s a fair loophole, they’ll give you one season of advantage.

I would say that’s the experience we have, because they’re innovators and engineers too, and they’ll respect it if something like this comes up. One example was the system we call DAS. You have the various dimensions of steering: you can steer to the left, and you can steer to the right. I don’t know if you’ve heard about it.

That part I know. I’m with you so far.

That’s like in an airplane. No, in an airplane, you can also go forward and back.

Exactly. It’s actually nothing like an airplane.

Here, it becomes interesting. We created another dimension with the steering wheel: you could push and pull it in a Formula One car. What it did, it changed—

Yes, I do remember this.

It changed the way the front wheels were operating in terms of their toe effect. We were able to turn—we created a toe effect that helped us heat up the surfaces of the tires by basically dragging them along—

You were running them inefficiently.

They respected the innovation. I remember the first test: Sky had an onboard camera and said, “What’s happening here? They’re pushing and pulling the steering wheel.” When it was shown to me four or five months before we produced it, they called me to a rig in test and development. There was the steering wheel, and they said, “Now, turn to the left and turn to the right.” I was the driver.

Then they said, “Now, push it and pull it.” I said, “That doesn’t go.” I was used to fixing the steering wheel where I wanted it, but it felt deeply uncomfortable to have this additional motion in the steering wheel. The Formula One drivers got in and said, “No, we’d like to try it.” And it really worked.

Coming back to it, I think you want to have an exchange with the FIA to make sure you’re not on the wrong side of the argument.

With that, did they end up banning it, or did they permit it for the team?

They banned it after a year.

Why did they ban it after a year? Why didn’t they say, “Okay, this is one of the things that F1 cars can do now”?

I don’t know. Maybe we lost the political argument that it was good. Other teams said it would cost so much to replicate it, and they could. But is that really the intention of the regulations?

Why did you do it as a push-pull rather than a button on the steering wheel? Why was push-pull the control mechanism?

I think there was a regulation that allowed a mechanical system. The rule is that the driver must drive the car.

Yes.

So it needed to be deployed for the driver through a mechanical system. I believe that was the reason.

I see. That was the best way to make it defensible.

Yeah.

That’s so interesting. Where would you categorize the compression-ratio kerfuffle: ambient temperature versus measuring a temperature? Where does that fit on this spectrum?

This was just other teams feeling sore about not having read the regulations the right way. Today, on any vehicle in the world with a combustion engine, you measure compression ratio in a cold state, because how else would you measure it? What does a hot state even mean, at a certain temperature, with other ambient factors that matter? It could be a manipulable value.

The other teams said, “Quite unfair. The rules say it needs to be measured in a cold environment or with a cold engine. What Mercedes has done is, once it’s running hot, it basically grew in size and therefore extracted more power.” And we didn’t confirm that.

You had more thermal expansion than other engines did?

Exactly.

Because you engineered in more thermal expansion.

I can’t really confirm that. Sorry, I must rewind.

Okay, but that’s what people say.

That’s what people say, because the measurement was clearly identified to be in a cold phase of the engine. Was it a loophole? Was it a shortfall of the other teams? I think it was a shortfall of the other teams. It became quite a political argument, and then some compromise was found in how the measurement worked. The funny bit is, it didn’t make any difference for us. It was a months-long argument going back and forth, and we fought it for the sheer principle of innovation.

Is it hard to keep these top-secret improvements a secret?

Yeah, it is, because there’s a natural fluctuation of personnel between the teams.

Would you compartmentalize? It’s like the Manhattan Project. You need to firewall things.

We firewall certain things, and I’m maybe more on the extreme side within the organization. Not everyone needs to know everything, but eventually you’ll always have a group of 20 or 25 people—

Who need to be in the know.

Who need to be in there, and they may change teams, and then that obviously leaks.

Can you prevent people from changing teams within a season?

There’s the regulatory environment of every country. How long can you actually prohibit someone from working for another team? With our contractual frameworks in the UK, you can do it for up to 12 months. But there are countries like Switzerland, for example, where it’s 3 months.

You’ve got to be careful who you hire in Switzerland.

We haven’t got our offices in Switzerland, for example. You’ve got to be careful who you hire elsewhere. But you always need to account for the fact that people may change teams for personal reasons. That’s a perfectly fair argument. That’s why you have to think about how to make sure things don’t leak too easily. But eventually, they’ll always come out.

If you could write the rules, how would you change them?

Well, I’m in two minds. The innovation part of me, listening to my engineers, wants free rein. We have a budget cap of $200 million, and then you could make things as open as you want. That would be magnificent from a scientific and engineering standpoint. But what would happen is that the best engineers, with the greatest capabilities and infrastructure, would come out with a car that was much superior to some of the other teams’. It would create a field where the leading car could be 5 seconds quicker than the next one. That is not what Formula One wants. It’s becoming more and more restrictive.

