Like Formula 1 drivers, team bosses are, by their very nature, a highly competitive species who exist not only to win, but by as large a margin as possible.
Thus, the true measure of any team’s effectiveness is not its eventual championship classification, but the ratio between the number of points scored during a season and the particular team’s overall budget, effectively its Bang for Buck.
The first component is easy to obtain, being available once the championship classification is declared ‘final’; the second requires voluminous research – whether into financial records or via interviews – plus good old-fashioned sleuthing.
Companies House returns are available for all UK-based teams, and thus the financials of Mercedes, Red Bull Racing, McLaren, Renault, Racing Point and Williams are all (eventually) in the public domain – albeit up to nine months in arrears. Although these returns provide a solid basis, they need to be purified, for not all operations are dedicated solely to F1.
The financial records of non-UK domiciled operations – Ferrari and Toro Rosso (both Italy), Sauber (Switzerland) and Haas (international) – are not publicly accessible, and thus best guesstimates have been applied where teams have been uncooperative for whatever reasons.
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Then, Ferrari does not split its finances – either within the group or within Gestione Sportiva – as does Mercedes’ F1 team, which operates separate engine and chassis operations. Fortunately, though, there are contacts willing to divulge – either on- or off-record – their teams’ financials for reasons best known to them. Then there are folk who migrate to other team, and take useful knowledge with them.
The imposition of regulatory budget caps from 2021 onwards will, of course, make it easier to track team finances, but there are still expected to be fairly substantial variances between the spends of the ‘haves’ and the ‘have-nots’, while the list of exclusions – which includes driver retainers – and the ability to ‘fudge’ marketing and executive salaries is such that up to 50% of total spend could remain hidden.
The biggest ‘haves’ – Ferrari and Mercedes – spent over $400 million each (without engine costs) in their quests for championship glory in 2019, in the process each employing 1,000 heads to field two cars for two hours on 21 Sundays. Add in engine departments, and these numbers swell by up to 50%.
Equally, Red Bull blew almost a billion dollars on fielding its two F1 teams – with ‘free’ Honda engines for both outfits on top of that – while at the other end of the spectrum ‘have-not’ Haas, which operates to an out-sourcing model, spent $150m to end ninth. Tail-ender Williams had a similar spend despite having a full manufacturing facility – neatly demonstrating the vastly different business models adopted by teams.
These numbers, more than any others, highlight both the costs of F1 and disparity across the grid, yet they also underscore F1’s global appeal, for ultimately whatever the different spends by teams and/or sponsors, such sums are approved by hard-headed businesses on the basis of tangible returns on investment. Simply put: were F1 not an effective marketing tool, no companies would be onboard and there would be no F1.
Significantly, team budgets crept up by an average of 10% despite the number of races remaining stable at 21. However Racing Point, rebuilding after plunging into bankruptcy as Force India last year, recorded the largest increase at 30%, followed by Haas (25%) and restructured McLaren (14%). Of the trio, only the latter improved its championship position. Haas slipped four places…
Until 2021 (at least) the sport will – in all likelihood – continue to be dominated by the ‘Big Three’, who collectively share a quarter of the sport’s prize fund in return for simply turning up on Sundays. Indeed, during 2019 Ferrari received $90m in performance-linked revenues, and an attendance bonus of $115m.
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Still, Liberty Media, three years into its custody of F1’s commercial rights, must have done something right, for all major metrics are pointing in the right direction, albeit some marginally so. For example, based on official figures, average race attendance is up 1.85% at 202,000, while Liberty’s FWONK share price climbed from $29 to over $45 – a growth of over 50%, thus disproving the sentiments of naysayers.
Formula 1’s revenues are disbursed according to a complex formula as outlined in the bilateral agreements – euphemistically, but incorrectly, referred to as ‘Concorde Agreements’ – as entered into between the CRH and teams individually. The basic prize fund is made up of 47.5% of F1’s earnings after deduction of all the sport’s operating expenses before income tax, depreciation and amortisation (EBITDA).
The prize ‘pot’ amounts to approximately 66.6% of EBITDA, so around $1 billion disbursed in 2019 – with Liberty retaining the rest ($480m) to settle whatever loan and shareholder obligations the company has. The ‘pot’ is disbursed to teams in ten monthly tranches between March and December, save where a team has entered a cessation event (bankruptcy).
