Formula 1 Business Model?
03-28-2013, 08:23 PM
#1
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Formula 1 Business Model?
Guys,
I watched the Malaysian Gran Prix this past weekend, and was a bit surprised by the tactics of the Red Bull & Mercedes teams (especially Vettel versus Weber).
So how does the F1 business model work? In the NFL, all of the team owners make up the league - and revenue from TV is shared among the teams based on a unique algorithm that all parties agreed to as "fair". It appears that F1 is owned by one guy, and his profits are for himself to invest as he sees fit...
So what is in it for a race team? Are they purely reliant on advertising revenue to fund their race budgets, or do they get network TV rev share? If only the former, this would explain why Red Bull and others are so concerned with the Constructors championship. Those "points" are worth money to them in terms of ad dollars - namely what brands they put on their cars...
Clearly, the BUSINESS of F1 is what drove the teams (and drivers like Vettel) to make those interesting decisions on Sunday.
From a Forbes 2012 article:
Red Bull Racing is now worth $400 million, up 67% since our last valuation project in 2010, easily the largest growth of any F1 team. The team collected nearly $98 million in prize money in 2011, the most of any team, and added another $62 million in technical support, merchandise sales and sponsorships with brands like Casio, Infiniti and Pepe Jeans. And in a move that would be outrageous to most F1 teams, Red Bull reserves the majority of its cars’ sponsorship space for advertising its own world-famous energy drink.
Wow - that is a low revenue numbe ($62M) based on the success of F1!
Thoughts?
-B
I watched the Malaysian Gran Prix this past weekend, and was a bit surprised by the tactics of the Red Bull & Mercedes teams (especially Vettel versus Weber).
So how does the F1 business model work? In the NFL, all of the team owners make up the league - and revenue from TV is shared among the teams based on a unique algorithm that all parties agreed to as "fair". It appears that F1 is owned by one guy, and his profits are for himself to invest as he sees fit...
So what is in it for a race team? Are they purely reliant on advertising revenue to fund their race budgets, or do they get network TV rev share? If only the former, this would explain why Red Bull and others are so concerned with the Constructors championship. Those "points" are worth money to them in terms of ad dollars - namely what brands they put on their cars...
Clearly, the BUSINESS of F1 is what drove the teams (and drivers like Vettel) to make those interesting decisions on Sunday.
From a Forbes 2012 article:
Red Bull Racing is now worth $400 million, up 67% since our last valuation project in 2010, easily the largest growth of any F1 team. The team collected nearly $98 million in prize money in 2011, the most of any team, and added another $62 million in technical support, merchandise sales and sponsorships with brands like Casio, Infiniti and Pepe Jeans. And in a move that would be outrageous to most F1 teams, Red Bull reserves the majority of its cars’ sponsorship space for advertising its own world-famous energy drink.
Wow - that is a low revenue numbe ($62M) based on the success of F1!
Thoughts?
-B
03-28-2013, 11:42 PM
#2
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Are you saying that Red Bull and Mercedes put money ahead of good sportsmanship? In F1? What is the world coming to!
03-29-2013, 11:06 AM
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You don't become F1 world champ by being a boy scout. Every team has a #1 and #2 driver. #2 has to follow team orders or be at risk of a ride, #1 not so much (if it works out okay in the end for the team).
03-29-2013, 11:52 AM
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The teams get $ from Bernie directly based on their constructors points. Last year about $700MM was shared by the top 10 teams. RB got approx $100MM of the total, as noted above.
That's why they care less about the driver championship.
Remember too that Ferrari makes more $ off merchandising and licensing than they do selling cars. That comes directly from 40 years of F1 success. Bernie also pays them to stay in F1, something like 20M a year.
Bunch of rich guys playing with cars, who needs a real business plan?
That's why they care less about the driver championship.
Remember too that Ferrari makes more $ off merchandising and licensing than they do selling cars. That comes directly from 40 years of F1 success. Bernie also pays them to stay in F1, something like 20M a year.
Bunch of rich guys playing with cars, who needs a real business plan?
03-29-2013, 12:01 PM
#5
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Here is the F1 business model:
Last edited by Veloce Raptor; 06-27-2013 at 08:39 AM.