Is that good or bad? I think it needs to be sensible, because this is still the fastest laboratory in the world. That’s in our DNA, and I think that’s still happening. Obviously, engineers will always say, “Well, it’s not as much fun as it was in the past,” but it’s still a lot of fun.

You were describing one set of risks in developing new technical changes, which is the regulatory risk: will you be allowed to have it for even one season, or certainly for multiple seasons? But the other risk is technical: will it work? I think in any R&D organization, we have this at Stripe. We only have so much time, so much money, and so many engineers, and we need to put them towards the projects that are most likely to work. You don’t know upfront what’s going to work.

So part of the special sauce is being able to predict whether one product direction is a good one, while another isn’t awful, just not the best. You’re fundamentally playing this game of where you spread the poker chips. How do you manage technical risk? How do you think about allocating those very precious chips? They’re even more precious now in the new cost cap era.

The unfortunate part of it is that your business is far more complex, in my opinion. Why? Because you deal with the end customer, whoever the customer is: an organization, an entity, or a person. You can define technical specifications that you believe make the process better, more efficient, or more successful. But there’s someone at the end who actually needs to buy your product, and that person or organization is going to measure whether the humans who are actually his or her customers are going to like it. How can you predict that part? With us, it’s all data and simulation.

It’s much more measurable.

It’s much more measurable. At a very early stage, we define what lap-time contribution we imagine that part will make. It all starts in the virtual world. It’s all simulation, whether it’s CFD, the wind tunnel and the way we measure and attribute downforce and drag, or the mathematical models we have. All along the process, you continue to correlate with your expectations.

There are rare occasions when you believe that something, once it ends up in the car, is going to make it a tenth of a second quicker on average over a lap, and you realize it doesn’t. Or you realize that the driver doesn’t feel comfortable with it and doesn’t feel safe enough to drive it. We also need to consider whether the end customer—which we know exactly, while you maybe don’t—will be able to extract that virtual, let’s say, theoretical lap-time benefit. But it’s much more measurable.

Engineers like to fall in love with their ideas: “I just need one more simulation run,” or, “I just need one more—”

We don’t have that.

But you have to kill people’s ideas because they’re in love with them, but they’re just not going to work, or you don’t have the resources to staff them.

I think we’ve had people like this who, if they were also forceful, might put the organization under pressure to continue with the experiment beyond a reasonable point. But they’re not part of the organization anymore. One of the personality traits we hold dear is that the work needs to fundamentally contribute to the overall target of lap time, rather than, as we discussed before, the department’s target. There will be a decision within the group, and then in the wider technical management, to say, “We’re stopping this now.”

If I were to talk to an engineer at Mercedes, I’d find them surprisingly dispassionate and analytical. They’re not falling in love with a particular technical approach or with their idea. It either works or it doesn’t.

Exactly. You fall in love with the result. It’s those extreme emotions and gratifications you feel when you win a race or a championship. Therefore, I would hope the rational part of the engineer is superior to an emotional falling in love with your development.

I want to ask a bit about your investing background, because that’s how you ended up in the position you’re in in racing. First off, were you a private-equity or venture-capital investor? I’ve heard it described as both in accounts.

None of that, I would say. How it all started was that when I decided to stop racing, I had a short period of time when I was an employee at a steel manufacturing company. I didn’t like that, and then I ended up reading about internet companies in the U.S. I know you had Marc Andreessen here. One of the first companies I got interested in was Netscape. Then you had Yahoo! and AOL.

These were the star companies of the time.

The star companies of the time, exactly. I lived in Vienna, and I thought, “I understand now what they were doing.” I looked at the German-speaking countries and asked, “Who is doing that in Austria, Germany, and Switzerland?” I found out that it existed, but sometimes it was just little startups that weren’t even legal entities.

Yes.

Young people walking out of their kids’ rooms.

Then the effect of the Nasdaq started to kick in, with absurd valuations for companies with no revenue. In Germany, the Neuer Markt was the equivalent, but even crazier in terms of the process of being able to list. There were no boundaries, you could call it that.

I found out about all of these companies, got in my car, went there, and said, “I like your business. I want to help you raise equity or list your company on the stock exchange.” If either of those was successful, I’d like to have 10 or 50% of your company. That led to some shareholdings, because some people said, “Why? My business is worth €10 million.” I knew it wasn’t worth that, but I said, “If it’s worth €10 million and I raise €5 million for you, or we IPO for €20 million, can I have half of the company?” They said, “Of course.” That was a win-win.

You were almost like an investment banker to some of these dot-com companies. You probably wouldn’t have described it that way, but you were helping them with financing.

I was wearing cuff links, a Hermès tie, and a pinstriped, double-breasted suit, but eventually I put it in a cave and never wore it again. That was another experience. But no, it wasn’t. It was actually a hybrid between sweat equity, early-stage micro-investments, and an equity kicker or options related to success. That’s how it worked at the beginning. Eventually, we raised capital, but not in a fund-like structure. It was still my company, but we got two private-equity and two venture-capital companies that each owned 10%, so we got real money and then deployed some of it.

