The true cost of Formula 1

Money makes the world go round, and this holds equally true in Formula 1. Without the folding stuff even the most sophisticated cars would sit silently in garages, devoid of fuel.

While F1 has been cash dependent since its inception, the global economic crisis and voracious commercial rights holders have increasingly throttled independent teams so that now up to 40 per cent of the grid is endangered.

With budget and performance being symbiotic, disparities in finance are evident in the performance span, with the best funded running at the sharp end and cheaper operations bringing up the rear. The middle class is invariably betwixt and between; just as Mike's Mule is unlikely to wow Ascot, so the chances of Marussia winning Austin are zero.

With eight (of 11) teams - including heavyweights Red Bull Racing, McLaren and Mercedes - based in Britain, direct comparison of UK-domiciled operations is facilitated by ready access to Companies House data, which provides crucial information, such as turnover and profit and loss. However, the information is at best 18 months in arrears due to filing deadlines.

Therefore, for the purposes of this analysis best estimates have been applied across the board, including where teams fall outside the jurisdiction of British company law. In all instances a variety of sources were consulted and cross-referenced, including filings, known variables, informed assumptions and inside information.

As always, secrecy reigns, while varying (foreign) accounting systems, internal policies, shareholder objectives and economics complicate comparisons. Each pound banked/paid as dividend is one less dedicated to performance.

F1's contentious Resource Restriction Agreement further clouds matters, because buy-ins, outsourced services and in-house production contribute to the overall figure. So personnel-heavy teams are not necessarily inefficient, simply productive.

Formula One Administration earnings - aka 'Bernie (Ecclestone) Money' or FOM income - are paid to qualifying teams 12 months in arrears, spread over the February-November block. Four outfits - Red Bull, Ferrari, McLaren and Mercedes - receive varying Constructors' Championship Bonus (CCB) payouts from 2013, effective in 2014; Williams receives a lesser heritage sum.

RED BULL RACING

Budget: £235.5m (estimated)
Income: £240m
Profit: £4.5m net
Income breakdown:
£110m Red Bull
£60m sponsors
£70m FOM earnings 2012

Red Bull's F1 operation consists of two intertwined companies: Red Bull Technologies, which produces cars and kit to order from Racing Bull Racing, and the race team management entity, with the overall spend bloated by inter-group deals. Companies House records RBT's 2011 turnover as £215m (declared profits £4m), while RBR registered a bottom line of £640k on £177m spend.

Adding 10 per cent for economics (2010/11 turnover increased by double that after RBR withdrew from FOTA/RRA activities) provides a global spend of £445m.

Actual spend - corrected for programmes undertaken on behalf of the group and deduction of income from Caterham and (small beer) Scuderia Toro Rosso customer activities - lies between RBT's turnover and the total, pointing to £250m annually for the overall RBT/RBR F1 operation.

Future growth in Infiniti sponsorship is likely to offset cost increases of (Renault) engines, while heightened revenues from existing and prospective sponsors will serve to reduce Red Bull's subsidies without materially raising the budget. Given the run of success, sponsors can be expected to shell out more in coming seasons.

CCB payments provide for incremental annual £50m revenue streams from 2013-onwards, albeit 12 months in arrears. The objective is for RBT/RBR to reduce dependence on their parent, while continuing to generate global exposure for the brand. So far so good - as long as Red Bull keeps the euros flowing in the interim.

SCUDERIA FERRARI

Budget: £250m (inc engines)
Income: £260m
Profit: £10m (group) 2012
Income breakdown:
£160m sponsors, inc FIAT/Ferrari
£20m customers
£80m FOM earnings 2012

Ferrari, already on preferential FOM terms through heritage, is the only F1 team producing an entire car in one location, doing so by sharing mainframe facilities with the road car division, which supports the Gestione Sportiva racing department in lieu of global advertising.

Engines are supplied to two customer operations, enabling costs to be further defrayed; these have been extracted to provide a purified base. Reduction programmes, both within and without Ferrari, enabled the sporting division to report an internal profit for the first time in 2011.

However, the company's corporate structure and internal accounting policies make it impossible to split revenues/profits, although all 2012 financial parameters improved over the previous year by an average of 10 per cent - with similar growth expected for 2013.

The Scuderia subscribes to the RRA, but reporting is complicated by the fact that Italy does not provide a ready-made cottage industry as per the UK - hence the vast proportion of components are manufactured internally, boosting headcount, with allocations for engine manufacture further compounding matters.

Ferrari's brand provides a powerful commercial pedestal, but the signs are tobacco company Philip Morris could reduce below-the-line activities - it has already called time on its pre-season Wrooom programme - leaving a hole of up to £60m. Whether Ferrari will dip into profits in that case or find a replacement is the burning question. CCB status adds an annual £30m to heritage payments.

