How Toto Wolff built the most valuable team in F1

You know, as a continental European, I kind of 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 about spotting racing drivers, you can judge pretty early on in 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 that are doing better than their peers, either because they are younger. You know, if someone that's eight years old beats the ones that are 10 in that group, you can have those very early signs of whether that kid has the potential. You can see when someone is comfortable in the kart, you know, going at 100 kilometers an hour in the rain, and that kid does his first lap and comes across the corner, you know, sideways, you know, okay, there are the ingredients for being good at it. How quantitative is it? Like, you know, in certain sports, in cycling, you know, there's a metric called threshold power. And Taddei Pogacar, the best in the world, is very clearly just the best in the world on this single metric of, you know, how much power for your weight can you produce. Is there some number that, you know, 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 Taddei Pogacar, you know, you can see that the threshold watt per kilogram, or V2 max, these are things that are measurable. But I don't know what Taddei's metrics was when he was 12. So maybe that was not best in class. Maybe that came later. And ingredients of success that you can't measure, 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, you know, the stopwatch never lies. But put them in the same car, the stopwatch is going to decide whether you're being judged good or not. But underneath the stopwatch, there needs to be technical ability to set your car up in the right way, interact with the engineers, have some kind of social competence of making sure you have sponsors, treat them well. You know, there have been extremely talented kids that never went anywhere because they were just simply bad people or not intelligent enough. And then there is the kind of overwhelming part, and that is what we call speed. What is speed? All of your cognitive abilities and neurosensors, the sheer billions of sensors that a human has, that give you an ability that not many have. It's actually to feel what the car does underneath of you. And you can see with the extraordinary drivers, they feel much more connected to the car and the road than anybody else. One example is, you know, an old friend and driver of mine, Lewis Hamilton. You have two axles, a front axle and a rear axle, and you have the chassis in between. And when you call a car understeering, it means when you turn the wheel and it goes straight. And 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. Well, 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 told him or his brain told him the car is doing. And if a driver is able to have that underlying layer of ability, then that becomes unbeatable. But that is, you know, genetics. The great drivers strap the car onto themselves, you know, they don't sit in the car and 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? I mean, 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, be it academically or in sports or socially. And 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. And when I stepped into this paddock, it's like I've gotten my identity. This is what I wanted to be, I wanted to be a racing driver, someone that is able to tame this machine. And this is when I started, you know, basically my career as a driver. But I came too late to the path. You know, I didn't have all of this 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. And it is, you know, like you do about your business, I guess. And what I'm doing today is, you know, I woke up with that desire and I went to bed with that desire. And that lasted for quite a few years. The other maybe less talked about part, you know, obviously, there's a huge amount of fixation on driver selection and who'll get the next season, 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? And how are you? Just what have you learned about talent outside of drivers? So when you look at the Formula One team from outside as a fan, you see two drivers. You see then a guy like me who is sitting in front of a screen. And then you see the mechanics and sometimes the engineers on the pit walk. This is what you expect to be the racing team. But this is just the tip of the iceberg. It's about 150 people to go to the tracks, including marketing. It's 90 technical operational people, but we are two and a half thousand. You know, here in the UK, we have two hubs, one that does the engine, the other one, what we call the chassis. That is the works team. And we have 2,500 people in an organization that is quite vast if you look at the two cars. And for me, the selection process of the people that I want to work with is the same or is similar in terms of the pattern than for racing drivers. And I always say, there are not two superstars in the team, there are two and a half thousand. And I treat all of them equally. We've learned from the old blacks 10 or more years earlier, and they have a saying which is on their training ground that says, no ****. And we have continued to run that motto. The extraordinary scientist or engineer that hasn't got the right values of humility, integrity, honesty, enthusiasm will have no future in the organization. We're trying to filter that out pretty early. Sometimes you find out later, but no place for the genius ****. You're describing a lot the need for people to collaborate within the organization and the teamwork. But what's interesting is you have these different domains where you have aerodynamics and you have the battery systems and you have the internal combustion powertrain and traction and everything. So the R&D almost entirely goes towards cars where you know the rules. There isn't much room for general R&D because you're not going to work on batteries before you know what exactly will be permitted when it comes to batteries and things like that. You have to know the target that you're designing. We did it a long time ago, but Formula One introduced the cost cap a few years ago. So every resource that you deploy into engineering is being accounted for in the cost cap, which is $200-and-a-bit million a year. And therefore, long-term R&D work, lab work, is actually, unfortunately, very limited because you need to decide between deploying compute power in a front wing that you might have in three months against some long-term… So for all F1 teams, one of the things the cost cap changed is 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, value the lap time effect it can have, versus the current cars. And 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 you have things like limits on the number of wind