Williams and McLaren are F1’s most successful teams after Ferrari (MARCUS BRANDT/AFP via Getty … [+]
AFP via Getty Images
The cost of running a Formula One team has accelerated by 1,000% over the past 30 years according to analysis of the financial statements from two of its oldest teams.
F1 has not limited the spending of its teams since the series was launched in 1950 but that is all about to change. This year it will introduce a budget cap which restricts team costs to $175 million, though there will be no penalty for breaking it until 2021.
It is designed to curb decades of unchecked spending which has fueled an arms race between the top teams. They are backed by billionaires and colossal corporations which have high-octane resources and use them to boost their chances of winning on track.
It has revved up the annual budget of the top teams to more than $500 million whilst the minnows operate on around 25% of that. In a bid to keep up with their bigger brothers they often spend beyond their means by supplementing their revenue with debt. The interest payments on it can push them to the brink and over the past decade four teams have crashed out of F1.
The surge in spending is most apparent when looking at the financial statements of the Williams and McLaren teams. Although Ferrari and Mercedes are older, the former doesn’t file publicly-available financial statements whilst the latter team has been owned by a number of auto makers since it was founded in 1964.
In contrast, not only do Williams and McLaren still use the same names that they first entered F1 with in 1977 and 1966 respectively, the founder of the former is still in the driving seat as its boss.
Williams and McLaren are two of F1’s most successful outfits and have the second and third highest number of teams’ titles after Ferrari. Their heydays were in the 1990s when British superstar Nigel Mansell steered Williams to his first and only championship whilst F1 legends Alain Prost and Ayrton Senna won a total of six titles for McLaren.
Fueled by sponsorship from Shell and tobacco titan Marlboro, McLaren had $28.9 million (£22.4 million) of revenue in 1990 when it won the title with Senna at the wheel. It spent $26.7 million (£20.7 million) giving the team a $1.4 million (£1.1 million) net profit with Williams following close behind. It made a $0.9 million (£0.7 million) net profit as the team had just $19.7 million (£15.3 million) of revenue and $19.2 million (£14.9 million) of costs. As the graph below shows, the growth in spending since then has been turbocharged.
In the 1990s McLaren spent almost the same amount as Williams but it raced ahead in the 2000s
McLaren’s latest financial statements show that in 2018 its costs came to $305 million (£237 million) which is 1,045% higher than in 1990. The team has been helped by having deep-pocketed owners including Saudi tycoon Mansour Ojjeh and Bahrain’s Mumtalakat sovereign wealth fund.
In contrast, 52.3% of Williams is still in the hands of its founder Sir Frank Williams who floated 24.1% of the team’s shares on Frankfurt’s junior exchange in 2011. Over the almost 30-year period since 1990 the team’s costs have risen by 799% to $173 million (£134 million) in 2018. A lack of billionaire benefactors gives Williams more of a need to be in the black than most teams and in 2018 it made a net profit of $5.3 million (£4.1 million) as shown on the graph below.
McLaren has had bigger profits and bigger losses than its independent rival Williams
It was a particularly impressive performance given that the business model of most F1 teams is to spend all the revenue they make in a bid for victory. Unlike most businesses, their hallmark of success isn’t profit but performance on the track. However, the profit Williams made in 2018 was a long way off its peak which came 13 years earlier when backing from BMW helped it snag sponsorship from blue chip brands like HP, Budweiser and FedEx.
Williams made a $38 million (£29.5 million) net profit in 2005 but its financial performance went downhill after BMW switched its support to Sauber at the end of the year. Net losses at Williams peaked at $51.9 million (£40.3 million) in 2014 but its costs still hadn’t hit top gear. The high point came two years later and was driven by a surge in staff numbers which hit a record 719 in 2016. As the graph below shows, this gave Williams even more employees than McLaren.
Williams and McLaren have similar headcounts despite having vastly different budgets
On track, the problems for Williams haven’t slowed down. Despite being powered by the championship-winning Mercedes engines, it has finished in last place for the past two years.
McLaren’s performance has also reversed but this was driven by the introduction of the 1.6-liter V6 hybrid engine which currently powers F1 cars. It was first used in 2014 and the following year McLaren switched from Mercedes to Honda which returned to F1 after a five-year hiatus. It was a gamble which failed to pay off for McLaren as its performance reversed. It has raced back up the standings since it switched to Renault engines in 2018 and next year it will return to ones made by Mercedes.
Ironically, McLaren has been one of the biggest supporters of the budget cap even though it currently spends far more than will be allowed. It is in favor of it for the good of the sport as the more level the playing field, the better the racing should be and the more interest there will be in F1. In turn, it would boost the teams’ chances of attracting sponsors and McLaren is one of the best-performers at this as we have reported.
However, as we also revealed, there are significant exclusions from the cap so time will tell whether it is just a speed bump or if it actually manages to put the brakes on further increases in spending.
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