Pre-Covid, RaceFans had published our annual “Cost of F1” reviews of teams’ financial performance, arrived at by tracking financial records, via a series of on- and off-record discussions and through number-crunching analysis. The pandemic, though, created much uncertainty, with the calendar not only reduced to 17 – down five from an initial 22 – rounds, but a number of promoters even being paid to stage events.The whys and wherefores were published here, so do not need repeating save to clarify that as the season wore on, so the number of ‘paid’ events dwindled. These formed part of a steep learning curve forced upon the entire F1 circus by unprecedented times, which in turn provided valuable lessons, many of which will be carried forward.
The bottom line is, though, that an accurate analysis is simply not possible at this stage for 2020 for myriad reasons: Not only did the uncertain times cause a number of team and F1 sponsors to renegotiate contracts, but the calendar was a constantly moving target, in turn affecting F1’s revenue streams. The true picture will only emerge once consolidated financial statements are published by all players.
That F1 did a sterling job in keeping its roadshow going is evidenced by the current furore surrounding the Australian Tennis Open, which has been hit by Covid-positive cases despite charter flights and a vastly more compact operating structure. That said, while five (of 20) F1 drivers so far contracted the virus – which should raise alarms at team level – the upside is the sport’s test and isolation regimes proved fit for purpose.
There were, though, a bunch of doom- and nay-sayers who doubted that Liberty Media, the holder of F1’s commercial rights, would pull off any races (at all), while former F1 tsar Bernie Ecclestone and former F1 president Max Mosley called for the season to be cancelled entirely.
Speaking in April last year, the latter said: “[By cancelling the season] the teams and the race organisers would have certainty so they can plan and take measures. At the moment they are in limbo and many are losing money.
“By waiting, you risk making things worse without having the certainty of winning anything. There’s no guarantee that the races can start again in July and it actually seems increasingly unlikely.”
Yet precisely the opposite strategy proved to be the correct one: By returning to racing July 5th in Austria and cramming 17 races into 23 weeks, F1 was arguably able to save at least one, probably two teams.
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Would Williams have sold for $150m including (reduced) debt in August had the 2020 season simply been scrapped? Would Ineos have so readily acquired one-third of the Mercedes team had F1 not raced; ditto McLaren’s sale of equity to sport investment group MSP Sports Capital headed up by sports entrepreneur Jeff Moorad?
Although denied at the time by the team, a paddock source is adamant Haas was up for (fire) sale until the end of June, then abruptly pulled off the market just as racing restarted. Asked at season end to summarise the season, Haas’s Guenther Steiner said: “To survive. That’s what we’ve done right.
“I think there was a big chance that we [would not be] here anymore, and I think everybody pulled together, and we are here to stay.”
Thus, F1 goes into 2021 with the same complement of (10) teams thanks to a total mindset change across the board, from tail-enders through to the sharp end of the grid and sponsors to F1 and FIA. Never was the sport’s 2020 commercial challenge laid barer than during the opening round at the Red Bull Ring, where in 2019 the stands heaved with fans and traffic backed up for miles, but 12 months on an eerie emptiness reigned.
While races behind closed doors – first suggested here – enabled F1 to honour television and trackside advertising packages, this meant little or no on-site sponsor activation was possible for fans or hospitality guests. Both activities are crucial components for sponsors seeking more than sticker or livery deals, and teams carried the major brunt of this consequence.
Logic, though, suggests that team sponsorship revenues would be (at least) a quarter down due to the truncated calendar and vastly reduced attendance. In the end only Sochi, Nürburgring and Portimao were able to admit spectators, albeit with restrictions on size of crowds and movement within the circuit. Thus, direct activation was effectively impossible, with remote activities being one possible solution.
In order to keep sponsors sweet teams adopted a number of solutions, ranging from incremental sticker space (where possible) enabling larger logos or, in the case of multi-brand sponsors, exposure for products not included in the original deal. Another solution was to offer discounts or increased space or activation rights on future renewals. Call it a form of ‘sponsor overdraft’ – which makes it, though, the elephant in the room.
In some instances it worked the other way: brands that had been hit particularly hard by Covid but still harboured a desire to remain with a team had their fees ‘rolled-over’ provided they extended their deals. A comparison of launch versus end-season liveries shows few differences – a glaring exception being Williams and Rokit – which suggests the team’ marketing departments earned their collective keeps.
For sponsors for whom activation is a primary component, teams created ‘virtual’ grand prix weekends, with video enabling driver and management interviews and remote garages and paddock visits. True, these activities did not provide the same buzzes as selfies or on-site experiences, but they engendered levels of goodwill that the teams will call on as they settle their sponsor ‘overdrafts’.
Still, logic dictates that team sponsor revenues were down around 25% on the basis of five fewer races – although per-race TV ratings are expected to be higher given that many fans were locked down during the season. Decreases vary between teams as they hinge on business models and sponsor portfolios, but surveys among them suggest average sponsor incomes were down 20-30% – in line with logic.