tunnel runs and CFD simulations. Isn't that a bit weird that you can spend your R&D budget exactly as you want to? So there's two sides of that coin. The first one is to say Formula One was always unlimited budget and therefore ultra-sophisticated machinery, which led to a situation that the big teams – Mercedes, Ferrari, Red Bull – were leapfrogging all of the other teams. Because for us, we had those big motherships behind us that benefited from either a shareholder that was extremely keen, like Red Bull, or Mercedes that said, this is a huge branding exercise for us and the spending is relatively low in comparison to all of our marketing. So what happened is only these three teams actually won races. So Formula One said, we want everybody to compete on the same budgets. And that was the reason why it was introduced. Now you can see that it limited very much the kind of science aspect of Formula One, but it brought also more competition. And that's one of the positive effects. The other one is that Formula One back in the day, Chase Carrick, who was the CEO, said, we need to protect you from yourselves. Because obviously I was against the Costco, because I knew that Mercedes, we had might. And that probably the worst case scenario was to lose against Ferrari or against Red Bull, but not against McLaren, Williams or anybody else. So he said that to me. It was a take it or leave it. You are investing, trying to eke out tiny advantages in the car. And one of the things that's interesting is that there are the rules, there are things that are clearly against the rules, there are things that are permitted. And then there's a spectrum between those of the gray areas. And one of the challenges is you defend something that you think is great and clearly allowed, but then it's banned mid-season or it's banned in the next season. And so was it really worth all that effort to get a trivial advantage? Maybe, maybe not. And I think the lesson we've learned is that it needs the dialogue with the governing body. If you feel you have an innovation that passed the first red face test within the organization, that means the leading engineers, sometimes myself on the table, we're having a mock trial. The people that have invented the loophole or the opportunity play the prosecutor. So they need to fight their own argument. And then on the other side, there is the ones, engineers that defend the innovation. And then there's our general counsel, Kerry and myself, who are the judges. And you try to see how convincing the defense is. Yeah, exactly. How convincing is the defense and how can you destroy the argument that is actually legal? So that would be an extreme case where there's something that we struggle with in the engineering community to define. But obviously, the dialogue with the FIA is important and bring them on 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 will also bring the FIA into it? If we think it's 100% defendable, crystal clear defendable, then we will deploy it on the car and then we will make the argument why it's right. And 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 regulation is most equal competition. So if they're fair, they're going to say ban it next year. If they believe it's really very powerful and it's 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. So basically, if they think it's a fair loophole, they'll give you one season of advantage. I would call it the kind of experience that we have. Because they are innovators and engineers too, and they will respect if something comes up like this. One example was the system that we called DAS, which was, you have the various dimensions of the steering wheel. I don't know if you've heard about it. You can steer to the left and you can steer to the right. That part I know. I'm with you so far. Yeah, so far. No, in an airplane, you can also go forward and back. Exactly. There's actually nothing like that. And here, it becomes interesting. So what we did, we created another dimension with the steering wheel, actually to push and to pull the steering wheel in a Formula One car. And what it did, it changed the way the front wheels were operating in terms of its toe effect. What it did is we were able to create a toe effect, which helped us to heat up the surfaces of the tires by basically dragging them. You were running them inefficiently, yes. And they respected the innovation. I remember the first test, Sky had it on board and said, what's happening here? They're pushing and pulling the steering wheel. And when it was shown to me four or five months before we actually produced it, they called me to a rig in test and development. And there was a steering wheel and they said, now turn to the left and turn to the right. You know, I was a driver. So and then I said, now push it and pull it. And I said, well, that doesn't go. It's like, you know, I'm used to it in order to fix the steering wheel to the way I wanted to have it. But it feels deeply uncomfortable, actually, to have this additional motion in the steering wheel. And then the Formula One drivers got in and said, no, we'd like to try it. And it really worked. So come back. I think if you want to be, you want to have the exchange with the FIA to make sure that you're not on the wrong side of the argument. But so with that, did they end up banning it or they ended up permitting it? They banned it after a year. So why did they ban it after a year? Why didn't they say, OK, 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 of the regulations? Why did you do it as a push-pull rather than a button on the steering wheel? Or, you know, why was the push-pull the control mechanism? I think there was a regulation that allowed to have it like a mechanical system that was, you know, the rule is 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. So that was the best way to have a defensible. Yeah, that's so interesting. What about the where would you categorize the compression ratio? Kerfuffle, you know, ambient temperature versus, you know, measuring a temperature. Where does that fit on this spectrum? This was just other teams feeling sore about not having read the regulations in the right way. You know, 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 hot state even mean at a certain temperature with other ambient factors that matter? And it's it could be a manipulative value that you have. So the other team said, quite unfair. You know, the rules say it needs to be measured in the cold environment or cold engine. And what Mercedes-Benz 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. Well, I can't really confirm that. OK, OK. But that's what people say. That's what people say, because the measurement was clearly identified to be in the cold phase of the engine. Yes. And so was it a