The true cost of Formula 1

Since AUTOSPORT first published The true cost of Formula 1 a year ago, the financial squeeze on teams has tightened.

Few race weekends passed without some tale of money woe sweeping through the paddock, and matters came to a head last weekend when Caterham and Marussia missed the United States Grand Prix.

More than one team has had to resort to pay drivers and shareholder loans to stay afloat as the global economic crisis continues to bite.

F1 lost a major sponsor in Vodafone at the end of 2013, and other sponsors are said to be negotiating downwards off the back of dwindling live attendances and falling TV audiences.

Introduction of F1's impressively efficient but markedly dearer power units further skewed budgets after engine bills doubled, while an ill-planned expanded calendar (to 20 rounds in 2015) compounded financial pressures.

Since budget and performance have a symbiotic relationship, disparities in finances are evident in the performance spread, with the best-funded teams racing at the sharp end and budget operations bringing up the rear. The middle class survives - just.

Beginning 2013, the Big Five - Ferrari, Red Bull, Mercedes, McLaren and Williams - received varying bonuses from commercial rights holder Formula One Management, further widening the divide between rich and poor. These have been identified accordingly in our figures (FOM monies are disbursed a year in arrears).

With eight of the 11 2014 teams - including Red Bull Racing, McLaren and Mercedes - based in Britain, direct comparisons are facilitated by Companies House filings. The accounts are, though, at least nine months in arrears. We requested interviews with all teams and their level of co-operation is noted in the key below.

Where teams refused to divulge information, we have arrived at educated estimates. Various sources were consulted and cross-referenced, including filings, known variables, informed assumptions and inside information.

Key:
*** Full co-operation/input
** Input provided
* Zero co-operation/input

RED BULL

Red Bull's operation consists of two intertwined companies: Red Bull Technology, which produces cars for Racing Bull Racing, and the race team management entity. RBT also provides gearbox and hydraulics technology to Scuderia Toro Rosso and Caterham, so the purified budget is RBT (including RBR), less 'Other', less profit.

RBT's 2013 turnover was £258m, on which a profit of £15m (RBR £1m) was turned, with customer income running to £30m. This year the operation will spend marginally more, with engine cost increases absorbed by Infiniti.

This season RBR drops to second in the classification, precipitating a £10m loss (for 2015) in FOM revenue, while bonuses reduce to £25m after a one-time payment falls away.

The objective is to reduce dependence on Red Bull while generating global brand exposure. However, since the FOM revenues will reduce, Adrian Newey is stepping back from F1 design, and some key technical personnel (plus Sebastian Vettel) have left, there are challenges ahead.

Team principal Christian Horner: "We've had significant influx of sponsorship revenue, together with renewals from [variety of sponsors]... Red Bull Racing has posted a healthy performance."

Note: 2013 accounts have not been published at the time of closing for press, thus calculations have been based on data provided.

FERRARI

Ferrari is the only team producing an entire car in one location, doing so by sharing mainframe facilities with its road car division, which supports the Gestione Sportiva racing department in lieu of global advertising. This, though, complicates matters, for internal policies make it impossible to split revenues and profits, although 2013 parameters improved over the previous year by an average of 10 per cent - with similar growth expected again.

Already on preferential FOM terms through heritage, the Scuderia additionally benefits from being one of the Constructors' Championship Bonus (CCB) teams. Having achieved profits in 2013 of £200m, it has a huge war chest, bolstered this year by £110m in (2013) FOM payments.

Engines are supplied to two customers teams, enabling costs to be further defrayed; we have extracted these to provide a purified base. While overall costs have been well contained, engine costs have risen, boosting the budget by 10 per cent, yet still allowing a modest internal profit.

Ferrari's brand provides a powerful commercial pedestal for its partners, but the signs are that tobacco company Philip Morris is scaling back, and whether the departure of Fernando Alonso calls into question Santander's long-term support is a moot point. Whether Ferrari will dip into profits in that case or find replacements is the burning question.

Ferrari press office statement: "These matters remain confidential, and no guidance can be offered as to the accuracy of these estimates."

McLAREN

McLaren Racing's finances are tough to call on account of its position as part of a wider structure, the McLaren Group. This encompasses the Applied Technologies division and caterer Absolute Taste, as well as Marketing - all formally separate entities. In the absence of formal breakdowns, informed assumptions are made.

Although associate company McLaren Automotive contributes directly and indirectly, Racing is profitable in its own right - posting the largest attributable profit on the grid (£22m, 2013). This, though, is likely to have been consumed this year in the absence of a replacement for Vodafone. Sharing facilities reduces costs, but complicates accounting and headcount allocations.

McLaren's strength has long been the length, breadth and depth of its partnerships, and a 10-year commercial and technical deal with Honda (commencing 2015) provides for a bright future. However, the continued absence of a title sponsor remains a worry, as does McLaren's serial lack of championship success in recent years, which impacts on FOM revenues.

Chairman Ron Dennis: "McLaren has a proud and victorious record at the pinnacle of Formula 1, and I am confident the actions we are taking will enable the team to regain competitiveness in time."

MERCEDES

Mercedes F1's activities are split: Mercedes Grand Prix (the Brackley-based race operation) and engine builder High Performance Powertrains are separate, albeit integrated, entities, with HPP supplying Mercedes GP and others.