You also, importantly, had good market timing, right? For people who weren’t around, the 1999–2000 period was crazy. As you say, valuations became fairly disconnected from reality, and then they crashed hard shortly afterward. A lot of the people who did well in that era were optimistic enough to get into these companies, but skeptical enough to sell some of the proceeds rather than just watching the account balance go up and then down.

And lucky. In our case, within 2 years, we went from me pitching an idea to an entrepreneur who didn’t have a company around him to an IPO, which was crazy. We found ourselves at the after-IPO party, which we used to do back in the day, and we thought that company had zero value 3 months ago, and now it was worth €100 million. One of the companies I pitched had a web portal, a free SMS web portal. It was called sms.at. Basically, you wrote your SMS on the interface at no cost. Austria back then had around 9 million people, and 2 million were using this because SMS messages were expensive.

SMS cost money back then.

It cost money back then.

9 cents a message.

It was a lot. I found out this was run by a teenage boy in Graz, Austria. I visited him, and with the idea that I was going to raise money for his company, I wrapped it into a legal entity. That was very successful. When I said to him, “How do you do that?” he said, “I’m hacking. I’m hacking into the SMS servers of the big telcos.” I said, “Okay, and then?” He said, “Well, eventually they find out that the data volume was bigger than on normal days, and they shut me down.”

I said, “Okay, and if that happens, what do you do?” He said, “Well, I have a plan. For example, today I’m running on Nigeria Telecom, and next week it’s going to be Norway.” We put it in an entity, and I started visiting Telekom Austria and T-Mobile, then the 2 biggest Austrian telcos. They said, “We hate sms.at. We absolutely hate it, but we can’t shut it down. What can we do together?” Eventually, within 2 years, that nonexistent company was sold for 250 million to T-Mobile.

For 250 million?

Yeah.

Wow! People forget. 2000. This was the year 2000?

Yeah.

It was a different era.

Different era. Maybe 250 million today, when you look at the AI situation, is going to be 25 billion.

But on a relative basis.

Relative. It was an unbelievably enormous amount of money and a huge valuation. This was the lucky moment, actually.

They bought it to shut it down?

No. They bought a large part of it, took over the customers, and integrated it into their systems. We signed the deal in Bonn, where Deutsche Telekom was based back in the day. T-Mobile was a subsidiary of Deutsche Telekom. I flew back with my CFO on Austrian Airlines. He was 15 years my senior and was running the M&A department of the Austrian national steel company.

We were sitting on Austrian Airlines and got a glass of cheap bubbly. I said, “That was a good transaction.” He said, “Something is going wrong here.” I said, “Why?” He said, “That business has literally tiny revenue, but a large customer base. That means it has lots of potential, but there’s no way of knowing how to monetize it or how to repay the CapEx investment.”

There’s quite some correlation to the current markets now. It was valued at this absurd amount compared to my specialized aluminum business, which was generating 30 million in EBIT.

Something’s going wrong. I said, “Nothing’s going wrong. The internet is going to dominate. Can’t you see the number of customers?”

“It’s a new paradigm. You’re old-fashioned.”

Exactly. He said, “No, I’m sure this is going to collapse. The valuation is absurd.” Then we listed another company on the stock exchange. From pitching it to the bankers, who were scratching each other’s eyes out to do the deal, to the day of listing was 3 months. He said, “I promise you, we need to look at that. I don’t think this is sustainable.”

That impulse he gave me on that 1-hour flight from Bonn to Vienna was enough to make me look at our whole portfolio of 9 investments. We decided to exit all of them. That started at the end of ’99 and went all through 2000. Obviously, when the market collapsed in spring 2000, people were still hoping for a rebound. It was just a glitch. The market never came back.

We exited all of those investments bar one, an Israeli startup that we couldn’t exit, and we were out. What remained was a skeleton of a venture capital company, very much downsized, to continue looking for opportunities while holding on to the philosophical idea that this wasn’t going to come back for a long time.

I think knowing when to sell is an underrated aspect of being a good investor. There’s an incentive in the investor ecosystem to talk about, “We found this founder very early, and we bought the stock, and it grew and grew and grew, and we want to be on the journey forever.” All the myth-making tends to be about getting in early and being a very long-term partner.

I notice something that doesn’t get talked about, but it’s a very common trait among the most successful investors: they have this spidey sense. It’s like the movie Heat: you’ve got to know when to get out. A lot of very good investors have this commercial sense that, again, you’re in this period, like ’99, 2000, and it’s an important moment to sell. It doesn’t get talked about because it sounds cowardly, or like you don’t believe in this company that you made a lot of money from because you’re now a seller. But it’s an interesting aspect.

I came from a very financially—or generally—poor family background. There was no money. Financial safety and opportunity were always very strong drivers for me. I owned 90% of that company. It wasn’t a fund. I wasn’t managing anybody else’s money.