loophole? Was it a shortfall of the other teams? I think it was a shortfall of the other teams. So it became quite a political argument. And then some compromise was found in how the measurement worked. And actually, you know, the funny bit is it didn't make any difference for us. So it was a month-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 is a natural fluctuations of personnel between the teams. Do you compartmentalize? It's like the Manhattan Project, you know, you need to firewall things. Yeah, you know, we firewall certain things and we don't, you know, I'm maybe more on the extreme side within the organization. Not everyone needs to know everything. But eventually you will always have a group of, what I call it, 20, 25 people. Who need to be in there now. Who need to be in there and they may change team. And then that obviously leaks. Can you prevent people from changing team within a season? So there is the, you know, regulatory environment of every country. How long can you actually prohibit someone to work for another team? With our contractual frameworks in the UK, you can do it up to 12 months. But there are countries like Switzerland, for example, where it's three months. Okay, so you got to be careful who you hire in Switzerland. Yeah, we have Audis in Switzerland, for example, you got to be careful who you hire elsewhere. But you always need to account for the fact that people may change teams because of personal reasons. Absolutely, you know, fair arguments. And that's why, how can you make sure that things are not leaking too easily? But they will eventually always come up. If you could write the rules, how would you change them? Well, I'm in two minds, you know. The innovation part in me and listening to my engineers is free reign. We have a budget cap that is 200 million and then make it as open as you want. Because that would be magnificent from a scientific standpoint. But what would happen is that the best engineers with the most capability also in terms of infrastructure will come out with a car that is much superior than some of the other teams. And it would create a field where the leading car could be five seconds quicker than the next one. And that is not what Formula One wants. So it's becoming more and more restrictive. Is that good or bad? You know, I think it needs to be sensible, because this is still the fastest laboratory in the world. That is in our DNA. And I think that is 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. The risk, will you be allowed to have it even for one season or certainly multiple? But the other risk is just technical risks, you know, will it work? And I think in any R&D organization, you know, we have this in Stripe where we only have so much time, we only have so much money, we have only so much engineers. And we need to put them on the very, you know, towards the projects that are most likely to work. And you don't know up front what's going to work. And so part of the special sauce is that ability to predict this product direction is a good one versus this one. I mean, it's not awful, it's just not the best. And 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? And again, they're even more precious now in the new Cask Capybara. So the unfortunate part of it is that your business is far more complex, in my opinion. Why? Because you deal with the end customer or whoever the customer is, an organization, an entity, or a person. Because you can define technical specifications that you believe make the process better or more efficient or successful. But there is someone at the end that actually needs to buy your product. And that person or that organization is going to measure whether the humans that are actually his customers or her customers are going to like it. How can you predict that part? With us, it's all data and the simulation. It's much more measurable. It's much more measurable. At a very early stage, we will define what is the lifetime contribution that we imagine of that part. And that all starts in the virtual world. It's all simulation, whether it is CFD, or whether it's the wind tunnel in the way we measure it, or we attribute downforce and drag, or whether it is mathematical models that we have. And all along the process, you continue to correlate with your expectations. And there are rare occasions where you believe that something eventually, when it ends up in the car, is going to be a tenth of a second in average overlap quicker. And you realize it's not. Or you realize that the driver doesn't feel comfortable with it and isn't feeling safe enough to drive it. We need to consider also if the end customer, which we know exactly, you maybe not, will be able to extract from that virtual, let's say theoretical, lifetime benefit. But it's much more measurable. Engineers like to fall in love with their ideas. And I just need one more simulation run. 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 just don't have the resources to staff it. I think we have people like this who, if they are also forceful, they might put the organization under pressure to actually continue with the experiment beyond a reasonable point. But they are not part of the organization anymore. This is one of the personality traits that we hold dear, that it needs to fundamentally contribute to the overall target of lifetime rather than what we discussed before to the department's target. So there will be a decision within the group and then in the wider technical management to say, we're stopping this now. So if I was to talk to an engineer at Mercedes, I would find them surprisingly dispassionate and analytical where they're not falling in love with a particular technical approach or they're not falling in love with their idea. It's either it works or it doesn't. Exactly. You fall in love with the result. It's that extreme emotions and gratifications that you feel when you win a race or a championship. Therefore, the rational part of the engineer, I would hope, is superior against, let's say, an emotional falling in love with your development part. I want to ask a bit about your investing background, because obviously that is how you ended up in the position that 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 is that when I decided to stop my racing, I had a short period of time where I was an employee in a steel manufacturing company, didn't like that, and then ended up reading about Internet companies in the U.S. I know you had Marc Andreessen here. One of the first companies that I got interested in was Netscape. Then you had Yahoo, AOL. These were the star companies of the time. The star companies of the time, exactly. I lived in Vienna and I thought, okay, I understand now what they were doing. I looked at the German-speaking countries to see who was doing