23/04/2008
NEWS STORY
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F1 should be in rude health. Formula One Management says that the TV figures were up last year to give the sport 597 million unique viewers, the on-track action is a little less predictable than in recent years and the (almost complete) departure of tobacco sponsors has seen big-spending banks take their place.
So why are two F1 teams currently up for grabs without a long line of buyers biting at their ankles? There is one good reason for this says Pitpass' business sleuth Christian Sylt.
Contrary to popular belief F1 teams simply do not make much money. We have all heard the famous line that the quickest way to become a millionaire in F1 is to start as a billionaire, and it highlights the massive personal outlay necessary to get a team onto the grid. But once the wheels are turning most business managers expect something for their efforts. In truth, there is one reason that entrepreneurs set up businesses and that is for them to be successful moneymakers.
Looking at businesses from a wide range of other industries the difference to F1 soon becomes apparent. Take the UK chain of discount stores Poundland. It's at the bottom end of the retail spectrum but still aces F1 teams in financial performance. According to Poundland's latest results, it made a £5.6 million pre-tax profit. Then lets move to leisure where Peel hotels runs eight modest 4-star hotels across the UK - not the Savoy or the Dorchester but rather the Crown & Mitre in Carlisle. Peel made a £2.2 million profit according to its latest figures. And getting even more regional, Leicestershire-based Everards Brewery recently announced pre-tax profits of £4.6 million. True, it does have 166 pubs to its name but it's not operating on an international level - they are all in a 70 mile radius of its brewery.
In contrast, according to the latest financial results of the UK-based F1 teams, the best-performer of the bunch was Red Bull which made a pre-tax profit of just £514,000. This was followed by Honda which broke even and the four others all made pre-tax losses ranging from Renault's £3.6 million loss to Williams' whopping £34.8 million loss. The two reasons for this are high costs and restricted revenues.
The deal that the manufacturers signed with F1's owners CVC several years ago has still not shown up on the teams' financial statements and, likewise, the cost-cutting of FIA president Max Mosley hasn't seemed to have much effect. With Mosley's mind on other matters at the moment it doesn't look likely that that will change soon.
It is against this backdrop that Super Aguri and Toro Rosso are being sold. As Pitpass recently reported, Toro Rosso's latest results showed a pre-tax profit of £150,000 but the asking price is far higher. "80 million is a fixed price and not negotiable. That gets an entry into Formula 1, an excellent team and an excellent car, on which further development can be built," says Toro Rosso's half-owner Dietrich Mateschitz.
A price-tag of 80 million euros on half of the team would give Toro Rosso an overall valuation of a massive £130 million. This is approximately the same amount Honda paid for BAR and double the amount Renault paid for Benetton - unlike Toro Rosso, both these teams had full manufacturing facilities complete with windtunnels with the latter of course also being a two-time world champion to boot. Toro Rosso would be at the highest end of the spectrum of F1 deals even at half the sale price given its limited infrastructure
Since it would take decades for the purchase price to be recouped via dividend payments, the stratospheric valuation is primarily based on one premium asset - the right to compete in F1. However, with Dave Richards having walked away from a free slot on the grid, one wonders just how valuable this really is. Likewise, the slot only has value in relation to its exclusivity and this isn't guaranteed forever.
CVC is looking to increase F1's appeal in emerging markets so that they can host races (with costly sanction fees) and pay premium prices for the television rights. Having a team based in the country is an ideal way of nurturing this, as Force India is hoping, but this may require adding more cars to the grid if CVC's expansion plans are to be fully realised. In turn it is likely that this would send the value of the grid slot into reverse.
Toro Rosso is indeed selling as values are peaking but with his "fixed price" Mateschitz may still struggle. Perhaps mindful of this he says "so far no one has actively sought a buyer, and there is an equally high likelihood that we will keep Toro Rosso." Sadly Super Aguri doesn't have the benefit of a billionaire benefactor and it might only be days before its fate is known.