Formula One’s ten teams lost $31.8 million in prize money last year as a direct result of accelerating spending by Liberty Media in its first year of owning the series according to new research. The American mass media company, which is listed on the Nasdaq with the ticker FWONK bought F1 for $4.6 billion in January last year, but for the moment it has failed to rev up its financial performance.
Earlier this week Liberty Media reported that F1’s revenue in 2017 was down by 1% to $1.8 billion whilst costs surged by $47 million to $1.3 billion as a result of an ambitious expansion plan. This has involved moving F1’s headquarters into a plush new office block in London, doubling the headcount, re-branding the series and launching a street demonstrations in city centers. Liberty Media is still racing ahead with its plans and just yesterday announced that it has commissioned a theme tune for F1 which is being written by Brian Tyler, composer of the scores for blockbusters including Iron Man 3 and Thor: The Dark World. It all adds up.
The reversing revenue and surging costs create a perfect storm which has driven up the red ink for F1. In 2017 it recorded a $37 million operating loss compared to a $47 million profit the previous year. As F1’s ten teams get 68% of its underlying profit as prize money, their take reversed by $47 million to $919 million as Forbes revealed. The higher F1’s costs, or the lower its revenue, the lower its profit and the less prize money the teams receive. Last year Formula 1 suffered from both of these problems but one was much more under Liberty’s control than the other.
As Forbes reported, Chase Carey, the Irish-American executive who is the chief executive officer and executive chairman of the Formula One Group, said that the reversing revenue was driven by a reduction in the hosting fee paid by the Brazilian Grand Prix and the loss of two sponsors, banking giant UBS and German insurer Allianz. Liberty failed to sign any new races or major new sponsors to compensate for these losses but if there is insufficient appetite in the market then it is hard to hold it responsible for this.
In contrast, the $47 million boost in Formula One’s spending was completely within Liberty’s control and if it hadn’t done it the teams would have received around $31.8 million more in prize money. This is because F1’s costs would have been $47 million lower which would have increased its underlying profit by the same amount and the teams receive 68% of that. It gives an average increase of $3.2 million per team but in reality four of them lost more than that as the following table shows.
At the other end of the grid is newcomer Haas, which only lost $0.8 million of prize money as a result of the boost in F1’s costs. Haas got a smaller share of the prize pot than the others as it only joined F1 in 2016. It is a quirk of F1’s byzantine prize money payment system. The structure was first revealed in 2013 in a report by sports broadcaster ESPN. At the core of it is payment to the teams of 47.5% of F1’s underlying profit. It is divided into two with one half split between the top ten teams in the championship on a sliding scale based on their performance. The other half is split evenly and only goes to teams which have finished in the top ten in two out of the past three years. As 2017 was the second year of racing in F1 for Haas it wasn’t entitled to this so it gets a lower share of the total than its rivals
ESPN revealed that a further 7.5% of F1’s underlying profit is handed to the top three teams based on the number of races won in the four seasons prior to 2012, which is when this benefit was introduced. This bonus pot is known as the Constructors’ Championship Bonus (CCB) fund and it comes to at least $100 million annually. It is guaranteed regardless of the results that the teams achieved the previous year.
According to F1 company filings, this sees “the team ranked first receiving 37% of the CCB fund (with a minimum payment of US$37 million), the second team receiving 33% of the CCB fund (minimum US$33 million) and the third team receiving 30% of the CCB fund (minimum US$30 million).” The money is split between Scuderia Ferrari, McLaren and Red Bull Racing which leads the CCB pack due to its string of four championships from 2010. This gives it a minimum of $37 million from the CCB fund with McLaren getting at least $33 million for being ranked second and $30 million going to Ferrari. However, that is far from the end of the story.
This is because the Maranello team also gets its own dedicated prize money pay-out as well as sharing in the 47.5% and the CCB Fund. The dedicated prize pot gives Ferrari 5% of F1’s underlying profit which comes to at least $62.2 million annually. Like the CCB fund, this is paid regardless of Ferrari’s results the previous year and it comes in return for the Italian squad being F1’s longest-standing team having been racing in the championship since it was launched in 1950. All-included Ferrari gets around $100 million before a single race begins.
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