It was a corporate entity. You had your own venture investors, but it itself was all holdings.

Yeah. It was a private limited company. I owned 100% of it, then sold 20% to venture capital companies. I owned all—or most—of the remaining 80%; some of my dear friends and colleagues had a few shares. When the opportunity came to exit and generate a vast amount of money—a life-changing, generational-wealth opportunity—it became easier for me to do that because I thought, “Okay, I never had any money. Now suddenly I was able to generate so much that I couldn’t even spend it.” At the time, I made the call. I think it probably would have been more aggressive if it had been other people’s money, generating management fees and potentially carry upside.

But the fact was, your money allowed you to be pragmatic.

Exactly. And I had a certain sense of safety, too—or a desire to be on the safe side.

What was your best-performing investment before the racing era?

Mercedes, the F1 team. But before the Mercedes era, I was invested in Williams, which was pretty successful. Before that, a company that I loved forever called HWA, which was—

Sure. These were all racing companies?

That was all racing companies. Before that, I’d say probably the SMS company. It was called UCP.

Yes. SMS entrepreneur turned racing entrepreneur.

No, I was a race driver before, actually.

Racer turned SMS entrepreneur turned racing entrepreneur.

The exact sequence is: racer turned banking intern in Warsaw, turned steel sales manager in Eastern Europe, turned venture capitalist—although it was more venture than capitalist—and then turned young driver manager once I sold all of these investments. Then I started to invest in motor racing companies.

This is Toto’s new Twitter bio, just for you guys. Obviously, that—

I have no social media.

You have enough exposure. I think people know what you think without tweeting. Do you get to manage the team in a different way because, I don’t know, you’re less worried about job security and can take bigger swings? Or how is Toto managing the team different from how all the other F1 team principals manage their teams?

I had this opportunity, an immense opportunity given to me by the board of management of Daimler back in the day, led by Dieter Zetsche, the CEO. Actually, all of the board members were very supportive of the idea. What happened is they bought a small team, Brawn, that won the championship in 2009, expecting it to be a dominant force in Formula One. It underperformed. Year after year, the results were really not satisfactory. Until 2013, they’d won only a single race. At the time, I was running Williams with the founder, and we also won a race.

One of the board members approached me and invited me to Stuttgart. He said, “How can it be that your private little team can win a race, and we, Mercedes, can’t do any better than that?” I said, “I don’t know.” They gave me the opportunity to look at their setup, their numbers, and everything. I came back and said, “What is your aspiration?” They said, “Winning World Championships, because we bought the team that did that.” I said, “Okay, then one of us is wrong, because I’m working on the same budgets, and I’m thinking about finishing in the top 6.” They said, “No, it’s not the same budget.”

“Look, we spend 100 million more.” I said, “Yeah, those 100 million, you spend on Michael Schumacher and Nico Rosberg. I have a pay driver from Venezuela”—who won the race, by the way, Pastor Maldonado. “That’s the main difference.” They didn’t like that situation at all. I said, “I’m just a messenger, and I’m going to go back to Williams.”

Eventually, they came back and said, “We think our model, a corporation running a Formula One team, doesn’t function, because it needs to be much more entrepreneurially led. You need to be empowered to make decisions on the spot, and we want you to run this.” I said, “I need to pinch myself, because being the head of Mercedes Motorsport is probably one of the best jobs in the industry, other than being the Ferrari guy.”

I had to say no because I was a shareholder in Williams, and I’ve always been an entrepreneur. They said, “Funny that you say that, because we’ve just bought back 40% from the Abu Dhabi sovereign fund. You can buy that.” I said, “I did well in my life, but I won’t be able to afford it.”

But they helped you finance it, right?

Exactly. They said, “How much can you afford?” I said, “I’m always on the conservative side. I’ve gone through financial hardship, and I don’t want to end up there.” They asked, “How much are you prepared to put into this?” I said, “That’s the amount.” They said, “We’re going to help you finance the rest.” Here I was.

Until today, with the change of management now led by Ola Källenius and his colleagues, the CEO of Mercedes, they give me a framework in which I can act in the best interest of the racing team, outside of that corporate structure. I couldn’t wish for a better co-shareholder, partner, and brand—a mighty brand that I’m associated with. The decisions that we make are quick, they’re in the best interest of the team while thinking about the consequences for the brand, and I run it like a 20-person organization.

How is the way you run it different from how hired team principals run teams?

Every team is different. For example, when you look at Ferrari, the team principal is one of 10 direct reports to the CEO, so the marketing person in the racing team is on the same level as the team principal. You have other, very much shareholder-led organizations like Red Bull, where you have an employed team principal reporting to a group of shareholders. Then you have a strictly corporate structure like Audi, where people from the group and from Formula One are hired to run the team. They have a salary; they might have a bonus.