03-29-2013, 12:36 PM
#6
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F1 is more like MLB than the NFLs revenue sharing model. For example, a small market team like the Green Bay Packers can compete and win in the NFL against big $$ teams like the Cowboys and NY Giants as compared to MLB where it's hard, not impossible, but hard for a small market team like the KC Royals and Pirates to win against a NY Yankees team that has a $205m payroll each year and a team like the San Diego Padres have a $40m payroll.
If you look at Ferrari for example, they have an operating budget of appx. $350-$500m per year, no one really knows for sure, but all the top teams fall somewhere in this range. The constructor points are where you make many millions of dollars, then winnings, etc, but as the OP pointed out, that doesn't cover the costs of operating a team for a year. Include sponsorship $$ on top of that.
In the case of Ferrari, the title sponsor, Santander bank in Spain, contributes an unknown amount of $$ to the team and is reported to have paid off the remaining contract year for Kimi in return for having their countryman, Fernando Alonso be the lead driver for the team. It is also rumored that Santander is also paying some or all of Alonso's $29m per year salary to drive for the team.
For a small privateer team like Williams where they do not make as much from constructor points winnings, they have sponsors and technical partners that contribute, but they actually have drivers who PAY to drive the car. In the case of Williams driver Maldonado, he has been sponsored by the government of Venezuela to the tune of $49m per year. That money goes directly to the team to help with operating costs. In the case of Williams, F1 is their only business and do not sell cars or anything like some of the other teams.
With McLaren, they do sell road cars and technologies that are used by other companies and support racing series with their ECUs. In fact, McLaren not only supplies ECUs for all the F1 teams, but they also supply ECUs for NASCAR and Indy.
In the case of Red Bull, this is their #1 marketing vehicle (no pun intended). They sponsor A LOT of extreme sports and motor racing around the globe, but F1 is their halo effort. Also, the reason why their F1 team has gone up in value so much is because they have turned around a loser to a near dynasty. The RB team used to be the Jaguar team that nearly folded when Ford Motor company wanted to get out of F1. RBR bought it for pennies on the dollar so the value was very low to begin with. The 67% rise is higher than other teams because it is similar to a new start up tech company killing it (ie Microsoft in the 1980s) vs. a old established company (ie IBM) that doesn't have that type of grown potential any longer.
F1 is a brand image to Ferrari that is important to sell their cars, but more importantly to merchandising. A team like Ferrari makes more money than any other by their merchandising and could not survive if they were to only rely on selling their road cars and F1 earnings. In fact, Enzo Ferrari started the company and only sold road cars to fund his racing efforts. Obviously that has changed and it doesn't hurt to have funding backed by a global car company like Fiat, it's parent company.
As for the back marker teams, their reasons for being in F1 are much different. A lot of them were started by super rich guys that own airlines or small car companies in BRIC countries and it serves as a marketing tool as well as fuels their egos, but ultimately, they cannot compete with the mid pack teams like Williams or Sauber who need to have a reasonable amount of success to make a living nor with the top teams that have multiple revenue streams and pump a ton of money into their racing efforts.
Finally, you have Bernie Eccelstone. Personally he is worth billions of dollars and is really only a race organizer/promoter. He gives teams a small percentage of his profits and basically has an unbelievable amount of power over these multinational car builders and conglomerates. In the past, they have threatened to go off and form their own series similar to F1 and cut him out completely, but the bottom line is that they (the F1 teams) do not trust each other. Ferrari and McLaren could never agree on something and this is pretty much similar up and down the paddock with F1 teams. Bernie understands this and has used it as leverage against the teams to give them a smaller percentage than they really deserve as they are putting up all the capital and resources to put the cars on grid. F1 will probably change when Bernie is no longer the ring leader because there needs to be someone who can handle these teams/egos etc. I contend that we are currently seeing the golden era of F1 right now with the amount of "competitive" teams and drivers who all could be World Champions. This hasn't been the case in the past and whom ever takes over for Bernie will have their hands full and F1 as we know it may no longer exist.
If you look at Ferrari for example, they have an operating budget of appx. $350-$500m per year, no one really knows for sure, but all the top teams fall somewhere in this range. The constructor points are where you make many millions of dollars, then winnings, etc, but as the OP pointed out, that doesn't cover the costs of operating a team for a year. Include sponsorship $$ on top of that.
In the case of Ferrari, the title sponsor, Santander bank in Spain, contributes an unknown amount of $$ to the team and is reported to have paid off the remaining contract year for Kimi in return for having their countryman, Fernando Alonso be the lead driver for the team. It is also rumored that Santander is also paying some or all of Alonso's $29m per year salary to drive for the team.