The basic fund, worth $700m, is distributed according on two “columns”, with all teams to be classified in the top ten of the FIA constructors championship at least twice over the previous three years receiving an equal share of ‘Column 1’, while ‘Column 2’ is disbursed based to a sliding scale table.
In addition, selected teams continue to receive bonuses: Constructors’ Championship Bonuses (CCB) for titles won before 2013 by Ferrari/Red Bull/McLaren, a Long-Standing Team (LST) award for Ferrari, multiple championship payments to Mercedes for titles won since 2013, and $10m heritage bonus paid to Williams. In 2019 these bonuses total a projected $300m, taking the ‘pot’ up to a billion bucks.
Still, unlike previous years, all 10 teams made it through the year without visits from bailiffs, and this situation is expected to continue through 2020, with the subsequent new era promising all change and heralding improved stability for all.
After three seasons under Liberty and one to go before current covenants expire and F1 casts off the shackles imposed by previous rights holder CVC Capital Partners and former F1 tsar Bernie Ecclestone, F1 is finally heading in the right direction. It still, though, requires steady hands at the wheel, and that poses Liberty’s biggest challenge in 2020: maintaining this new-found stability while preparing for massive changes.
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2019 F1 team budgets: Part one
1) This report is split in two: places ten to six in the championship, with the top five teams coming under scrutiny next week. In addition, next week will include our unique financial indices, which not only examine performance relative to budget (‘Bang For Buck’), but also the costs of lap time improvements over 2018.
2) Team budgets exclude engine divisions where applicable, with the assumption made that the FIA’s guideline charge of approximately $25m for an annual two-car supply is applied internally. However, tyre charges of $1.5m for a season’s two-car tyre supply are included in overall budgets.
3) Variances may exist between 2018’s projections and actual comparisons a year later – these are in any event minor, and due to ‘firmed up’ numbers being released after the previous report was published.
3) Currencies have been converted from Euro (Ferrari/Toro Rosso), Swiss Francs (Sauber) and Sterling (others) to US Dollars simply as Brexit has played havoc with rates, particularly given that most sponsors contracts are US$-based, with Liberty dispensing prize monies in the US currency. For ease of comparison the rates used are: $1 = €0.90/SFr1.00/£0.80
If 2018 proved torrid for Williams, this season was doubly so. The FW42 was late and proved slower than its predecessor, while whispers suggest the severance payments made to Paddy Lowe, the former chief technical officer who was shown the door during the season, dented an already tight budget hit by substantial reductions in F1 revenues due to a 10th-place finish in 2018.
But it was not all doom and gloom on the financial front: Orlen upped its spend to place Robert Kubica in a race seat, while the team snared enthusiastic support from Rokit. That said, Williams was close to agreeing terms with Rich Energy.
Unilever provided additional income, although they and Orlen depart this year, with the Kubica-linked petrochemicals firm being replaced by Rokit’s drinks brand. A major share in Williams Advanced Engineering is due to be sold as this is written, in turn writing down debt but reducing future cross-subsidies.
Williams F1 recorded an estimated loss of $25m for the year, partially off-set by WAE income. But it is well-placed for F1’s new era, when budget caps restrict team’s ‘performance’ spending to $175m. The imperative is to survive 2020.
The team says
Our financial results reflect our finishing position in last year’s constructors’ championship and consequent reduction in prize money. There was an overall reduction in partnership income compared to , although we secured major new partnerships with Rokit and Orlen.
Note: As a listed company Williams stresses that information provided is indicative, and does not constitute projections.
Machine tool magnate Gene Haas uses F1 as marketing platform for his products, relying upon frugality and out-sourcing for cost-effectiveness. Thus the team’s assets consist largely of two contracts: Dallara for listed parts, and Ferrari for powertrains, non-listed parts and wind tunnel usage. Modest facilities in Banbury provide a race base.
Although Haas progressed rapidly during its first three years and achieved a best-yet fifth in last year’s constructors’ championship, 2019 provided reality checks. Car problems hampered performance, in turn affecting 2020 income. Equally, spats with Rich Energy resulted in the title sponsor’s exit after half a season, hitting income by an estimated $10m.
The team retains drivers Romain Grosjean and Kevin Magnussen for another year, but needs to acquire significant sponsorship deals or risk losing its owner’s patronage, for he is surely tiring of underwriting heavy bills. Poor 2019 results mean next year’s FOM revenues alone are likely to dip by $15m.
