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GP Week : Issue 165
Last year two events shed new light on the usually secretive world of valuing F1 teams. The first came in March when Williams listed 20.8% of its shares on Frankfurt’s junior stock exchange. The shares began trading at £20.73 (€24.38) giving the entire team a value of £207.3m. This seemed to be a high amount given that the team had made a total loss of £29.4m over the previous five years. Then in October Indian conglomerate Sahara announced that it had invested £63.4m ($100m) for a 42.5% stake in Force India. It put a £149m valuation on the team which, over the previous five years had made combined losses of £121.9m. It raised the question of why F1 teams are worth so much and the answer is far from straightfor ward. A total of 8 of the 12 teams are based in Europe and file publicly available accounts which give great detail about their finances. The most recent year with a complete set of UK team accounts is 2010 and it shows that the most profitable team was McLaren. It made a net profit of £15.8m but at the other end of the spectrum Force India lost the most money by making a £35.3m loss after tax. Generally, the management of F1 teams spend whatever is available to them in pursuit of victory. This usually means they break-even and make neither a profit nor a loss. The theory is that it is better to win and make no profit rather than make money and do badly on track. However, what do team owners get out of a team when it is running to break-even? If the owner is a private individual, such as Sir Frank Williams who owns the majority of his eponymous team, they can take an annual salary which comes out as a cost to the team. In 2010 the team with the highest director’s pay of £2m went to Mercedes with team principal Ross Brawn believed to have been the recipient. If the owner of a team is a company which sells products, such as Red Bull, the benefit they get whilst the team runs to break-even comes from television exposure of their logos on the cars. According to F1’s industry monitor Formula Money (www.formulamoney. com), Red Bull has been the most exposed brand in F1 for the past two years running. This is based on Advertising Value Equivalent (AVE) - the price the brand would have to pay to buy a similar amount of TV advertising to the exposure it got on-screen through F1. Red Bull’s AVE came to an estimated £229.7m ($358.5m) in 2010 and £169m ($262.4m) in 2011 when it received over 20% of the total gained by all the teams. So just how much does it cost to run a team? The accounts show that in 2010 F1’s teams had revenues of £94.8m on average with McLaren the highest, at £159.4m and Marussia the lowest at just £30.1m. According to Formula Money, around 35% of team revenue comes from sponsorship with 28% from the owners, 27% from prize money and the remaining 10% from miscellaneous sources. Sponsorship is where money talks. The better the results on track, the more broadcast exposure the team and its sponsors get so brands are prepared to pay more to be associated with a winning team. Likewise, the higher the cost, the greater the exposure the sponsor gets on the car. Generally speaking, the rear wing, sides of the air intake box on top of the car and the sides of the car itself are prime logo positions and a sponsorship deal with a top team involving any one of these locations is likely to cost around £9.5m ($15m). At the lower end of the spectrum small logos are often found on the cockpit sides or on the nose of the car and these can generally be bought for under £2.5m ($4m) with a high-ranking team. But, bearing in mind that these are annual figures, the total deal cost can be much greater as partnerships last for around three years on average. Other sponsors do not even get presence on the cars and instead pay to simply be known as suppliers to the team. TURNING THE WHEELS ... F1 >>> BUSINESS We all know that Formula One has some of the richest teams in sport but what makes them so valuable? Christian Sylt and Caroline Reid investigate 19 GPWEEK.com // PARTNERS: