Start, Hockenheimring, 2018

The cost of F1 revealed: How much teams spent in 2018 – part two

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Last week we examined the spending by the five teams who finished in the bottom half of the championship. How much did it cost Mercedes, Ferrari, Red Bull, Renault and Haas to go racing – and where did they get their money from?

RaceFans’ exclusive Formula 1 team budgets analysis shows the three biggest teams spent more money in 2018 than the rest of their rivals put together.

Read on for part two of our analysis.

See part one for notes on how the budgets were calculated and how our figures are broken down.

Haas F1 team budget 2018
Haas F1 team budget 2018 – click to enlarge

Competing in F1 for its third year, Haas qualified for FOM Column 1 monies for the first time in 2018. This boosted its income by $30m which eased the burden on machine tool magnate Gene Haas – who uses F1 as marketing platform for his machine tool empire – and provided for a 10 per cent headcount increase. Theirs remains the lowest in F1 by virtue of Haas’s unique listed parts business model.

Haas

2018 Budget $130m
2018 Income $130m
2018 Profit/Loss Breakeven (Group)
Employees 250
Points 93
Bang-for-buck $1.4m/point
Lap time index $68m/sec (-1.89s)

Stability has been further factor in Haas’s rise up the order. The team has retained Romain Grosjean and Kevin Magnussen for a third year in 2019. It will also receive two budget boosts after improving its championship position from eighth to fifth and signed Rich Energy as title sponsor in a three-year deal worth $15m/annum.

Haas’s business model means its primary asset is a filing cabinet containing contracts: with Dallara for listed parts, and Ferrari for powertrains and non-listed parts. Thus its operating costs – and, by extension, budget – are the lowest on the grid by a substantial margin; hence Haas comfortably walks our B4B index.

The team says

In our third season we further streamlined the team and improved efficiency, while an increase in budget enabled a headcount increase of 10 per cent. Having qualified for the full spectrum of FOM monies, we were able to improve on-track performances despite being a young team.

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Renault F1 team budget 2018
Renault F1 team budget 2018 – click to enlarge

Following its acquisition of Lotus ahead of the 2016 season, Renault had a ‘ramping-up’ year in 2017 and this season concentrated on consolidating its efforts. Thus headcount has grown marginally despite a budget boost of $10m. This suggests prudence: the level matches future cost cap projections, while $190m is in line with F1’s budget cap glide path.

Renault

2018 Budget* $190m
2018 Income $190m
2018 Profit/Loss Breakeven (Group)
Employees* 625
Points 122
Bang-for-buck $1.55m/point
Lap time index $157m/sec (-1.21s)

Improvements to the team’s facilities continued through the year. But there are concerns about the future after the arrest of CEO Carlos Ghosn. If the cost-saving alliance with Nissan and Mitsubishi splits, its $20m from Infiniti would go missing. Unsurprisingly the team downplays this situation but it remains a real threat, especially if its performance fails to improve.

Funding is derived from three primary sources: Renault’s main company, which subsidises group motorsport activities to the tune of $200m per annum across all categories, half of which is earmarked for F1; FOM income – up by $10m due to improved 2017 performance, and set for another boost next year; and commercial funding. FOM income ensured that Renault’s subsidy remain stable despite the budget increase.

Signing Daniel Ricciardo for 2019 should aid performance and commercial prospects although, strangely, Nico Hülkenberg’s German following remains untapped. Threats are that McLaren – with Renault power – comes good, that Haas continues its upward trajectory and Racing Point reverts to its previous giant-killer ways. It made hard work of taking fourth in the championship, and could easily have been sixth.

*Excluding engine operation

The team says

Renault is the largest carmaker involved in Formula 1 – full stop. So we can afford anything as long as it makes sense. It’s just a question of value for money, and whether it makes sense to spend that given where we are in the development of our team.

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Red Bull F1 team budget 2018
Red Bull F1 team budget 2018 – click to enlarge

Red Bull’s UK-based operation draws on two interlinked companies: Red Bull Technology (800 employees), which provides components and technical services to Red Bull Racing (60), the race team entity. However RBT also supplies certain permitted technologies to Toro Rosso and provides services to other group companies – plus partners Aston-Martin on the Valkyrie hypercar project – so ‘purified’ figures for the budget and headcount are offered above.