that in Austria, Germany, and Switzerland. I found out that that existed, but sometimes it was just little startups that weren't even in a legal entity, young people working out of their children's room or kids' room. Obviously, the effect of the Nasdaq started to kick in with absurd valuations for no revenue companies. Then in Germany, it was Neue Markt, which was the equivalent, but even crazier in terms of process of being able to list. There were no boundaries, you can call it like this. I found out about all of these companies, got myself into my car, went there and said, I like your business. I want to help you to raise some equity or list your company on the stock exchange. If it was successful with the first or the latter, I would like to have 10% or 50% of your company. That led to some shareholding because some of the people said, well, my business is worth 10 million euros. I knew it was not worth it, but I said, okay, if it is 10 million and I'll raise 5 million for you or we IPO for 20, can I have half of the company? They said, of course. You're 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 cufflinks and a mess tie and a pin-striped, double-breasted suit, but eventually put it in a cave and never wore it again. But that was another experience. No, it wasn't. It was actually a hybrid between sweat equity, early-stage micro-investments, and equity kicker or options related to success. That's how it worked at the beginning. Then eventually we raised capital, not fund-like structure. It was still my company, but we got two venture capital companies in that each owned 10%. We got real money and then deployed some of them. You also, importantly, had good market timing. For people who weren't around, the 1999-2000 period was crazy, whereas you say the valuations just became fairly disconnected from reality and then they crashed hard shortly afterwards. So a lot of the people who did well in that 1999-2000 era were people who were optimistic enough to get into these companies, but then 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 two years, we went from actually me pitching an idea to an entrepreneur that didn't have a company around him to an IPO, which was crazy. We found ourselves in the after-IPO party, which we used to do back in the day, and we thought that had zero value three months ago and now 100 million euros. One of those companies that I pitched, I found out that there was a free SMS web portal. It was called SMS.at. And what you did, basically, you wrote your SMS on the interface at no cost. And Austria back then had around 9 million people and 2 million were using this because SMS were expensive. SMS cost money back then. Yeah, it cost money back then. Nine cents a message. Yeah, it was a lot. And so I found out that this was run by a teenage boy in Austria, in Graz, visited him. Basically, with the model, I'm going to raise money for your company, which then was very successful. You wrapped it into a legal entity. When I said to him, how do you do that? He said, I'm hacking. I'm hacking into the SMSC servers of the big telcos. I said, okay. And then I said, well, eventually they find out that the data volume was bigger than let's say on normal days, and they shut me down. And I said, okay, and if that happens, what do you do? Well, I have a plan. For example, today I'm running on Nigeria Telecom, and next week it's going to be Norway. So okay, we put it in an entity, and I started to visit Telecom Austria, the biggest Austrian and T-Mobile then, the two biggest Austrian telcos. And they said, we hate SMSAT, we absolutely hate it, but we can't shut it down. So what is it we can do together? And eventually, within two years, that non-existent company was sold for 250 million to T-Mobile. For 250 million? Yeah. Wow. People forget. This is the year 2000? That is obviously, yeah. Yeah, it was just a different era. Different era. Yeah. Maybe the kind of 250 million today, when you look at the AI situation, that's going to be 25 billion. But on a relative basis, yeah. Relative. Unbelievable, enormous money and valuation. So this was the lucky moment, actually. And they bought it to shut it down? No, they bought a large part of it and integrated it, took over the customers and integrated it in their systems. So what happened is, we signed the deal in Bonn, which was Deutsche Telekom, back in the day. T-Mobile was a subsidiary of Deutsche Telekom. And I flew back with my CFO, Austrian Airlines, and he was 15 years my senior and was running the M&A department of the Austrian National Steel Company. And we were sitting in Austrian Airlines and got a glass of cheap bubbly and said, that was a good transaction. And he said, something's going wrong here. I said, why? He said, that business with literally tiny revenue but with a large customer base, that means with lots of potential but no way of actually knowing how to monetize it or how to repay the CapEx investment, there's quite some correlation to the current markets now, was valued at this absurd amount compared to my specialized alu business that he had that was generating 30 million in EBIT. So something's going wrong. And I said to him, nothing's going wrong. The internet is going to dominate. And can't you see the amount of customers? The new paradigm, your old fashioned. Exactly. Exactly. And he said, no, no, I'm sure this is going to collapse. The valuation is absurd. And we listed another company on the stock exchange, which was between pitching it to the bankers that scratched the eyes out of each other to do this to the day of listing in three months. And he said, I promise you, we need to look at that. I don't think this is sustainable. And that impulse that he gave me from this one hour flight from Bonn to Vienna was enough to look at our whole portfolio of nine investments. And we decided to exit all of them. And that was started 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. And then the market never came back. And we exited all of those investments. They are one Israeli startup that we couldn't exit. And we were out. And what remained was a skeleton of a venture capital company very much downsized to continue to look for opportunities whilst having the philosophical idea of this is not going to come back for a long time. I think this is an underrated aspect of good investors is knowing when to sell. And I think there's an incentive in the investor ecosystem where they all like talking about, oh, 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. I think all of the myth-making tends to be about getting in early and being a very long-term partner. And I noticed a thing that doesn't get talked about but is a very common trait amongst the most successful investors is they have this spidey sense for, you know, it's like the