F1's unending financial woes; or "It's the income, stupid."

[SlowSteve]

This may be off-topic, but I will ask it anyway.

Wouldn't a simpler method be for each time to be allocated a fixed, standard amount of funding from a central pool - lets say $80. They are free to raise any additional amount via sponsorship.

Anything over the $80m gets kept by Bernie/CVC/Promotors etc etc

This brings some balance to the sport, provides a baseline, reduces total costs to CVC (they would save $100m if Joe Seward is correct) , rewards innovation by having better sponsership inflows, and and incentivises FOM to go crazy with extracting money from whoever will give it to them, but without risking the teams themselves - which are the goose that lays the golden egg.

Simples no?

[turbof1]

They still have the investment in terms of shares. Yes indeed at the moment they can't cash out, but their ROI is very high and sine they can still choose the best moment to exit, it was a massive deal for them on the long term.

CVC&co is basicilly getting 650m a year for doing absolutely nothing.

They aren't do nothing. They put up an investment, what they'd call "skin in the game". On the income side they are doing rather well, but rule 1 of any VC or equity fund is to know your exit strategy, everything else is merely a route to cashing in on the growth at the exit.

However, they'll struggle to get their money back at the moment. Their original exit strategy fell apart when the flotation was abandoned. So we can assume that the market rate was less than they needed to hit their targets. I also suspect selling their share privately would be at a discount to the planned flotation price due to the uncertainty in the sport.

So in a nutshell CVC are stuck with a rather nice income stream, but their reason for existence is capital not income. The capital locked into F1 can't be used to fund their next investment, and they can't return growth to their funders.

[bhall II]

[...]

However, they'll struggle to get their money back at the moment. Their original exit strategy fell apart when the flotation was abandoned. So we can assume that the market rate was less than they needed to hit their targets. I also suspect selling their share privately would be at a discount to the planned flotation price due to the uncertainty in the sport.

So in a nutshell CVC are stuck with a rather nice income stream, but their reason for existence is capital not income. The capital locked into F1 can't be used to fund their next investment, and they can't return growth to their funders.

Apparently, CVC has recouped its investment and then some.

CVC bought F1 in a $2 billion leveraged buyout in 2005 and is already understood to have made $4.4 billion from its investment. This staggering amount is due to share sales and dividends, the most recent coming in the summer when Delta Topco increased its debt by $1 billion in order that the money could be paid to its owners

[Richard]

So they put in 2 and took 9 years to get 4.4 back? Yes, it's a relatively reliable income but it's only an 8% annual return which is low for an equity fund. They need to sell F1 onto the next person to cash in on the investment.

[emaren]

Perhaps it is time for the teams to purchase 'F1' from CVC ?

Sure they would need to raise $3-400M each to do so, but to a company like Mercedes that makes a couple of $B a quarter, that should be easy.......

[Pingguest]

Ironically, the current financial crisis was foreseen by Martin Whitmarsh, McLaren’s former team principal who used to be chairman of the Formula One Teams Association (FOTA) before he was fired by McLaren a year ago. At the time, he said: “I cannot see how you can construct a sustainable business model and I fear that we will have a crisis and then we will have to get real and sort it out.”

Whitmarsh was speaking from experience. Under his watch McLaren lost, first Mercedes as its engine supplier and bankroller, and then Vodafone as its title sponsor — together they were worth an estimated $140m a year of income. This year McLaren was forced to go racing, for the first time in its proud 50-year history, without a title sponsor paying the bills. Deeply humiliating, it ultimately cost Whitmarsh his job and the only upside was that he was uniquely positioned to predict the current crisis a year in advance.

Formula One’s finances have changed a lot in the last ten years. A decade ago sponsorship was plentiful and it paid more than half of all the bills with team owners picking up 30 percent of the cost and Ecclestone contributing less than 10 percent. Now that has completely changed round with sponsorship scarce and contributing only 20 percent with team owners providing as much as 40 percent and Ecclestone’s contribution gradually rising to 40 percent.

It is a massive structural switch that has gone hand in hand with other changes. In 2004, the top three teams then — Renault, Ferrari and McLaren — shared 40 percent of the central income. Now the top three teams — Ferrari, Red Bull and Mercedes — take 50 percent of the Ecclestone revenues. A 10 percent shift in the revenues may not mean much but to the smaller teams it is the difference between surviving or not. In 2004, the bottom three teams got 25 percent of the money but in 2014 the bottom three got just 10 percent. It is these imbalances that are testing the finances of Formula One.
But how has it come to this?

The heart of Formula One’s problems lies in the huge decline in sponsorship over the past ten years. In 2004 pure cash external sponsorship was $1.2bn a year; ten years later the cash has dwindled to less than $350m and many of the major sponsors that used to bankroll the sport have left. Big spenders such as Hewlett-Packard, Vodafone, Japan Tobacco, Orange, British American Tobacco, ING, West, Telefonica, Siemens, Panasonic, RBS and Credit Suisse have all left the sport with only Santander and Martini arriving as replacements.

Twelve major sponsors have been replaced by two and the sums just do not add up. The truth is that big sponsors have effectively rejected Formula One as a marketing platform. So much so that in the past eight years only one new title sponsor has entered the sport, Martini & Rossi at Williams and even then at barely a quarter of the price that Hewlett-Packard paid Williams back in the good old days. It seems that sponsoring a Formula One team as an effective global marketing tool has fallen out of fashion completely.