Red Bull

2018 Budget $310m
2018 Income $315m
2018 Profit/Loss Breakeven (Group)
Employees 780
Points 419
Bang-for-buck $0.74m/point
Lap time index $236.6m/sec (-1.31s)

Despite using customer Renault engines (badged ‘TAG Heuer’ for the final time in 2018), Red Bull held its own against ‘works’ operations mainly on account of tight commercial controls which focussed F1’s third-largest budget on crucial areas: chassis design, racing operations and the best available drivers.

During 2018 Red Bull, which earns in dollars (sponsors/FOM) and Euros (Red Bull), gained from the drop in the value of sterling caused by Brexit, but did not grow its sponsor portfolio significantly. Therefore Red Bull upped its contribution. Driver costs should fall next year as long-time Red Bull junior Pierre Gasly replaces Ricciardo. Max Verstappen has freedom to find (non-conflicting) personal sponsors, suggesting he has a lower basic wage than the Dutchman demanded. Dutch fashion company G-Star RAW is his first major deal.

With both Red Bull teams sharing Honda power from 2019, significant synergies and cost-savings are mooted. Toro Rosso plans cuts at its Bedford wind tunnel and greater use of parts shared by the two teams is planned, but management is adamant that levels of co-operation will not hit Ferrari/Haas levels. All-in, Red Bull Racing expects a performance boost as its Honda relationship evolves, and that will improve future finances.

The team says

Responsible regulations are the key. When you look at what are the cost-drivers in this business, it’s the technical regulations that drive the cost.

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Ferrari F1 team budget 2018
Ferrari F1 team budget 2018 – click to enlarge

Uniquely, Ferrari produces its Formula 1 car within one complex. Facilities, R&D and manufacturing are shared with its road car division, which supports the Gestione Sportiva in lieu of marketing.

Ferrari

2018 Budget* $410m
2018 Income $410m
2018 Profit/Loss Breakeven (Group)
Employees* 950
Points 571
Bang-for-buck $0.72m/point
Lap time index $344.5m/sec (-1.19s)

This makes reporting its financial arrangement complicated as separate details for the F1 operation are not available. Furthermore, its October 2015 New York Stock Exchange listing provides further excuses for refusing co-operation, allegedly for ‘fear’ of insider trading.

How will this square with F1’s much-vaunted budget cap remains to be seen, as clearly Ferrari will have to comply in the same fashion as their rivals. Our suggestion is that future sporting regulations include clauses stipulating that F1 entrants be standalone financial entities with independent profit / loss reports and purchase ledgers. If Ferrari does not toe the line, it always has the option of racing elsewhere.

Commercially, the team benefits from the largest slice of FOM revenues – pocketing 20 per cent of the ‘pot’ – with Shell and UPS complementing $100m provided by Philip Morris in exchange for its ‘Mission Winnow’ message and access to the team for promotional purposes. Licensing tops up the $410m budget.

The untimely death of president/CEO Sergio Marchionne in mid-July clearly knocked Ferrari, while replacement Louis Camilleri has yet to make an impact on performance. The immediate signs were not good for the team: after the Italo-Canadian’s passing Sebastian Vettel lost the title initiative and its share price plunged from $140 in early July to under $100 a week ago.

All this suggests that Ferrari is in for a torrid time once budget restrictions are introduced, for thus far it has been able to purchase performance courtesy of having F1’s largest headcount and biggest FOM bonus. However, where Marchionne’s threats to exit F1 were to be taken seriously, Camilleri has adopted a softer approach. Thus Ferrari is likely to remain in F1 regardless of budget cap.

*Excluding engine operation

The team says

We do not comment on our financial situation.

Mercedes F1 team budget 2018
Mercedes F1 team budget 2018 – click to enlarge

Daimler-Benz’s F1 activities are split into two: Mercedes Grand Prix (race operations) and High Performance Powertrains, situated separately and operating independently. The team is owned 60/30/10 by Daimler, motorsport director Toto Wolff and non-executive chairman Niki Lauda. Significantly, the company carries forward a $100m assessed tax loss.

Mercedes

2018 Budget* $400m
2018 Income $405m
2018 Profit/Loss Breakeven (Group)
Employees* 950
Points 655
Bang-for-buck $0.61m/point
Lap time index $353.5m/sec (-1.13s)

Parent company Daimler’s year-on-year contributions increased marginally, as did sponsor income, with headcount showing a commensurate increase. Save for Tommy Hilfiger as replacement for Boss, no major new deals were announced; thus increased turnover suggests escalated income per sponsor. As champions, Mercedes receives the largest slice of FOM pre-bonus revenues, but trails Ferrari on overall pay-out.