Brackley recruited upwards of 100 heads over the past year. This is reflected in 2013 losses - which remain a worry, being underwritten by parent company Daimler and potentially causing the board to reconsider its engagement over time.

HPP offsets its costs via income from Mercedes GP, Daimler R&D projects and F1 customer engine deals, last year recording modest profits.

Combined Mercedes constitutes F1's largest global spend - with commensurate headcounts - yet the team itself is arguably the most effective bang-for-buck operation, delivering the constructors' title for around £50m direct cost. The operation is financed by a combination of Daimler funding, sponsorship, customer activities and FOM revenues.

Although a member of F1's Strategy Group, Mercedes GP is not a full CCB operation, qualifying for annual incremental payouts of £8m until 2015, increasing to £10m through to 2020.

Motorsport director Toto Wolff: "If you see it from Daimler's perspective it's not a large contribution for what they get. And it's a very important message, because you hear all those crazy numbers..."

WILLIAMS

Williams moved back to the sharp end after totally reinventing itself - in the process snaring Mercedes power - and it certainly paid off on the scoreboard and balance sheet.

WGPE has a unique business model, being F1's only listed team: 50 per cent held by founder Frank Williams and 9 per cent by business partner Patrick Head, Toto Wolff (Mercedes) controls 10 per cent, a US investor 5 per cent, employees own 4 per cent, with 22 per cent publicly traded.

Williams has three revenue streams: team-sourced sponsors, driver-related contributions and FOM revenues, although for 2014 it benefits from a pay-off courtesy of Venezuela's state oil fund PDVSA after Pastor Maldonado broke contract. This resulted in an accounting anomaly, and an on-paper loss for the year.

Deputy team principal Claire Williams: "I think the team's been very lucky; all the work we put in last year is paying off, and obviously that has a knock-on effect on future commercial discussions."

LOTUS

Neither fish nor fowl, Lotus floats in that middle ground between majors and independents, carrying large-team overheads on modest income, yet without the safety net of CCB payments.

The team has restructured and downsized, reducing headcount by 100. Although the directors are hopeful of breaking even, a modest loss is projected - a far cry from the £90m headline deficit of a year ago, most of which was driver-related.

The challenge lies in retaining blue-chip sponsors such as Microsoft, Rexona and Burn (Coca-Cola) against a backdrop of disappointing results, which also impacts on FOM revenues. However, Mercedes power in 2015 should redress the performance deficit.

CEO Matthew Carter: "We've turned it from a huge loss to hopefully getting somewhere near break-even, the idea being that we secure things financially first, then look at making improvements on track."

SAUBER

Sauber swims mid-stream; unlike its peers, it is disadvantaged by invoicing in US Dollars, but trading in buoyant Swiss Francs. This disparity, compounded by FOM's inequitable revenue structure, lies at the root of its travails.

Sauber's state-of-art facilities (particularly its windtunnel) are its salvation, for it can rent them out to supplement budgets. The balance of funding is made up of a mix of team sponsorship, driver contributions and FOM monies.

Team principal Monisha Kaltenborn: "We are hopeful of acquiring an investor, but aim to increase third-party business to compensate for reduced FOM income. It's not easy."

FORCE INDIA

Despite similar headline numbers to Sauber, Force India's business model could not be more different, being funded by a mix of shareholder loans, group companies, driver-linked contributions and FOM revenues.

A portion of Force India's funding flows from associate companies, many of them under pressure in India - creating cause for concern.

Upgrades are planned for its Silverstone base, and new sponsors have been signed. For 2014 Force India entered into a technical partnership with Mercedes GP, which paid off handsomely: it trades blows with McLaren using the same power unit, yet on half the budget.

Deputy team principal Robert Fernley: "We outsource significant amounts of our production, and try to get a balance between production running full time, and outsourcing of major items."

TORO ROSSO

STR exists as a finishing school for Red Bull's cadre of development drivers, and came of age with the successive elevations of Daniel Ricciardo and Daniil Kvyat to RBR.

The team is on the up budget-wise, having doubled the size of its Faenza base, while recruitment for staff to service its Bicester (UK) windtunnel is on-going. Being a 'school', STR operates on a break-even basis, being funded by an expanding portfolio of external sponsors, with the budget underwritten by Red Bull.

STR receives substantial support from RBT, and runs similar rear-end technology to RBR, although it does design and produce its own gearbox casing.

CATERHAM

A mess: After a mysterious Swiss-Arabian consortium "bought" the team, management downsized to 200 staff operating on a £60m budget - made up of sponsorship, driver (race, test, development) contributions and (decreasing) FOM revenue.

Associate supply company CSL is now in administration, and the race team also came under the control of administrators - who are seeking buyers for its assets - last week.

MARUSSIA

Potentially in the most precarious position of all because the oligarch who has injected upwards of £100m since 2011 seems to have lost interest, just when the team's future seemed brighter than ever owing to increased FOM monies for 2015.

The team had been seeking buyers, but administration was confirmed last week.

CONCLUSION

The total cost of Formula 1 in 2014 amounts to £1.5 billion - excluding engine costs incurred by Mercedes, Renault and Ferrari (and Honda in 2015), which are deemed R&D - yet the teams received just one third (£530m) of that figure from FOM, which in turn banked around £300m from the sport's many revenue streams.

The recent implosion of Caterham and Marussia is a timely demonstration that F1's current revenue model is unsustainable. It's time to think again about how the money is shared out.