I was given that long leash. Today, there’s no leash because we are partners, but the ability to take decisions that was given to me was extraordinary. All of these people fundamentally need to report to someone. There’s always the risk that if you take a decision without escalating it through the hierarchy, you might be exposed and lose your job. Where I am, unless I really badly screw up, I’m responsible for my decisions, and I’m very clear about that, but I can’t be fired.

That’s what’s interesting, right? You see this in Silicon Valley, where companies run by founders often have different strategic degrees of freedom available to them than other companies. You look at, say, Meta: it’s not a company that’s just run by the shareholders; it’s run by Mark, and he has a strong view that being at the forefront of AI is very important. There have been previous waves where he’s had strong views, and now they’re doing very well in the AI space. Maybe a professional management team wouldn’t have had the license from shareholders or the board to spend so much money on that, and it took a long time to prove out, and things like that.

You see that effect oftentimes. Mercedes is the only founder-run F1 team.

It’s a little bit like you and your brother around Stripe. You’re able to make decisions that, in a dynamic environment, may prove to be false or misjudged after a few years. The way Mark Zuckerberg leads the company is quite amazing, because you can decide to pour quite a lot of investment into a certain field, and then say, “That hasn’t developed in the way I thought.”

Dietrich Mateschitz, the founder of Red Bull, said something quite interesting to me one day. He said, “As an entrepreneur, you need to be like a downhill ski racer, but you need to be able to stop and walk back up the hill.” I think, as an entrepreneur, you can do that. You also have a long-term horizon. A manager will probably be incentivized in the short term. You have a 3- or 5-year contract, you have stock options, and you want to maximize their value.

And there’s a fear of failure. There’s a fear of doing something that looks bad to the people who are grading you, because you’re always being graded.

Exactly. That’s what I meant at the beginning. My time perspective has changed. It’s 10 years, not 1 year.

People know that you’re a large owner of the team. I don’t think quite as many people know that Jim Ratcliffe of INEOS is also a major shareholder of the team. What’s he like?

That was a real opportunity back in the day for Mercedes and for Jim. He’s built an empire of an organization. It’s a chemicals conglomerate. There are 3 shareholders, and they run it in the way they think is intelligent. Back in the day, Niki Lauda, who unfortunately passed away, was my best friend. His shares went back into the pool.

Jim Ratcliffe and INEOS started sponsoring us, quite extensively, actually. We ended up sitting at the table with the CEO of Mercedes, Jim Ratcliffe, and myself, talking about the sponsorship. It was just before COVID hit. Teams had no valuations, we were all loss-making, and the sport wasn’t anywhere near where it is today.

Jim said, “I’m prepared to commit X hundred million as a sponsorship if I can have a stake in the team.” We said, “Well, that makes sense.” I increased my stake a little bit, and then we were all one-third. Today, Jim is a great resource I use if I need a contrarian view: someone who is highly experienced, but also shrewd in the way he looks at his businesses. He’s a very enjoyable co-shareholder who isn’t really interfering, but because I guess we do well, he enjoys the ride and is a resource we can utilize.

1. The Business of F1 Teams

F1 teams have become radically more valuable. This transaction valued Mercedes F1 at £4.6 billion, a 7x increase from just a few years ago. That phenomenon has also happened in other sports, like the NFL.

There are 2 explanations for the increase in value. One is a monetary theory: there are more rich people who want to buy into teams, so the businesses are the same, but there’s more demand to become a sports team owner and more dollars chasing fewer assets. The other is that, obviously, this is somewhat true for F1: the teams have become better businesses. The audience has grown so much, and you have Drive to Survive and things like that.

As you think about the increase in value of Mercedes and F1 teams, how much of it is that F1 teams have become more desirable assets, and how much is that they’re actually just very good businesses now?

When you buy a car today, you sometimes justify it with rational decisions, like lots of horsepower, good design, or that it’s an EV because you want an efficient car. The truth is, it’s an emotional decision why you buy a car. The emotional decision is how you want to be perceived. Do I want to be perceived as progressive? Do I want to be perceived as affluent?

Yes.

All of this. That’s going to be a longish answer.

Sports teams are scarce assets today. In F1, there's just 11 of us. You could potentially have another one that’s within the regs, but nobody’s really keen. It’s the biggest global sport in the world today. The Olympics and the football World Championship are bigger, but they’re only every 4 years. This is the biggest global sport in the world.

Then you look at the NFL, which is a very scarce asset too. For an American, it doesn’t get any bigger than the NFL. I think there are 32 teams, or something around that. The scarcity of the asset can be a rational reason to own it and hope for a value increase because of that factor.

Then there’s the trophy-asset angle. There are many very wealthy people who love the sport and say, “I always dreamt of owning an NBA, NFL, or Formula One team, and I enjoy going to the races, giving my input, and I can afford it now.” Very valuable. It’s a win-win.

But then there are people who have so much money and feel, in a way, maybe not recognized enough. You could have earned $10 billion with a business that doesn’t have as much visibility, and you’re saying, “Actually, I’d spend a large chunk of money just for the courtside seat and to be more prominent.” It’s also a decision that you can understand, maybe. That is that aspect of investing.