movie Heat. You got to know when to get out. And a lot of the very good investors have this very commercial sense for, again, you're in this period like 99, 2000 and it's an important moment to sell. And it doesn't get talked about because it sounds cowardly or it sounds like you don't believe in this company that you made a lot of money from because, you know, you're now a seller, but it's an interesting aspect. I came from a very financially or generally poor family background, no money, and financial safety and opportunity was always a very strong driver for me. And 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. So, it was a private limited company from which I owned 100%, sold 20% to someone, to venture capital companies, and all of the 80% or most of it, we had some of my dear friends and colleagues who had a few shares. All of it I owned. So when the opportunity came of actually exiting and generating a vast amount of money, which was life-changing, generational wealth opportunity, it became easier for me to do that because I thought, okay, I never had any money and 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 would have been probably more aggressive if it would have been other people's money, generating management fees, potentially carry upsides. But the fact that it was your money allowed you to be pragmatic. Exactly. And have a certain sense of safety also, or a desire for being 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 a… But these were all racing companies? That was all racing companies. So before that, I would say probably that the SMS company was called UCP. SMS, entrepreneur turned racing entrepreneur. No, I was a race driver before, actually. Racer turned SMS entrepreneur turned racing entrepreneur. So 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, and then I started to invest in motor racing companies. This is Toto's new Twitter bio, just for you guys. And so obviously that… I have no social media. Well, I mean, 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, you can take bigger swings? How is Toto managing the team different from all the other F1 team principals managing the team? I had this opportunity, immense opportunity given to me by the board of management of Daimler back in the day, led by Dieter Zetsche, the CEO. But actually all of the board members were very supportive of the idea. So what happened is they bought a small team, Braun, that won the championship in 2009, expecting it to be a dominant force in Formula One. And it was the first Mercedes Grand Prix-owned team with its own engines and its own chassis. And it underperformed. Year after year, the results were really not satisfactory. And until 2013, they won a single race only. And I was at the time running Williams with the founder, and we also won a race. So one of the board members approached me and invited me to Stuttgart. And he said, how can it be that your private little team can win a race and we, Mercedes, we can't do any better than that? So I said, I don't know. So they gave me the opportunity to look at their set up, their numbers and everything. And I came back and said, what is your aspiration? And they said, well, winning world championships, because we bought the team that did that. And 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 six. And he said, no, no, no, no, no, it's not the same budget. Look, we spent 100 million more. And I said, yeah, those 100 million you spent on Michel Schumacher and Nico Rosberg. I have a PA driver from Venezuela who won the race, by the way. That's the main difference. So they didn't like that situation at all. And so I'm just a messenger, you know, and I'm going to go back to Williams. So eventually they came back and said, we think our model, corporate running a Formula One team doesn't function because it needs to be much more entrepreneurially led. You need to be empowered to take decisions on the spot. And we want you to run this. And I said, I need to pinch myself because, you know, being the head of Mercedes motorsport is probably one of the best jobs in the industry, other than being Ferrari, the Ferrari guy. And I had to say no, because I was a shareholder in Williams and I have been always an entrepreneur. And I said, funny that you say that, because we've just bought 40% of the Abu Dhabi sovereign fund. We bought it back. You can buy that. And 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? And I said, I'm always, you know, on the, let's say, conservative side. I've gone through financial hardship and I don't want to end up there. How much are you prepared to put into this? And I said, well, that's the amount. They said, okay, we're going to finance, help you finance the rest. And here I was. And until today, with the change of management now led by Ola Kalenius and his colleagues, the CEO of Mercedes, they give me a framework that I can act in the best interest of the racing team outside of the corporate structure. And I couldn't wish for a better co-shareholder, partner, and brand, mighty brand that I'm associated with. The decisions that we make are quick. They are in the best interest of the team whilst thinking about the consequences for the brand. And I run it like a 20-people organization. How is how you run it different from just hires, team principals, how they run teams? Every team is different. But for example, when you look at Ferrari, the team principal is one of 10 direct reports to the CEO. The marketing person in the racing team is going to be on the same level as the team principal. Then you have other very much shareholder-led organizations like Red Bull, where you would have an employed team principal that's reporting to a group of shareholders. Then you have a strictly corporate structure like Audi, where you have people from the group and from Formula One are being hired to run the team. They have a salary. They might have a bonus. So the kind of long leash that I was given, today there is no leash because we are partners. But the ability of taking decisions was given to me was extraordinary because all of these people need to fundamentally report to someone. And there's always the risk that if you take a decision without having actually escalated it through the hierarchy, you might be exposed and lose your job. So where I am until I really badly screw up, I'm responsible for my decisions and I'm very clear about that, but I can't be fired. Yeah. And that's what's interesting, right? I mean, you see this in Silicon Valley, where companies run by founders often have different strategic degrees of freedom available to them than other companies. And so you look at, say, with 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 on the forefront of AI is very important. And there's been kind of previous waves where