What has really happened is that Formula One’s lost sponsorship has migrated to a sport called soccer. Whilst Formula One has seen its sponsorship dwindle away the top soccer teams across the world in the German, Spanish, Italian, French and English leagues have been booming. Shirt deals that used to cost $6m for a season now sell for $50m and Formula One’s traditional sponsors have moved their money across.

Sponsorship cash
2004 - $1.2 billion
2014 - $350 million

FOM Money for bottom 3
2004 - 25%
2014 - 10%

In the past decade the television ratings declined. One cannot deny this had devastating consequences for Formula One's marketing value. And who can blame the viewer for stopping to watch the series? In the past decade various regulations were introduced to reduce costs and add spectacle to the series, but were in fact anti-autosport and made the game unnecessarily difficult to understand for the casual viewer.

[johnny comelately]

Dont think it hurts to see this older version again:

[johnny comelately]

4th april, 2018
Former F1 supremo Bernie Ecclestone has emerged from the Easter break with guns blazing, once again it is Liberty Media and more specifically Ross Brawn in his sights.

It is well known that Ecclestone and Brawn have seldom seen eye-to-eye over the decades they spent together in Formula 1.

Brawn quit the Mercedes in 2013 ‘to go fishing’ and early last year he has since returned to be part of the Liberty Media triumvirate – including Chase Carey and Sean Bratches – that run Formula 1 today.

Now, in an interview with Welt, Ecclestone suspects that Brawn is actually eying the top job held by Chase Carey, “There have been rumours that Ross wanted me to leave. If this is true, then he must be happy about it now… but he will be just as happy when he gets rid of Chase Carey one day.”

Asked if a power struggle were to develop at the helm of F1, who would come out on top, 87-year-old Ecclestone replied, “Ross. Chase does not want to live in England and it is a similar thing with Sean. They are Americans and they have a different way of life.”

“Ross wants to live in England, the silicon valley of Formula 1. But I believe they want to relocate FOM to the United States, Ross will still manage Formula 1 in England as the top man. Ross did not come out of retirement to be a servant to two Americans.”

Big Question: Is Bernie right?

[keithcollantine]

No he's just stirring.

[wesley123]

There's no way but time itself to prove if this is true, but it could be plausible.

Brawn isn't unknown to playing "creative" games, and this would be something that would fit his character reasonably well.

[RonDennis]

This may be off-topic, but I will ask it anyway.

Wouldn't a simpler method be for each time to be allocated a fixed, standard amount of funding from a central pool - lets say $80. They are free to raise any additional amount via sponsorship.

Anything over the $80m gets kept by Bernie/CVC/Promotors etc etc

This brings some balance to the sport, provides a baseline, reduces total costs to CVC (they would save $100m if Joe Seward is correct) , rewards innovation by having better sponsership inflows, and and incentivises FOM to go crazy with extracting money from whoever will give it to them, but without risking the teams themselves - which are the goose that lays the golden egg.

Simples no?

Yeah, sounds like a great idea. Let give them $80 million and they are free to raise any additional amount via sponsorship. That's gonna make F1 competitive for sure.

Why do they even need more? Will that the racing make any better? No. Will that stop development? No. Will that bring the field closer? Yes. The problem is that Mercedes, Ferrari and Red Bull don't like to give up their advantage. This has been the same story for ages now. What will happen? Not much probably, we'll get the same boring races after 2020. Liberty already acts like a scared little Labrador puppy, cute but completely clueless.

People in here always act like there isn't going to be any development when the teams don't spend 400 million dollars. It's a joke really. They just run six different projects and hope one of them is going to result in a small advantage. Less money makes you creative.

[DiogoBrand]

Bring back cigarette sponsorships. No more lack of money whatsoever.

[zac510]

Simples no?

Yeah should be simple. Everything in F1 goes exactly as planned!

[johnny vee]

I never liked Max Mosley but he was on to something, I think it was in 2011 - 2012
I cant remember the exact figures but it comes down to rewarding teams that could manage the budget cap.
Rewarding the team technically, example being able to run under the minimum weight
So its like a boost in performance. If you can run a team @ 150 million a year your minimum weight can be 40 - 50kg lighter than top team.

[Big Tea]

4th april, 2018
Former F1 supremo Bernie Ecclestone has emerged from the Easter break with guns blazing, once again it is Liberty Media and more specifically Ross Brawn in his sights.

It is well known that Ecclestone and Brawn have seldom seen eye-to-eye over the decades they spent together in Formula 1.

Brawn quit the Mercedes in 2013 ‘to go fishing’ and early last year he has since returned to be part of the Liberty Media triumvirate – including Chase Carey and Sean Bratches – that run Formula 1 today.

Now, in an interview with Welt, Ecclestone suspects that Brawn is actually eying the top job held by Chase Carey, “There have been rumours that Ross wanted me to leave. If this is true, then he must be happy about it now… but he will be just as happy when he gets rid of Chase Carey one day.”

Asked if a power struggle were to develop at the helm of F1, who would come out on top, 87-year-old Ecclestone replied, “Ross. Chase does not want to live in England and it is a similar thing with Sean. They are Americans and they have a different way of life.”

“Ross wants to live in England, the silicon valley of Formula 1. But I believe they want to relocate FOM to the United States, Ross will still manage Formula 1 in England as the top man. Ross did not come out of retirement to be a servant to two Americans.”

Big Question: Is Bernie right?

If I had to put money on it, it would go to Bernie. Provided he does not have a ulterior motive for saying it.