Wolff and Lauda’s contracts are expected to end in 2020, coinciding with the expiration of F1’s current agreements. That indicates head-scratching in Brackley corridors about the team’s future, particularly as outgoing CEO Dieter Zetsche is to be replaced by Olla Källenius, previously head of HPP and AMG before moving up to the parent company. Whether the Swedish engineer considers F1 to be good value now or in future is key to the future commitment of the team which is dominating F1 at present.

*Excluding engine operation

The team says

As a high-technology company, the team can adapt competitively and commercially to changes in its operating environment, and will continue to invest in its capability and culture to ensure medium- and long-term success both on- and off-track.

Conclusion

Clearly a massive performance gap exists between the ‘big three’ – Mercedes, Ferrari and Red Bull – and the rest. No team outside this trio has won a grand prix in the 100 races since FOM (then under the control of CVC Capital partners) began making its inequitable team payments. This is reflected in the size of their budgets.

However when it comes to the business of making their cars quicker year-on-year, most of the smaller teams have made greater progress on their budgets. Sauber leads the way, having spent £54m per second of lap time it found compared to last season. This not only points to the new-found efficiency of the team under Frederic Vasseur, but also to the relevance of this performance metric. That Haas is second on the list underscores its accuracy.

Marcus Ericsson, Sauber, Hungaroring
Reinvigorated Sauber was F1’s best-value team
Due to restrictions on race team strength, wind tunnel/CFD usage, engine and tyre costs, bans of testing outside of official sessions and other costs inputs, it costs around $100m to design and race two cars over a grand prix season, with the delta to budget spent mainly on development.

On that basis teams such as Racing Point and Haas have around $25m per annum discretionary spend for development; Mercedes and Ferrari $300m. The latter found 1.13 and 1.19 seconds respectively. Clearly they are feeling the diminishing returns of the current regulations more keenly than their smaller rivals, but does this kind of spending really serve the sport’s best interests?

On our Bang-4-Buck index, Mercedes comes out tops despite its budget advantage over independents. This is predominantly due to weighting of the points table in favour of wins, of which Mercedes had plenty, and the fact that the top three generally locked out the big points places – from seventh to 10th the spread is six points in total, or a quarter of a win. Still, Mercedes did the business for the fifth year in a row, so hats off to the team.

The challenge for Liberty and the teams is to grow sponsor and television revenues while cutting costs to ensure profitable teams. Significantly, only two teams posted (modest) profits, and then only after inflated shareholder subsidies – reduce these, and red ink flows, so in real terms they’re paper profits. F1’s imperative is to build profitable, sustainable teams which don’t rely on the largesse of billionaires or blue chip boards.

The building blocks required to achieve that need in time for F1’s promised (by Liberty) 2021 rebirth need to be in place within the next 12 months. But the last 24 months have seen little tangible progress towards that vital goal.

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Dieter Rencken
Dieter Rencken has held full FIA Formula 1 media accreditation since 2000, during which period he has reported from over 300 grands prix, plus...

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  • 28 comments on “The cost of F1 revealed: How much teams spent in 2018 – part two”

    1. Im surprised to see Red Bull and Renault having such a low budget. Renault who supposedly are aiming for the top as a worksteam and Red Bull which constantly has the best chassis and are known to throw money around them. They are probably just better at hiding their numbers.

      1. I forgot, Great read!

      2. @rethla, bear in mind that, in the case of Red Bull, all of that money will be spent solely on the chassis itself, as the cost of developing their engines is being outsourced to a third party – Renault Sport up until recently, and now Honda.

        Although Red Bull’s overall budget may be lower, the strength of their chassis comes from the fact that they can pour much more of their budget into developing just the chassis, whereas the likes of Ferrari and Mercedes, being engine suppliers as well as chassis manufacturers, have to split their resources across two different areas.

        If Dieter’s previous article on Mercedes HPP, which indicated that only about 65% of the workforce of HPP is involved in F1, that very roughly suggests that a similar portion of the spending of HPP will be on their F1 programme (assuming that there is a similar distribution of staff across their different sectors and that wage costs are likely to be one of the larger cost centres for the company).