he's had strong views, and now they're doing very well in the AI space, where maybe a professional management team would not have had the license by shareholders or the board to spend so much money on that, and it took a long time to prove out and things like that. And you see that effect oftentimes. And again, Mercedes is kind of the only founder run F1 team. But it's a little bit like you and your brother, or on Stripe, you are able to take decisions that in a dynamic environment may prove to be false or misjudged after a few years. You know, when you look at the ability that, you know, the way Mark Zuckerberg leads the companies is quite amazing, because you can decide to put quite some investment in a certain field and then say, okay, well, that hasn't developed in the way I thought. And 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. And I think, as an entrepreneur, you can do that. And you have the long-term horizon also. A manager will probably be short-term incentivized. You know, you have a three or five-year contract, you have stock options, you want to maximize the value of these. 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. Exactly. So that's what I meant at the beginning. You know, my time perspective has changed. It's 10 years, and it's not one year. People know that you're, you know, a large owner of the team. I don't think quite as many people know that Jim Radcliffe of Ineos is also, you know, a major shareholder. shareholder of the the team. What's he like? So that was a real opportunity back in the day for Mercedes and for Jim. And he's built an empire of an organization. This is a chemicals conglomerate. And there are three shareholders. They run it in the way they think it's intelligent. And back in the day, Niki Lauda unfortunately passed away. He was my best friend. And those shares went back into the pool. And Jim Ratcliffe and Ineos started to sponsor us quite extensively, actually. And we ended up sitting on a table with the CEO of Mercedes, Jim Ratcliffe and myself, talking about the sponsorship. And it was just before COVID hit. Teams had no valuations. We were all loss-making. The sport wasn't anywhere near where it was today. And Jim said, I'm prepared to commit X hundred million as a sponsorship if I can have a stake in the team. And we said, well, that makes sense. I increased my stake a little bit. And then we were all one third. And today, Jim is a great resource that I use if I need to have a contrarian view, if someone that is highly experienced but also shrewd in the way he looks at his businesses and a very enjoyable co-shareholder that isn't really interfering but, because I guess we do well, enjoys the ride and is a resource that we can utilize. F1 teams have become radically more valuable. This transaction valued Mercedes' F1 as £4.6 billion. And that's many, many times increased from even just a few years ago. That phenomenon has also happened in other sports like NFL and teams like that. There's two explanations you could have for the increase in value. One is sort of a monetary theory that you have more rich people who want to buy into teams. And so the businesses are the same, but you just have more demand to become a sports team owner and more dollars chasing fewer assets. The other is that you can say, and obviously this is somehow true for F1, they've become better businesses. I mean, the audience has grown so much and you've drive to survive and things like that. Just as you think about the increase in value in Mercedes and F1 teams, how much of it is F1 teams have become a more desirable asset? And how much is it that they're actually just very good businesses now? You know, when you buy a car today, you justify it with sometimes rational decisions, like lots of horsepower or good design or it's EV because I want to have an efficient car. The truth is, it's an emotional decision why you buy a car. And the emotional decision is how you want to be, how you want to be perceived. Do I want to be perceived progressive? Do I want to be perceived affluent? All of this. So that is going to be a longish answer. Sports teams are scarce asset today. You know, in F1, there's just 11 of us and you could potentially have another 12 that's within the regs, but nobody's really keen. And it's the biggest global sport in the world today. The Olympics and the Football World Championship are bigger, but they're only for every four years. So this is the biggest global sports in the world. Then you look at the NFL, very scarce asset too. And for you, US, American, it doesn't go any bigger than the NFL. And I think how much, 32 teams or something around that. So the scarcity of the asset can be a rational decision to own it and hope for a value increase because of that factor. Then there is the trophy asset angle. There's many very wealthy people that love the sport and say, well, I always dreamt of owning an NBA or NFL team or Formula One team, and I enjoy going to the races, giving my input, and I can afford it now very well. Very valuable. It's a win-win. But then there is the people that have so much money and feel in a way maybe not recognized enough because 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 court side seat and be more prominent. It's also a decision that you can understand maybe. So that is that aspect of investing. The other part is fundamentals. You look at the landscape and you can say, do I believe that this sport is going to continue to grow? What's the demographics of the sport? How much income potential has the league? How much does the team earn? These fundamentals have become reality. In Formula One before, we were all loss-making. It was a marketing exercise. But today, few of us are generating very healthy profits. In our business, more than 30% EBIT margin. We are distributing dividends. So it's not like the US-American teams or the tax structure where you basically live in a debt environment. And we don't have a lot of capex because we don't own the stadium. Obviously, you also miss some of the revenues. But so when you invest in a Formula One team today, you can attribute multiples to investment decisions. And 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. And those multiples are also most valid for most of the US-American teams. What are the last publicly released financial figures for Mercedes? Well, we're generating around a billion dollar in revenue and 30% profit margin. So it's a very healthy margin. 