MCLAREN RACING

Budget: £160m
Income: £180m
Profit: £20m (2011)
Income breakdown:
£120m sponsors
£60m FOM earnings 2012

McLaren Racing is a hard one to call because of the group's internal structure. The operation builds and races grand prix cars, but also provides customer support to rival squads Force India and Marussia, while sourcing engines from Mercedes.

Then sister companies such as McLaren Automotive and McLaren Applied Technologies make direct and indirect contributions, yet Racing still records profits - to wit the largest attributable profit on the grid (£20m). Sharing group facilities reduces costs, but complicates accounting and headcount allocations.

McLaren's strength has long been the length, breadth and depth of its sponsor partnerships, and while the pending loss of Vodafone is a blow, its 10-year commercial and technical deal with Honda (commencing in 2015, with contributions expected sooner) provides for a bright future. Further sponsorship announcements are imminent and, as is the team's wont, likely to be blue chip.

Worryingly, though, Racing has not won a constructors' championship this millennium, and as FOM's contributions are paid on that classification, McLaren trails its direct competitors by at least £20m. CCB adds a further £50m annually, but the overall shortfall still equates to a valuable secondary partner, and creates cause for concern, particularly with regard to current performance.

The arrival of Sergio Perez boosted 2013 income via the Mexican's support from the Slims, the world's richest family.

LOTUS

Budget: £130m
Income: £120m
Profit: -£10m
Income breakdown:
£30m Genii
£45m sponsors
£45m FOM earnings 2012

Neither fish nor fowl, Lotus uncomfortably floats in that middle ground between the majors and the independents, carrying large-team overhead absorption with modest sponsor income, yet without the CCB safety net.

Declared losses of £90m created headlines, but parent Genii Capital maintains that 75 per cent of that relates to shareholder loans and internal funding, structured as tax losses.

An announced sale of a 35 per cent share to the Infinity Racing consortium has yet to be completed for 'technical reasons', but Lotus is confident the deal will go ahead, providing crucial investment and funding.

Despite these travails, Lotus, formerly Benetton/Renault F1, lies fourth in the constructors' rankings (third in 2012), with star driver Kimi Raikkonen fourth in the drivers', suggesting competent overall management. Financial performance nevertheless remains a worry, hence constant calls for increased F1 cost reductions.

Loss of a rumoured major deal for 2013 was a setback, although partnerships with Coca Cola, Microsoft and Unilever brands provide £15m per annum, with French connections delivering another £15m via Renault/Total.

Still, Genii pumps in £30m, with FOM earnings for this non-CCB team adding another £45m. It is surely an indictment of F1's business model that a team challenging for both titles requires shareholder loans to remain on the grid.

MERCEDES GRAND PRIX

Budget: £160m (inc engines)
Income: £150m
Profit: -£10m 2011
Income breakdown:
£50m Daimler
£60m sponsors
£40m FOM earnings 2012

Mercedes F1's activities are split: Mercedes Grand Prix (race operation) and High Performance Engines (self-explanatory) are separate entities - albeit integrated - with MGP (and others) being HPE customers.

However, HPE cannot be isolated; nor can MGP's engineering satellite operating from Daimler's Stuttgart base. Combined, Mercedes has by far the largest spend in F1, with commensurate headcounts. These are, though, offset (marginally) by engine supply contracts with Force India and McLaren, the latter expiring in 2014 and with the former mutating into a customer partnership from 2014.

These activities explain top-heavy structures, with recent intensive staff recruitment drives pointing to a ramping up of activities, with, by extension, budget increases.

Mercedes GP is financed by a combination of Daimler funding, sponsorship, customer activities and FOM payments. Shareholding was diluted recently through the (still unregistered) allocation of shares to motorsport director Toto Wolff (30 per cent) and non-executive chairman Niki Lauda (10 per cent).

Although a member of F1's Strategic Committee, the Mercedes GP operation is not a full member of the CCB, qualifying for annual incremental payouts of £8m until 2015, which from then on increases to £10m.

SAUBER

Budget: £90m
Income: £75m
Profit: -£15m
Income breakdown:
£40m sponsors
£35m FOM earnings 2012

Like Lotus, Sauber swims mid-stream, having manufacturer-standard infrastructure inherited from its BMW tenure, combined with independent budget income. Unlike others, the team suffers in that it settles bills in Swiss francs - among the world's strongest currencies, so much so that it is artificially pegged against the euro - but invoices mainly in dollars, as is customary in F1.

This disparity, plus over dependence upon its Mexican sponsors, lies at the root of its current (well-documented) financial woes, which are expected to ease substantially once its much-vaunted partnership with a trio of Russian entities is fully on stream.