        Using the same exchange rate Dieter has, that suggests that HPP accounts for about $150 million of the $400 million figure for Mercedes, leaving $250 million over for other areas. Back in 2016, it was reported in Autosport that engine supplies were being fixed at €12 million per annum – now, even if you include additional costs, such as for lubricants and fuel supplies, that would suggest that Red Bull shouldn’t be spending more than about $20-25 million on their engines – so, proportionally, Red Bull has more of its budget that it can dedicate just to the development of the chassis itself than Mercedes can.

        Certainly, in terms of raw headcount, if Red Bull really do have 780 people available to work on their car, but Mercedes only have about 500 outside of their engine division to work on the rest of the car, the advantage is actually heavily in Red Bull’s favour when it comes to chassis development – they have, proportionally speaking, significantly more resources to throw at that than Mercedes have.

        In the case of Ferrari, that situation is more ambiguous given that there is no separation between the engine division and the rest of the company, nor on what proportion of the money spent by that sector would be purely on F1 and what proportion might be spent elsewhere – e.g. on their customer GT3 and GTE cars.

        However, it is possible that a similar situation exists there and that, proportionally, the amount of money and the number of staff that Ferrari have available to work on the chassis itself will be less than that of Red Bull.

        1. I was under the impression that those numbers where excluding the engine departments but maybe im missing something. If they are including the engine Renault sure are making some cheap engines and cars, its amazing work.

          1. They do exclude engines – and that is stated up the “yellow” money column in the graphics for Mercedes, Ferrari and Renault. However, we’ll make it clearer by adding a note to that effect in the sidebars for each of those teams.

            1. Are the payments that HPP/Ferrari/Renault receive for engine supply taken in consideration/deducted from the overall budget?

            2. Yes, its supposed to be at least.

          2. @rethla, in the case of Mercedes, as Dieter has gone to the effort of providing two different head counts – one with all of the HPP workforce (950) and one without (c.500), it would seem to imply that the figures for Mercedes do include their engine division.

            With regards to Renault, it may be the case that there are expenses outside of the main group which aren’t accounted for – Renault’s engines are designed by Renault Sport, their motorsport division, but they work in conjunction with Mecachrome, the mechanical engineering firm, to assemble the engines themselves. It may therefore be that there are some expenses which come under Mecachrome’s turnover, rather than that of Renault itself, which would explain some of the gap.

            That said, on the other hand those figures do also sound consistent with what Abiteboul has said about Renault’s involvement in F1, which is that their investment is much more incremental and measured compared to their rivals. In the past, Abiteboul has said that the team did not want to have more than 650 to 700 people and that they were going to slow down recruitment in 2018 – the fact that their headcount only increased by a handful does seem to reinforce that point.

            In terms of budget, in the past it was reported that the board of Renault wanted the team to demonstrate concrete improvements in form before they were prepared to start spending more heavily – there was talk that Renault’s board had made finishing in 4th place in the WCC a precondition for them agreeing to spending more money on the team.

            I wouldn’t be surprised if the budget up to 2018 has been fairly limited up until now because the board of Renault wanted to see more improvements from the team first, but having achieved 4th place in the WCC might mean that, from 2019 onwards, the board might be prepared to start upping their investment in the team (and, of course, Renault’s prize money should be increasing as well, giving them another way of increasing their budget).

          3. @rethla, OK, I see that Dieter has now added a clarifying statement about the budgets.

    2. So it seems clear that the unequal payment to the teams really hinders the mid field from advancing enough to win. Gotta fix the elephant in the room.

      1. Can you imagine a elephant fixed by F1 management?

        1. If a camel is a horse designed by committee, an elephant designed by FOM would probably end up like that interdimensional squid monster in Watchmen.

    3. It looks to me like no one is breaking even. They are all putting in their own money to meet the budget.

      1. Yes. The only team that manage breakeven was Williams.

    4. With Red Bull on the cusp of leaving F1 in 2021 to head to Le Mans with Aston Martin, the whole F1 series is in a precarious position. A 16 car grid is not going to keep many glued to their pay to view screens or stump up hard cash to visit a circuit.

      As an organisation that makes $5M profit (red bull only, excluding torro rosso) on $310M turnover, who is going to buy the assets? What commercial value do racing teams actually have? What return on investment do they provide? Or how many extra cans of red bull are sold due to red bull involvement in F1?