300 million of EBIT. And so the $4.6 billion valuation is a 15 times EBIT multiple. Warren Buffett could underwrite this business. Exactly. It was back in the day, it wasn't a billion and it wasn't 300 million. It was considerably less because we're growing very strong and the sport is still growing strong. But you know, we are Europeans. We don't talk so much about valuations and money. But as a matter of fact, like you said, these multiples are actually on the conservative side. And actually, that's very different from say an NBA or an NFL team where I think every time one transacts, it's whack-a-doodle valuations that can only be justified by tax fracturing. But also, you know, when you look at the valuations of the US teams, you have fundamentals for some of the teams, but then there are some which are kind of being dragged along that are having valuations that are not real anymore. And if you look at Mercedes, we are probably generating, other than the Dallas Cowboys, the most profit of any sports team in the world. So we have kind of a USP in this world. When we compare our multiples to the NFL or the NBA in its latest crazy, you know, uplift of valuation, I don't know what the multiple is, the revenue multiple, which is crazy. You know, I'm a fundamental guy, fundamental figure, so I would never value a business on revenues. I would value it on return on investment, fundamental cash flow and profits. So that would value us at 10, 12 billion if you look at the Lakers sale, for example, whatever else happened in this frenzy. But that's not the point. You know, 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 that it becomes irrelevant to actually, you know, starve for high valuation because it's just on paper. But we could value the business today much more than it was a year ago. Yeah, it's interesting. You know, there can be an effect in tech where, say, if you look at the AI space, some of the most enduring businesses in AI like a TSMC or an NVIDIA that have these very long-term advantages actually trade a quite reasonable multiples despite the fact that they're growing very, very quickly. And similarly, the best team in the biggest sport trades actually as one of the most sensible multiples. Yeah, and that's okay. You know, we want to be perceived as the serious people in there because we are not particularly interested in the trophy investor where we could maximize our valuation. And then the most important point, 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. You know, 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 because we want to go through the drama and the glory of the individual. Yes. So I believe that the sports, 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? Because 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 because in a way, you know, you're reporting 20 times a year with each of the races. And in this sport, it goes from mania to depression within a week. But that was a very different era. F1 was much smaller. It would have been a different shareholder base. Could it work now? I don't know. If somebody wanted to monetize or raise capital by just 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'll just get whipsawed so much. Yeah, exactly. And I would also want to be in control of the business, not because I think in, you know, legacy terms that has no interest for me. But it's about creating the best sports team in the world in the time I run it. Drive to Survive has been a smashing success for Netflix and a big success for F1, where it's brought lots of new people into the sport. And then, you know, people talk about women especially. You don't associate F1 with women, but the show is very popular with them. And then 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. And 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. And, you know, we were fighting a world championship against Ferrari. So I sat down with my colleague of Ferrari and said, are we doing this? And he said, we're here to win a Formula One championship and not play Cirque du Soleil. So Ferrari and Mercedes decided not to participate in Series One. Yeah, famously. Famously. And that was maybe important for the success of the series, because it allowed Drive to Survive to look at smaller teams and less underdog. Exactly. And then, you know, COVID came, people stayed at home, generations watched Drive to Survive from the, you know, granddaughter to the grandparent, grandchild to the grandparent. And then we started to race as the only sport, because we were able to contain our traveling circus very closely. So we were live also. And I think this is where we made a big step forward in terms of growing our audiences and demographic. But why the sport is so strong today? I think it's not only because of the Netflix factor. It's also because we entertain. We have great characters that are very active on social media, younger drivers. We provide a great narrative, controversial situations, the politics outside of the sport, you know, that is basically a 12-month live reality show. But F1 already is a soap opera, and that's why it works well in TV format. It is, but with a fundamental difference to other soap operas. We are a credible sport. We have rules. We race based on those rules. And if you win, the best car, best machine wins. So this is the fundamental base of the sport. And this is why the reality show around fits well. This, without that, wouldn't work. Entertainment follows sport, not the other way around for Formula One. And we've stayed true to this DNA. And that's why we've attracted an audience in sheer size that we didn't expect before. Our strongest growing demographic is young women, 15 to, I don't know what the bracket is, but 15 to 25 years. And we have 42% female fans, which is unthinkable. And then obviously, my wife, Susie, runs the female series Formula One Academy, which is going very strong with young women driving those cars. And what she sees is that her demographic very much obviously buys into Formula One's demographic. And they became an aspirational series for young women, not only that want to be racing drivers, but also engineers or marketing people in a racing environment or sheer an inspiration that a woman can actually succeed in a male-dominated environment. So all of this kind of universe kind of 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 racecraft. And so I think maybe there will be the 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 it, because we tried to develop, and Stefano Dormicali, who runs Formula One, is excellent at it, to grow it in the right demographic. We are still niche in some parts of the world. We have a large group of fans in 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, Austin, the spot is very present. People recognize you. I was invited to the Super Bowl in Arizona a few years ago, no recognition. So we're kind of not developed in the middle of the United States, which is NASCAR. So this is very much the demographic, the current demographic that Stefano is aiming at because it's niche, it's high tech, it's very European and glamorous to a