The other part is fundamentals. You look at the landscape and ask, “Do I believe that this sport is going to continue to grow? What are the demographics of the sport? How much income potential does the league have? How much does the team earn?” And today, these fundamentals have become reality.

In Formula One before, we were all loss-making. It was a marketing exercise. But today, a few of us are generating very healthy profits in our businesses, with more than a 30% EBIT margin. We are distributing dividends. It’s not like the American teams, where you basically live in a debt environment because of the tax structure. We don’t have a lot of CapEx because we don’t own the stadium. Obviously, we also miss some of the revenues.

When you invest in a Formula One team today, you can attribute multiples to your investment decisions. When I sold part of the team last year, those multiples justified the valuation you just stated. Today, I’ll probably be able to generate 30% more. But I got the right partner, so that’s okay. Those multiples are also valid for most of the American teams.

What are the last publicly released financial figures for Mercedes?

We’re generating around $1 billion in revenue, with a 30% profit margin.

Okay.

It’s a very healthy margin.

Sorry, $300 million of EBIT, so the $4.6 billion valuation is a 15-times EBIT multiple? Warren Buffett could underwrite this business.

Exactly. Back in the day, it wasn’t $1 billion, and it wasn’t $300 million. It was considerably less, because we’re growing very strongly, and the sport is still growing strongly. But we are Europeans; we don’t talk so much about valuations and money. As a matter of fact, as you said, these multiples are actually on the conservative side.

Actually, that’s very different from, say, an NBA or an NFL team, where I think every time one transacts, it’s wackadoodle valuations that can only be justified by tax structuring or courtside seats.

But when you look at the valuations of the U.S. teams, some have fundamentals, but there are others being dragged along, with valuations that aren’t real anymore. If you look at Mercedes, we’re probably generating the most profit of any sports team in the world, other than the Dallas Cowboys. We have a USP in this world.

When we compare our multiples to the NFL or the NBA, with its latest crazy uplift in valuation—I don’t know what the revenue multiple is, but it’s crazy—I’m a fundamental guy. I look at fundamental figures, so I would never value a business on revenues. I would value it on return on investment, fundamental cash flow, and profits. That would value us at $10 billion or $12 billion if you look at the Lakers sale, for example, and whatever else happened in this frenzy.

But that’s not the point. My horizon is so long-term that I’m a long-term bullish investor. With all the ebb and flow that can happen in this sport, it becomes irrelevant to actually strive for a high valuation, because it’s just on paper. But we could value the business today much more than it was a year ago.

It’s interesting. There can be an effect in tech where, if you look at the AI space, some of the most enduring businesses in AI, like TSMC or NVIDIA, have these very long-term advantages and actually trade at quite reasonable multiples despite growing very quickly. Similarly, the best team in the biggest sport trades at one of the most sensible multiples.

Yeah, and that’s okay. We want to be perceived as the serious people in there, because we’re not particularly interested in the trophy investor, where we could maximize our valuation. The most important point is that none of us is actually interested in selling any shares here, because we believe in the long-term development of the company and the sport, particularly in this environment of AI.

Humans watch humans, and the driver in the car is irreplaceable, not because a robot couldn’t go any quicker. By the way, that’s a different discussion; I don’t believe in that. But we want to go through the drama and the glory of the individual. I believe that live sports generally are very resilient to whatever technological developments we see at the moment in the market.

Will we see any of the F1 teams as public companies? Isn’t that the next logical step? There are lots of people who would like to be a part of them.

I don’t think…

We went public with Williams, and that was not a success. In a way, you’re reporting 20 times a year, with each of the races. In this sport, it goes from mania to depression within a week.

But that was a very different era. F1 was much smaller, and it would have been a different shareholder base. Could it work now?

I don’t know. If somebody wanted to monetize or raise capital just by being public, maybe. But I don’t think being public as a sports team is the right long-term structure. You want to be in control.

Because you just get whipsawed so much.

Exactly. I would also want to be in control of that business, not because I think in legacy terms—that has no interest for me—but because it’s about creating the best sports team in the world in the time I run it.

2. How Drive to Survive Changed F1

Drive to Survive has been a smashing success for Netflix and a big success for F1, bringing lots of new people into the sport. People talk about women especially. You don’t associate F1 with women, but the show is very popular with them. Netflix has tried a very close copy of Drive to Survive with cycling and tennis and all these sports, and it hasn’t really worked. You don’t hear anyone talking about those shows. Why does the format work particularly well for F1?

There are some shows that I personally found quite okay. The cycling was okay. But why? I didn’t believe it would work. Back in the day, when Formula One pitched it to us, Netflix didn’t really pay any money—very little. We were fighting a World Championship against Ferrari, so I sat down with my colleague at Ferrari and said, “Are we doing this?” He said, “We are here to win a Formula One Championship and not play Cirque du Soleil.” Ferrari and Mercedes decided not to participate in season one.