      Would be interesting to have a chart on the investment value of each team.

      1. Well Red Bull is only paying $65M

      2. another way to look at it is that they’re making $5M instead of spending $X on advertising in other ways, so it could still be worth while.

        1. The team is making $5M not Red Bull

          1. The team is owned by Red Bull the drinks company, so semantics to say the team made $5M. Essentially Red Bull made $5M from an investment of how much?

            Income is $310M. How much extra money does Red Bull the drinks company have to put in to run the team?
            Somewhere the accountants will be figuring how big (or small) the investments can be afforded and what investment they can afford to keep plowing into F1.

            Sometime in the future the Red Bull owners are going to ask; How big is the investment cost and how many extra cans of Red Bull are we selling for our investment? Can we sell even more by changing our sponsorship to other formats?

            This will be applicable to all the teams. Ferrari, Renault, Mercedes and McLaren will ask how many extra cars are we selling due to F1 involvement and at what cost.

            Haas how many extra CNC machines?

            Bigger question is how much would they sell the team for and who would buy it?

            1. Yes ofc they wanna look at return of investment PR wise but the numbers here are a $5M return of an $65M investment. In other words -$60M. Its not semantics.

    5. Could Ghosn’s departure be a blessing in disguise for the team? He was known more for tolerating F1 rather than embracing it.

    6. No team outside this trio has won a grand prix in the 100 races since FOM (then under the control of CVC Capital partners) began making its inequitable team payments.

      This season three cars were Disqualified after a race, which begs the question of why should a driver and his car be Disqualified? The obvious answer is “They were caught cheating.” Obviously operating a team on a substantially bigger budget than your competitors isn’t currently considered cheating, while putting a larger amount of fuel into the engine than everyone else is, but the outcome is much the same. In both cases that team’s cars go faster than their competitors. We all want the cars to go faster, but we want the cars to go faster while staying within the rules. Just as we had cars Disqualified because the Stewards have the right to measure cars and found something amiss, and the FIA have the right to check maximum fuel flow rates after a race and again found a threshold was exceeded, so there will have to be a way to ensure teams comply with the cost cap expectations, and some sort of deterrent to discourage exceeding the cost cap.
      I really hope the “big three” do respect Liberty Media’s desire to introduce a budget cap, because only 7 different drivers stood on the podium this season, with 6 of the 7 being from the “big three”, which isn’t good for F1.

      1. @drycrust, mind you, the sport has seen years of a comparable level of domination by the top teams – 1992 also saw only seven different drivers stand on the podium, and the only drivers to stand on the podium were the drivers from the big four teams (Williams, McLaren, Benetton and Ferrari).
        2002 also saw the same situation that you describe – again, you had only seven different podium finishers, and six of those came from the same “big three” teams of Ferrari, Williams and McLaren, with a sole fluke podium for Jaguar when Irvine made it onto the podium in the Italian GP.

    7. Excellent job on this, Dieter! Is there some way to represent what the teams are spending on engines, of in the case of the works teams, what they are saving? If Mercedes has 500 employees in the division that supplies the engines but doesn’t account for those costs in their F1 budget, that is money that the F1 team is saving in operating costs but money is still being spend by the Merdeces company for the F1 team. Shouldn’t all the works teams should be counting the money that the parent company is spending as part of their F1 teams cost/budget?

      1. Kenny, the issue is that not all teams are engine suppliers, nor is it a pre-requisite to be in F1 – so including the numbers skews them. We don’t know what Honda spends as they report through Japan, so how would we account for that with STR, and/or RBR (from 2019)?

        Equally, Honda doesn’t recover from partner teams – in fact, contributes commercially – while Renault will recover from just one customer team and Mercedes and Ferrari from three. Last two also have commercial deals for young drivers in place with their customers. So all in, it is too complex to calculate the costs – and in Ferrari’s case almost impossible as the engine division shares a lot of tech with the road car engine department.

        Finally, there are fixed engine supply tariffs, and we assume that these are cross-charged at that rate internally where a team is also an engine supplier.

    8. Hi Dieter (and a Happy New Year). Another top-notch article. And 100% intelligent and informed comments. Excellent read, to round off the year.

      1. Thank you, and same to you and yours.

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