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However, sponsor income makes up only a portion of team budgets, and as outlined here during an exclusive interview with F1’s global director of race promotion Chloe Targett-Adams, all race contracts were renegotiated. A number of promoters demanded fees to stage events and others had contracts rolled over, effectively creating more ‘overdrafts’ reducing affecting future revenues.
The teams share the largest portion of these revenues, which are based on three main streams: race hosting (as discussed), TV broadcast income, and hospitality and advertising. TV contracts were honoured in full as the stipulated minimum number of races (up to 16 dependent upon contract) was staged, but the third category was a mixed bag: Only trackside advertising delivered tangible, paltry income and thus F1’s global 2020 income was down by an estimated 40%.
Until end 2020 a number of teams earned fixed and variable bonuses in addition to prize monies awarded on the basis of position in the previous year’s final classification. So, to be clear: 2019’s final classification determined the split of the 2020 income ‘pot’, which was, of course, down on expectation.
Team bosses were lavish in their praise of Liberty’s handling of the situation, telling RaceFans the commercial rights holder honoured every obligation, plus offered advances to cash-strapped teams to tide them over. Four of the teams – McLaren, Williams, Sauber and Haas F1 – are believed to have availed themselves of the loans, to be repaid from future revenues, with first-named said to have already settled its loan.
Due to the pandemic F1 – listed on NASDAQ as FWONK – failed to turn a profit during the first three quarters of 2020 – Q4 results are due out at the end of February – so the extent of the commercial rights holder’s support packages makes clear its commitment to F1 and the teams. Still, commitment does not pay the bills, so how much were the teams down on prize income?
Due to the differing bonus tiers that prevailed until the end of 2020, the level of income is split into three broad groups, with Mercedes, Ferrari and Red Bull in the first group, comprising recent championship winners; McLaren and Williams in the second based on heritage; and the balance of teams in the third group. Teams in Groups A and B received bonuses.
Off-record discussions with a variety of insiders suggest that Group A teams are down approximately 30% on F1 revenues, those in Group B around 40% and Group C outfits down 50%. These splits are guidelines only, as payments are linked to individual team bonuses. Whatever, as the table illustrates, the rich got comparatively richer during tough times, with the ‘poor’ getting poorer…
|Team (2019 classification)||Forecast 2020 ($m)||Covid 2020 ($m)||Variance %|
*Recipients of bonus payments
For comparison, noting that individual championship positions vary year-on-year, here are the 2019 prize monies.
Actual team spending will be known after the respective 2020 accounts are filed – which include marketing and parent company contributions – with their fiscal authorities. But the situation seems rosier than initially feared as spending reduced markedly due to fewer races (mainly in Europe), compulsory shutdowns, restrictions on travelling staff, staff cutbacks, and furlough programmes which saw governments pick up some costs.
Indeed, one team boss suggests his outfit will turn a “marginal profit” for 2020, while another – who traditionally relies upon parent company contributions to balance his books – predicts lower than expected shortfalls. The picture would, of course, have been dire had F1 scrapped its entire season…
Liberty and the teams were not, however, the only ones to suffer financial hits during 2020: promoters, too, took knocks whether they hosted races or not, for they carry overheads, and in most cases have substantial infrastructures to maintain.
As revealed today, the cancelled 2020 Australian Grand Prix required a state handout of AUS $40m (£22m) despite not staging its race. While this compares favourably with the AUS $60m underwrite required in 2019, there were zero global marketing benefits to report. The reports suggests that no – or a substantially reduced – hosting fee was paid after the race was cancelled on the opening day, in turn affecting F1’s 2020 revenue ‘pot’ directly.
Promoter AGPC had also established a separate consulting company to provide services to the Vietnam Grand Prix, which was also cancelled and is now unlikely to see the light of day, in turn generating losses at both ends of the deal. All in, the extent of global promoter losses are as yet unclear, but these are likely to be substantial, with more than one said to be facing ruin, in turn affecting future calendars and race income.
As previously outlined, various ‘overdrafts’ will continue to hang over F1 for a year or two, while a number of sponsors and partners may not be able to continue in F1 due to harsh economic realities imposed by Covid. F1 team parent companies, too, may need to reduce their underwrites – the EU motor industry, already carrying debt and burdened by costs of electrification, this week reported a 25% reduction in 2020 unit sales.
Does this spell doom and gloom for F1? Not unless you are a nay-sayer, for the sport took responsible steps to salvage the best 2020 season under the circumstances, by learning from and adapting to unprecedented circumstances. The teams are leaner and more efficient, Liberty has added a raft of potential circuits in its portfolio – as evidenced by the return of Imola and Portimao for this year – and F1’s (reduced) budget cap is now in place.
The mere fact that all 10 teams survived the 2020 season points to a healthy, robust, vibrant and commercially sustainable sport, one well-poised to face 2021 with vigour. If it could survive the year that was 2020 and emerge kicking it can survive anything the wider world may wish to throw at it. Improved Covid management regimes and vaccines can only work in its favour, and not too soon, either.
Hopefully a full 2021 “Cost of F1” feature can be published later this year, reporting numbers healthier than ever before.
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