For a small privateer team like Williams where they do not make as much from constructor points winnings, they have sponsors and technical partners that contribute, but they actually have drivers who PAY to drive the car. In the case of Williams driver Maldonado, he has been sponsored by the government of Venezuela to the tune of $49m per year. That money goes directly to the team to help with operating costs. In the case of Williams, F1 is their only business and do not sell cars or anything like some of the other teams.
With McLaren, they do sell road cars and technologies that are used by other companies and support racing series with their ECUs. In fact, McLaren not only supplies ECUs for all the F1 teams, but they also supply ECUs for NASCAR and Indy.
In the case of Red Bull, this is their #1 marketing vehicle (no pun intended). They sponsor A LOT of extreme sports and motor racing around the globe, but F1 is their halo effort. Also, the reason why their F1 team has gone up in value so much is because they have turned around a loser to a near dynasty. The RB team used to be the Jaguar team that nearly folded when Ford Motor company wanted to get out of F1. RBR bought it for pennies on the dollar so the value was very low to begin with. The 67% rise is higher than other teams because it is similar to a new start up tech company killing it (ie Microsoft in the 1980s) vs. a old established company (ie IBM) that doesn't have that type of grown potential any longer.
F1 is a brand image to Ferrari that is important to sell their cars, but more importantly to merchandising. A team like Ferrari makes more money than any other by their merchandising and could not survive if they were to only rely on selling their road cars and F1 earnings. In fact, Enzo Ferrari started the company and only sold road cars to fund his racing efforts. Obviously that has changed and it doesn't hurt to have funding backed by a global car company like Fiat, it's parent company.
As for the back marker teams, their reasons for being in F1 are much different. A lot of them were started by super rich guys that own airlines or small car companies in BRIC countries and it serves as a marketing tool as well as fuels their egos, but ultimately, they cannot compete with the mid pack teams like Williams or Sauber who need to have a reasonable amount of success to make a living nor with the top teams that have multiple revenue streams and pump a ton of money into their racing efforts.
Finally, you have Bernie Eccelstone. Personally he is worth billions of dollars and is really only a race organizer/promoter. He gives teams a small percentage of his profits and basically has an unbelievable amount of power over these multinational car builders and conglomerates. In the past, they have threatened to go off and form their own series similar to F1 and cut him out completely, but the bottom line is that they (the F1 teams) do not trust each other. Ferrari and McLaren could never agree on something and this is pretty much similar up and down the paddock with F1 teams. Bernie understands this and has used it as leverage against the teams to give them a smaller percentage than they really deserve as they are putting up all the capital and resources to put the cars on grid. F1 will probably change when Bernie is no longer the ring leader because there needs to be someone who can handle these teams/egos etc. I contend that we are currently seeing the golden era of F1 right now with the amount of "competitive" teams and drivers who all could be World Champions. This hasn't been the case in the past and whom ever takes over for Bernie will have their hands full and F1 as we know it may no longer exist.
03-29-2013, 01:52 PM
#7
Great info Pete - love the comparision to baseball vs. football.
VR - love the pictures - is that the home of a drug dealer or rap star?
In the words of Randy Moss, "Straigtht Cash Homey" don't know too many people that hang cash on their walls or window blinds as decorations. 
VR - love the pictures - is that the home of a drug dealer or rap star?
In the words of Randy Moss, "Straigtht Cash Homey" don't know too many people that hang cash on their walls or window blinds as decorations.
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03-29-2013, 02:52 PM
#8
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60% $$$$$$$$$$ Bernie 40% $$$$$$$ Teams
03-29-2013, 06:33 PM
#9
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Read "I'm No Angel", I am up to the end of the 2009 season when Mercedes is buying Brawn.
Bernie now owns only 5.3 percent of Formula One Management. CVC owns the majority of the business, and I have no idea what Bernie's actual worth is now or what CVC pays him for a salary.
Teams get 50% of all the profits from the various revenue streams (circuit race fees, merchandising, etc etc), 2011 prize money was 698.5 million$ to the teams. Red Bull received $87 million for winning the championship (constructors) last year, while HRT received almost 9 times less for sucking hind tit before folding.