Owners Peter Sauber (founder, 67 per cent) and able lieutenant Monisha Kaltenborn (CEO, 33 per cent) fought against the odds to keep Sauber going after BMW pulled the plug after four years, the former dipping into life savings in recent times. The Russian deal materialised not a day too soon, albeit too late to salvage 2013 (although roubles are believed to be already flowing).

Swiss brands Rolex and UBS support commercial rights holder FOM, not their own...

FORCE INDIA

Budget: £100m
Income: £75m
Profit: -£25m
Income breakdown:
£30m group companies
£10m sponsors
£35m FOM earnings 2012

Despite similar headline numbers to Sauber, Force India's business model could not be more different, having emerged from Jordan/Midland/Spyker stewardship as a team owned 42.5 per cent each by two Indian billionaires and a minority Dutch shareholder.

The bulk of Force India's backing flows from group companies, with Vijay Mallya's liquor conglomerate and the Sahara Group providing 30 per cent of its £100m budget, and sponsors/FOM providing a further 45 per cent.

The balance is registered as a (tax) loss, surely creating cause for future concern as the Mallya and Sahara companies face challenges in India.

Still, major investments are planned for its Silverstone base, new sponsors have been signed and the team lies ahead of McLaren - from whom
it sources technical services (which explains its headcount levels) - in the constructors' table.

For 2014 Force India has entered into a technical partnership with Mercedes GP, which can only stand it in good stead.

WILLIAMS

Budget: £90m purified, (exc Hybrid Power)
Income: £90m
Profit: £0m Even
Income breakdown:
£30m PDVSA
£28m sponsors
£32m FOM earnings 2012

Williams forms part of a three-way dogfight with Force India and Sauber, yet has a unique business model, being F1's only listed team. Fifty per cent is held by founder Frank Williams, engineering partner Patrick Head has 9 per cent, Toto Wolff controls 15 per cent, an employees trust owns 3.5 per cent, with 20 per cent being publicly held.

Williams has two primary revenue streams: Venezuela's sovereign oil fund, PDVSA, courtesy of driver Pastor Maldonado, and FOM. Each contributes a third of the £90m budget. With Venezuela's government being unstable and FOM income being performance-linked - current results are the worst in the team's 35-year history - alarm bells should peal.

However, Williams recently restructured, holds a 2014-onwards Mercedes engine contract, has a strong brand name and a superb facility.

Associate companies such as Williams Hybrid Power and Williams Advanced Engineering, plus customer contracts (that is, Formula E), keep the race team level. A deferred one-off £10m FOM heritage payment tipped Williams into paper profit of £5m in 2012.

TORO ROSSO

Budget: £70m
Income: £70m
Profit: £0m Even
Income breakdown:
£32m Red Bull
£8m other
£30m FOM earnings 2012

STR exists as a finishing school for the most promising of Red Bull's cadre of development drivers. As such, it does what it says on the tin, bringing youngsters through - but, with other than Sebastian Vettel (and possibly Daniel Ricciardo in future), that is where it stops, because no further talent has made it to RBR.

Primary funding (45 per cent) is provided by Red Bull; FOM earnings add virtually the same. The balance comes courtesy a coterie of Arab-controlled entities. Such is their input that rumours exist they've acquired (strenuously denied) shareholdings. Maybe, maybe not. Hives of activity around STR during Gulf races suggest deep links.

STR's budget is on the up, having last year doubled its (formerly Minardi) Faenza base, while recruitment for aero staff to service its Bicester windtunnel is ongoing. As a 'school', STR operates on a zero-sum basis, as long as Red Bull shells out.

CATERHAM

Budget: £65m
Income: £65m
Profit: £0m Even
Income breakdown:
£26m group
£9m driver and other sponsors
£30m FOM earnings 2012

Eleventh for Vitaly Petrov in last year's Brazilian Grand Prix secured Caterham's 10th-place share of FOM's revenues, making a difference of £12m to its budget.

Founded in 2010 during the FIA's 'budget' team initiative, Caterham is funded by three streams: revenues derived from/via companies owned by Air Asia boss and team founder Tony Fernandes, pay-driver contributions and FOM money. A road car partnership with Renault facilitates engines, with Caterham now firmly housed in its (acquired) Leafield factory.

MARUSSIA

Income: £51m
Budget: £51m
Profit: £0m Even
Income breakdown:
£30m Marussia
£15m driver and other sponsors
£6m FOM earnings 2012

Marussia survives against all odds, posting strong results given non-existent status within FOM - which refuses point-blank to recognise the Anglo-Russian team commercially, yet charges for freighting cars and kit across the world. It is in the final year of its Column 3 income - provided by FOM to start-ups.

The eponymous Russian sportscar maker provides 60 per cent of funding, with the balance derived from drivers/sponsors. It enjoys tacit Ferrari support, which supplies engines for 2014. The question is who blinks first: FOM or Marussia?