certain degree. And if we have these hardcore fans, interestingly, many of the young ones follow Free Practice on Friday. They will know everything about the updates on the car, the era updates. They also know about the WAGs, the wives and girlfriends of the drivers, and all of these influences and blogs that are existing. We're kind of getting into what does it mean 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. And so now there are all these different layers. And so 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? You know, 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's brand to enhance reputation and fundamentally selling cars? So what is that? So I have this customer theory. A customer is someone that makes your life better. So my number one customer is Susie, my wife. So whatever I will do and say is always focused on, is she going to like that or not? All that has an effect on my life quality. My family is very important. The people that work for Mercedes, my employees, if I have them in a good space, then the car is gonna go faster and 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 it down and then it's the fans and then there might be the social media followers. You can trickle it down. And what I'm trying to do is, in my priority list of customers, to identify the objective to achieve the best outcome. So that is what I've always done in any of my ways of looking at a life. 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 in recent times because there was this pressure always between Formula One as being the commercial sides of it and the commercial rights holder, the FIA being the governing body making the rules, policing the rules, and then the teams. There was 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 tens of years before. So 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 does. The public shareholders, retail, or institutional investors own Formula One, and we get the profits. The FIA is being paid by Formula One for their 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 policemen. 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 jailing 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? How do the profits split? These contracts have been renewed every five years. The age-old debate. Yeah, exactly. Or, you know, which countries are hosting races? Was that new Spanish circuit that nobody likes a mistake? So I'm a traditionalist. I love going to the old circuits because they represent history for me. But also the racing is based on these. For whatever reason, the layout of the old tracks, which had vast areas that they were because places were not as developed as today, provide great racing, overtaking, cars being able to go side by side. That was the criticism of the new Spanish track. Exactly. That there wasn't a lot of overtaking. But Madrid did, and I'm not saying this to make anybody look good. Madrid as a city is spectacular. The track that has 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 in terms of for the drivers and the kind of camera positions with this long banked corner. But it didn't account too much for the new generation of cars for the difficulty to overtake. And 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. Oh, so it's not a permanent area. They can just rejigger it? Exactly. How configurable is it? Well, I spoke with the CEO of the track on the weekend, and he just mentioned a few corners that he thinks can be adapted or should be adapted. So they are open-minded about it. Oh, that's cool. Yeah. So there's fundamentally this tension between you're creating a destination and you're designing a racing track, and there are some slight tensions between them. You don't have as much room as you want to work with, but you can break that trade off a little bit where you can improve the track even once the location is set. I don't think there's tensions. I think fundamentally, all stakeholders, including the host, wants to have a great Grand Prix. And that means having attractive racing, whilst having good spots for the public. Well, there's sometimes intention, like Monaco famously, you know, you would not design it that way as a racing track, but Monaco is not going anywhere. I think Monaco needs Formula One, 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 kind of breaking the legacy. But fundamentally, I lived there many years. I wouldn't know how to make it very different. I mean, I have some ideas for a longer straight. Also, Monaco, you know, they keep building new land. And so, you know, you could extend the track out into the Mediterranean. Yes. And that has been a great commercial success. I doubt that extending a race track into the sea is going to generate some return. Last question. How do you set Mercedes up for succession? How will this work post-Toto and how can you prepare for that? You know, I've seen examples of entrepreneurs that were either so selfish or believed in their own eternity and forever life. That they didn't look after, you know, 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 core on this business. That's massive. Especially now with AI. Exactly. So, for me, it's important to do what's best for the family and to do what's best for the team. And that means looking at the structure going forward where this team can live without me. And probably it's not going to be the same because I have the credibility as an entrepreneur that's leading my own businesses, but there will be a solid management structure. And I believe that my job is going to be divided between two or three people that I'm vetting at the moment that I believe are already doing a great job with all of their strengths in various areas. And then 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 a sort of executive chairman type of role where you don't have to be there every race weekend, 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 clean break is probably not possible if I continue to own it with my family. So that kind of 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 into the daily business. I also don't want to end up in a situation that 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 and my children also don't have any interest. So I believe that if you are chairman, non-executive or executive, you need to exactly know your role and that doesn't mean shooting from the outside and being the one that 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 into the daily business. And that's how I would aim to be in the future. But I'm still enjoying it too much running it actually. Yeah. Well, that makes sense. Theoretical for now. Toto, thank you. John, thank you for having me and congratulations to what you have achieved. We haven't talked about it enough, but I can only take my hat off. Thank you.