7.5% of F1 profits or around 100$ million (whichever is greater) will now be split between the top three teams based on races won in the four seasons prior to 2012 (Ferrari, McLaren and RedBull), this agreement runs through 2020 and I don't know the exact amount MORE that Ferrari (and only Ferrari) gets than other teams not based on constructors standings, I seem to remember having read something like 20 to 50 million more just because of who they are.
Great article in the new AutoWeek as well as the fascinating book about Bernie's life.
Ironically, the teams created this monster by letting him negotiate on their behalf back in the 70s and 80s for a 'cut', and have always been asking for more, threatening breakaways, wanting rid of MosleyTheNazi etc etc etc... while he was slithering this way and that, threatening, cajoling, signing deals with Beelzebub, etc.
All those who have been his 'friend' at various times, have all become his enemy and viceversa (Frank Williams, Luca Demontezemolo, Flavio Briatore, etc.)
The 2nd most scummy guy in F1 now to Bernie in my opinion is Niki Lauda. Bag of contradictory hot air.
But Bernis is some piece of work, the book is fascinating.
Bernie now owns only 5.3 percent of Formula One Management. CVC owns the majority of the business, and I have no idea what Bernie's actual worth is now or what CVC pays him for a salary.
Teams get 50% of all the profits from the various revenue streams (circuit race fees, merchandising, etc etc), 2011 prize money was 698.5 million$ to the teams. Red Bull received $87 million for winning the championship (constructors) last year, while HRT received almost 9 times less for sucking hind tit before folding.
7.5% of F1 profits or around 100$ million (whichever is greater) will now be split between the top three teams based on races won in the four seasons prior to 2012 (Ferrari, McLaren and RedBull), this agreement runs through 2020 and I don't know the exact amount MORE that Ferrari (and only Ferrari) gets than other teams not based on constructors standings, I seem to remember having read something like 20 to 50 million more just because of who they are.
Great article in the new AutoWeek as well as the fascinating book about Bernie's life.
Ironically, the teams created this monster by letting him negotiate on their behalf back in the 70s and 80s for a 'cut', and have always been asking for more, threatening breakaways, wanting rid of MosleyTheNazi etc etc etc... while he was slithering this way and that, threatening, cajoling, signing deals with Beelzebub, etc.
All those who have been his 'friend' at various times, have all become his enemy and viceversa (Frank Williams, Luca Demontezemolo, Flavio Briatore, etc.)
The 2nd most scummy guy in F1 now to Bernie in my opinion is Niki Lauda. Bag of contradictory hot air.
But Bernis is some piece of work, the book is fascinating.
03-29-2013, 07:05 PM
#10
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03-29-2013, 07:42 PM
#11
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:-)
CliffNotes version of the book
03-30-2013, 03:52 PM
#13
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Thanks guys! That was exactly the info I was looking for...
Pete's & DB's comments were especially helpful. It's obvious that the current business model will favor the constructor's championship for the teams (explaining last week's results).
I am even more impressed with the marketing genius of Red Bull. Brilliant move to join F1, afollowd by the ability to leverage that position to become one of the top 3 "favored" teams. A big ***** award should go to the exec at Red Bull that developed that strategy.
Thanks again guys. Rennlist never lets me down.
-B
And to VRs point - F1 is a money machine. No doubt.
Pete's & DB's comments were especially helpful. It's obvious that the current business model will favor the constructor's championship for the teams (explaining last week's results).
I am even more impressed with the marketing genius of Red Bull. Brilliant move to join F1, afollowd by the ability to leverage that position to become one of the top 3 "favored" teams. A big ***** award should go to the exec at Red Bull that developed that strategy.
Thanks again guys. Rennlist never lets me down.
-B
And to VRs point - F1 is a money machine. No doubt.
03-30-2013, 04:06 PM
#14
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Other than as an advertising platform, I truly don't understand the Toro Rosso 'junior' RedBull team. They employ two decent drivers (Algesuari and Buemi) but since the team can't raise the level of the car compared to other mid-pack teams how how can they really assess their drivers against other drivers ? They fire both Buemi and Algesuari and hire Ricciardo and Vergne and the car is still basically crap (one step above Caterham and Marussia) , they consistently cannot challenge the top 4 teams so how do they know these drivers are THAT much better ?
03-31-2013, 12:46 PM
#15
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Those cliffnotes certainly peaked my interest. What a different side of Bernie