Zak Brown, Toto Wolff and Christian Horner discuss about the profitability of running a F1 team, not just from marketing point of view in COVID-19 pandemic conditions.
Speaking generally, F1 teams have historically not been profitable organizations. And, while some well-off mid-field teams, and top-performing outfits could break even – or better – with their prize money, many have to put more in than they ultimately get out, excluding the financial gain that comes with having your establishment thrust onto the world stage.
However, as F1 implements the budget cap as well as a host of new financially-geared regulatory changes from 2021/22 onward – such as the redistribution of the prize pool – this looks set to change in the near future.
And, looking at the provisional changes made, McLaren boss Brown was happy with progress. He had been an advocate for more drastic changes, but they were shot down by rival teams, who favored a less radical overhaul. Now, the American says that he thinks a nice balance was struck in the negotiation process among F1 teams.
Notably, Brown’s team McLaren have fallen on hard times financially. “I think the teams did an excellent job over the extended winter to address the fiscal nature of the sport,” he said. “As I think everyone knows, there was too big of a spread between first and tenth, which then plays itself out, also on track. I think if you can get a sporting franchise that is profitable, then I think the value of that franchise goes up significantly and so you get asset appreciation.
“I think all of our shareholders love being in Formula 1. I don’t think they’re in it necessarily to turn a profit, but they’re also not in it to lose substantial amounts of money, which has been the case for a lot of teams. And so I think we’ve landed in a place where there’s a path to profitability. I think that it closes the gap between first and tenth. I think that’ll put a better product on the track ultimately.
“I think the fans win and I think it was a good compromise because the teams that were spending north of the cap have had to make some real compromises and I think that’s good because that’s going to be difficult and, at the same time, I do think that we have more wealth in the sport from the teams and what some of the teams that I think were at risk of leaving were more about their frustration for being competitive than not being able to afford the sport. So I think we found a good balance and I think Formula One’s going to really thrive in the future,” summed up Brown.
Mercedes principal Wolff added that the marketing money was more than adequate for his team, but did note that this is good for the sustainability of F1, even from a pure manufacturer outfit. “Our situation is a little bit different to McLaren, albeit that the shareholders of McLaren seek value on their investment but for us, Mercedes, and also speaking also for our partners, the return on investment seems to be right and Formula One is probably one of the best marketing platforms in the world,” he said.
“We’re able to generate return on investment of up to twenty times the investment of Mercedes and its partners and our partners, so from a marketing standpoint it has always made sense and does make sense. But now there’s an additional angle that is being added, but with the cost cap, as much as we would have liked it to stay on a higher level because our organisation runs smoothly and restructuring is always difficult, as Zak referred to, there will be difficulties for us in restructuring but at the same time it leads us to a situation where our P&L will completely change from a deficit – not a big deficit, but still a deficit – it will change to a profitable P&L which is very important for the long term sustainability of the sport.
“I think we’ve seen that there are F1 team owners and shareholders in the sport that are in there for the love of the sport and for the marketing return but in order for us to really prosper you need to post a profit like any normal company out there and then more people will be interested in owning teams or with owning part of a share in the Formula 1 organisation itself because it is a solid business kit and we are – as much as it’s difficult from the restructuring point of view – we are looking forward to become a profitable franchise,” Wolff explained.
Red Bull principal Horner added, “I mean Red Bull’s involvement in Formula 1… the majority reason for that is to promote its product because Formula One is a global platform that has viewing figures that are only exceeded by the Olympic Games and the football World Cup which only happens every four years, not every single year. So I think the work that’s been done, the collective work, the compromises that were found were very positive to improve the model and the fiscal model of a Grand Prix team, so it just adds greater value for money – as Toto has highlighted – for the shareholders, for the partners, for the sponsors.
“It gives a financial ceiling for the amount of money that a team can spend, so it allows the teams that are further down the pecking order to converge for that, certainly fiscally and potentially on track as well so it creates, certainly, a more even playing field and I think that in terms of providing value and long term security to the sport, the teams, the entrants, I think it was the right thing and responsible thing to do. We often differ in opinions in many areas like DAS, but it was for the benefit of the sport to converge and come to a common understanding and compromise was found where it was needed to be.”
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