Yeah, famously.

Famously. That was maybe important for the success of the series, because it allowed Drive to Survive to look at smaller teams and less—

It was like an underdog.

Underdog, exactly. COVID came, and people stayed at home. Generations watched Drive to Survive, from grandchild to grandparent. We started to race as the only sport because we were able to contain our traveling circus very closely. We were live for it. I think this is where we made a big step forward in growing our audiences and demographics.

Why is the sport so strong today? I think it’s not only because of the Netflix factor. It’s also because we entertain. We have great characters who are very active on social media, younger drivers. We provide a great narrative: controversial situations, the politics outside of the sport. That is basically a 12-month live reality show. But with the—

F1 already is a soap opera, and that’s why it works well in TV format.

It is, but with a fundamental difference from other soap operas. We are credible sports. We have rules. We race based on those rules. If you win, the best car, the best machine wins. This is the fundamental base of the sport. This is why the reality show around it fits well. Without that, it wouldn’t work.

Yes.

Entertainment follows sport, not the other way around for Formula One. We’ve stayed true to this DNA, and that’s why we’ve attracted audiences on a scale we didn’t expect before. Our strongest-growing demographic is young women, ages 15 to—I don’t know what the bracket is, but 15 to 25. We have 42% female fans, which is awesome—

Unthinkable for a motor sport.

Unthinkable. Obviously, my wife, Susie, runs the female series, F1 Academy, which is going very strong with young women driving those cars. What she sees is that her demographic very much buys into Formula One’s demographic, and F1 Academy has become an aspirational series for young women—not only those who want to be racing drivers, but also engineers or marketing people in a racing environment, or simply those who are inspired by the fact that a woman can actually succeed in a male-dominated environment. All of this universe buys into the credibility of Formula One.

I personally find Drive to Survive a little too soap-opera. I always want more of the technical details and more of the race craft. I think maybe there will be an opportunity over time for different sub-shows or something like that, because I understand why they make the choices they do. I think what they have probably has the most mainstream appeal, but they’ll probably find that there are sub-emphases that would be successful, too.

It’s a good point we actually haven’t thought about. We tried to develop it, and Stefano and me—Carey, who runs Formula One, is excellent at that—to grow it in the right demographic. We are still niche in some parts of the world. We have a large group of fans on every continent. But when you look at the United States, it’s very much big cities and affluence. I can see that when you go to New York, Miami, San Francisco, LA, and Austin, the sport is very present. People recognize you.

I was invited to the Super Bowl in Arizona a few years ago, and there was no recognition. We are not developed in the middle of the United States, which is NASCAR. This is very much the current demographic that Stefano is aiming at because it’s niche, it’s high-tech. How can I say? It’s very European and glamorous to a certain degree.

We have these hardcore fans. Interestingly, many of the young ones follow free practice on Friday. They know everything about the updates on the car, the aero updates. They also know about the WAGs, the wives and girlfriends of the drivers, and all of these influencers and blogs that exist.

Yes. We’re getting into what it means to be an F1 fan these days, because it’s interesting. You have this pyramidal structure where you can be extremely engaged and follow the team around, or you can go to one race when it comes to your town, or you can watch Drive to Survive, or maybe you just come across YouTube clips in your feed occasionally. Now there are all these different layers. How has that changed from a Mercedes strategy point of view, the fact that you have so many different types of fans now versus the old paradigm of you turn up to a race, or you don’t?

As a team today, we have so many different fan groups—not only fans, but stakeholders. You have, obviously, Mercedes. What is it we do for the car brand to enhance its reputation and fundamentally sell cars?

I have this customer theory. A customer is someone who makes your life better. My number one customer is Susie, my wife. Whatever I do and say is always focused on whether she’s going to like it or not, because that has an effect on my quality of life. My family is very important. The people who work for Mercedes, my employees—if I have them in a good space, then the car is going to go faster. The relationships matter.

Then it’s sponsors and co-shareholders. What do I need to do for them to say that this is a good investment or a good platform? You can trickle that down. It’s the fans, and then it might be the social media followers. You can trickle that down. What I’m trying to do is identify, in my priority list of customers, the objective to achieve the best outcome. That is what I’ve always done in any way of looking at life. It sounds a bit rational and brutal, and maybe the reality is it’s not like this—

No, you’re ranking who’s important to you—

But I’m ranking the priorities. Exactly.

F1 is interesting because you have the teams, you have F1, the organization, the company itself, and then you have the FIA, which people might not realize is different. What are the tensions between all of those groups?

I think tensions have been very limited recently. There was always pressure between Formula One, as the commercial side and the commercial rights holder, the FIA, as the governing body making the rules and policing them, and then the teams. There was, let’s say, an umbrella contract between all three stakeholders, which is the famous Concorde Agreement, because it was signed on the Place de la Concorde in Paris many, many decades ago.

The teams—we don’t own the league, contrary to the NFL, for example. But we are getting quite a large percentage of the profits that Formula One makes. Liberty and public shareholders—retail or institutional investors—own Formula One, and we get the profits. The FIA is being paid by Formula One for its services. But the FIA is also the one that granted the rights to Formula One in a 100-year agreement. So they need to be respected as a stakeholder and not only as the policeman. I think that was where cracks appeared a few years ago, or even before, you must say. But today, it’s more aligned. We’re aligning more, the three entities, for the benefit of the sport.

But if there is a disagreement, what will it likely be about?

What could the disagreement look like? The profit split, for example. These contracts are being renewed every five years.

The age-old debate.

Yeah, exactly. Or where are we? Which countries are hosting races?

Was that new Spanish circuit that nobody likes a mistake?

I’m a traditionalist. I love going to the old circuits because they represent history for me. But the racing is based on these, too. For whatever reason, the layouts of the old tracks, which had vast areas available because places were not as developed as today, provide great racing: overtaking, cars being able to go side by side.

That’s the criticism of the new Spanish track.

Exactly. There wasn’t a lot of overtaking. But Madrid did have—and I’m not saying this to make anybody look good—Madrid as a city is spectacular.

The track that is built in this area is spectacular. I must say, the job that they did over the few years since they got the contract is nothing but outstanding. But I think where it didn't work is that the track is so spectacular for the drivers and the camera positions, with this long banked corner, but it didn't account too much for the new generation of cars and the difficulty of overtaking. For next year already, I think they're going to change the layout of the track because it's not a permanent track, to provide more straights.

It's not a permanent track?

No.

They can just rejigger it?

Exactly.

How configurable is it?

When I spoke with the CEO of the track on the weekend, he mentioned a few corners that he thinks can be adapted or should be adapted. They are open-minded about it.

That's cool. There's fundamentally this tension between creating a destination and designing a racing track, and there are some slight tensions between them. Maybe you don't have as much room as you want to work with, but you can break that trade-off a little bit by improving the track even once the location is set.

I don't think there are tensions. I think fundamentally, all stakeholders, including the host, want to have a great Grand Prix, and that means having attractive racing whilst having good spots for the public.

There's sometimes tension. Monaco, famously, you would not design it that way as a racing track, but Monaco is not going anywhere, and it's the...

I think Monaco needs Formula One, and Formula One needs Monaco. But Monaco is such a traditional track that nobody actually wanted to change the layout because it's like breaking with the rules or breaking the legacy. But fundamentally, I lived there many years. I wouldn't know how to make it very different. I have some idea for a longer straight.

Also, Monaco, they keep building new land, and so you could extend the track out into the Mediterranean.

Yes, and that has been a great commercial success. I doubt that extending a racetrack into the sea is going to generate some return.

Last question. How do you set Mercedes up for succession? How will it work post-Toto? How can you prepare for that?

I've seen examples of entrepreneurs who were either so selfish or believed in their own eternity and forever life that they didn't look after not only their families but also the company. For me, it is not important to leave a legacy and call the building the whatever, Toto building or so, which I hear some people are doing nowadays.

You already have the toilets named after you.

Yeah, exactly. I wish I would own the call on this business. That's massive.

Especially now with AI.

Exactly. We should ask them for sponsorship.

Exactly.

For me, it's important to do what's best for the family and what's best for the team. That means looking at the structure going forward, where this team can live without me. Probably it's not going to be the same because I have the credibility as an entrepreneur who's leading my own businesses, but there will be a solid management structure. I believe that my job is going to be divided between 2 or 3 people that I'm vetting at the moment, who I believe are already doing a great job with all of their strengths in these various areas. It's going to be different, but it will be a successful team.

Do you think you will set things up where maybe you move to an executive chairman type of role, where you don't have to be there every race weekend, and you let the new person set their direction, but you can help with personnel and be there for advice? Or do you think it's important to have a clean break, and you get out, and it's their show now?

I think a clean break is probably not possible if I continue to own it with my family. That executive or non-executive chairmanship is something that may happen, but it needs to happen in a very, very precise way, because you can't be on the sidelines and interfere in the daily business. I also don't want to end up in a situation where I believe the family can run it the best way and then be just mediocre. You have to earn your spot in running it, and you have to contribute. My children also don't have any interest. I believe that if you are a chairman, non-executive or executive, you need to know exactly your role. And that doesn't mean shooting from the outside and being the one who sits on the grandstand and says, "You've screwed up, and you've screwed up, and this is how I would have done it."

You're calling the drivers directly.

You can call the drivers directly if it's about keeping the contact, but it's not about interfering in the daily business. That's how I would aim to be in the future. But I'm still enjoying running it too much, actually.

That makes sense. Theoretical for now. Toto, thank you.

John, thank you for having me. Congratulations on what you have achieved. We haven't talked about it enough, but I can only take my hat off.