That said, with 2021’s regulations encouraging out-sourcing and parts sharing, Haas’s business model is fit for future purpose, while operating at well below budget cap levels means Haas has headroom for future growth.
The team says
If you lose out on big money like this, you have to put your thinking hat on how not to waste money next year. It’s not an existential problem and for sure it’s not like ‘Yeah, it doesn’t matter’. It’s something between – we need to manage it, it’s never a nice thing to manage [on] less money.
Swiss-domiciled Sauber falls under Islero Investments – itself owned by Swedish-controlled Longbow Finance – and forms part of a motorsport conglomerate consisting of the race operation and a supplier of motorsport engineering services, referred to internally as ‘third-party business’. The latter cross-subsidises the team.
This year, the second full season under team boss Frédéric Vasseur, saw the team again place eighth in the championship. Yet behind the scenes further progress was made at its Hinwil base. A chassis name change to Alfa Romeo from Sauber – a deal said to run to the end of 2021 – increased the brand’s presence and contribution, enabling headcount to grow a further 10% and funding a new simulator.
Shell came in as fuel branding partner in a single-year deal linked to Alfa parent FCA, with Latin American mobile company Claro, Singha (beer), Richard Mille (watches) and a raft of secondary sponsors providing additional support. Shareholders underwrite deficits as part of Longbow’s long-term investment strategy.
The relative strength of the Swiss Franc, though, poses an external challenge, as does the country’s labour costs. These factors will only be partially addressed by 2021’s financial regulations, and thus Sauber’s immediate challenge is to improve on, rather than consolidate, eighth place.
The team says
We did a strong job to improve income from sponsors. Compared to two years ago it’s a huge step forward and if we continue in this direction, we are in a good position.
Although still F1’s ‘pink team’, much changed at Racing Point after a consortium headed by Canadian billionaire Lawrence Stroll last year saved the team from bankruptcy. Headcount grew 15% and installations and facilities have been upgraded and/or renewed. Having previously used Toyota’s wind tunnel in Cologne, in May the team switched to the Brackley facility operated by power unit supplier Mercedes.
These were substantial changes but the biggest is yet to come. The team recently acquired a 27-acre ‘green’ site upon which to expand with planning permission currently in process. This 10-fold increase in surface area is a further sign of its intentions.
Given that FOM revenues remained stable from 2018 – although there is a dispute (see below) – budget growth was fuelled mainly by sponsorship. BWT remained as primary backer, with betting company Sport Pesa joining as title sponsor (as we revealed in January) and a number of other brands, such as JCB and Bombardier, transferring with driver Lance Stroll. Sergio Perez’s loyal Mexican backers continued their support, thus reducing shareholder exposure.
Year-on-year comparisons are distorted by the circumstances surrounding Racing Point’s change of ownership, while a concern is the dispute with Liberty/Haas over a right to so-called ‘Column 2’ money – up to $60m is at stake – which is expected to be arbitrated late next year.
The team says
What makes us optimistic is knowing where we sit in the midfield, and knowing what’s coming in the future to enable us to get back to the fourth place that we’re used to.
Toro Rosso exists as a finishing school for Red Bull’s cadre of development drivers, and maintained its policy of rotating drivers on behalf of the main team. Undertaking Honda’s development work in 2018 paid off this year. A pair of massive, though arguably fortuitous, points hauls in Germany and Brazil propelled the team to sixth place in the championship, equalling its previous best finish 11 years earlier.
This bode well for its 2020 income which is projected to rise by $15m, rebounding from the dip caused by its travails with Honda last year. Its other three sources of income are Red Bull and associated brands (who will rename the team Alpha Tauri next year), Honda (power units and cash), Moose (a Thai cider linked to Alexander Albon, subsequently promoted to the main team following his seat swap with Pierre Gasly) and long-time backers Casio and Acronis, the latter linked to Daniil Kvyat.
The team’s headcount increased marginally over 2018 in both Faenza and at its Bedford aerodynamics base despite (or due to?) 2021’s regulations placing greater emphasis on component and technology sharing. The team already draws transmissions and sundry components from the main team and through Red Bull Technologies, with this trend expected to continue in future.
The team says
[The Big Three] operate with budgets of up to €500 million; we have less than a third of this, and are simply not in a position to compete against these teams. This is also not the target of Toro Rosso.
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