28/09/2010
NEWS STORY
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We all know that Brawn GP had one heck of a season last year. Eight race wins and two world championships for a team which technically didn't exist until a few weeks before the season got underway is a pretty good record. It was a huge gamble for Ross Brawn and the team's management who took over the outfit from Honda in March last year. Nevertheless, it has certainly paid off.
A recent report in the Evening Standard by Pitpass' business editor Chris Sylt revealed that Brawn GP's revenues hit £234.5m last year - more money than any other F1 team has ever made in a single year. However, let's reflect on that for a moment.
Brawn GP had more money flowing into its coffers last year than Ferrari, Red Bull, McLaren and Renault yet it didn't have a car manufacturer or a billionaire backing it. Remarkably, Brawn had even higher revenue last year than in 2008 when it was fully owned by Honda, the biggest-spending car manufacturer in the history of Formula One.
How on earth was this possible? The answer, in a nutshell, speaks volumes about the progress achieved in the past decade in giving F1's teams a fairer share of the sport's spoils.
Brawn GP's 2009 accounts reveal that £92.6m of its revenue came from Honda. The reason for it giving this money was simple: after numerous failed attempts to sell the team Honda handed control to its management and gave them the money which it would otherwise have had to spend on redundancies when closing the team down.
Deducting the Honda payment leaves £141.9m of revenue unaccounted for. An estimated £22.7m of this comes from prize money which the team received for finishing ninth in the 2008 championship. That leaves £119.2m.
Sponsorship only brought in an estimated £11.7m, for although the team was leading the championship for much of the season its livery was largely blank. Brawn GP's biggest-paying partner was Virgin which only spent an estimated £3.2m. The team pulled in a further £6.1m from Bridgestone and other suppliers leaving a total of £101.4m in revenue from other sources.
The clearest indication of who the biggest of those 'other sources' might be comes from the following line in the accounts. Referring to the increased prize money which F1 teams became entitled to on signing the Concorde Agreement in August last year, the accounts state "the company received full payment for all entitlements due up to the end of 2009, including retrospective amounts due from previous years." Brawn had Honda's membership of the Grand Prix Manufacturers' Association (GPMA) to thank for that.
For years the GPMA lobbied F1 boss Bernie Ecclestone about increasing the amount of revenue that the teams received from the sport. Until 2007 the teams' only take from F1 was sharing 47% of the revenue from television rights and this equated to around 25% of the sport's overall profits.
The GPMA negotiated a deal whereby the teams split 50% of F1's profits from all of its revenue sources including the valuable race hosting and trackside advertising fees. This deal was written into the famous Memorandum of Understanding signed in May 2006 with the increased payments beginning the following year. In return, the teams shelved (albeit temporarily) their talk of setting up a rival series. Ecclestone had his own carrot to put a more permanent end to this idea.
He offered teams which signed the Concorde Agreement a windfall payment comprising the difference between the prize money they were paid between 2004 and 2006 and the amount they would have received over that period at the higher 50% rate. Since the difference came to around 25% of F1's profits, it was a pretty big carrot. After the teams finally signed the Concorde Agreement last year the retrospective payments were fully settled as the Brawn accounts reveal.
It says a great deal about the more equitable modern-day F1 that a team with independent ownership could not only challenge on track those outfits with backing from car manufacturers and billionaires but it could pull in more money than them. It also shows that the ideal way (and window) to enter F1 was by buying into an existing team early last year, as Brawn's first class financial statements stand in stark contrast to the money woes faced by the new teams which thought they could strike it lucky by joining the sport in 2010.
However, Brawn's financial success in 2009 wasn't only fuelled by increased revenue. The accounts reveal that the team's total costs fell 18.8% to £135.1m with £7.5m of the fall coming from slashed staff costs. No sooner had Brawn won the opening race of the 2009 season than it made 250 staff redundant with the bulk dropped from the design, manufacturing and engineering departments.
Cutting costs clearly did the trick. Brawn GP's pre-tax profit accelerated from £1.3m in 2008 to £98.7m the following year and the management shared a £20m dividend. Brawn himself owned 54% of the team with 31% in the hands of its chief executive Nick Fry, 8% held by its former finance director Nigel Kerr, 3% by its former lawyer Caroline McGrory and a further 4% in the names of two other directors John Marsden and Gordon Blair. This gave Brawn £10.8m from the dividend with £6.2m going to Fry. The directors then reportedly shared another windfall of £47.9m when 75.1% of the team was sold to Daimler and Abu Dhabi wealth fund Aabar in November last year.
Yet the payouts didn't stop there.
In contrast to the plunging staff bill, the total sum paid to the team's directors in 2009 soared over ten times year-on-year to £8.5m with the highest paid director, presumably Brawn himself, getting £4.8m, up from just £565,000 in 2008. In total, Brawn personally made around £41.5m from the team last year with Fry getting an estimated £21m. But they weren't the only winners.
We have all heard that Jenson Button had to seriously reduce his salary to drive for Brawn GP in 2009 but all is not what is appears.
True, the accounts reveal that "the race drivers were re-engaged on reduced financial terms," however, they add that the team "re-engaged Jenson Button (having agreed compensation to terminate the contract entered into under Honda ownership)." And the cost of this compensation? Well the accounts reveal that the team spent a cool £10m on "the termination of a Formula One driver contract." Its turnover was so strong that it could easily shrug off this cost.
In addition to paying out the dividend the team was able to put £60m in the bank giving it net cash of £64.4m at the end of 2009 compared to net debt of £41.4m the previous year. It surged from having a shareholders' deficit of £5.3m in 2008 to having funds of £93.2m last year. This put it on Daimler and Aabar's radar but it wasn't the only route which the team explored.
The accounts state that "a number of viable options were considered throughout the course of 2009" before the sale was finalised. It is little wonder that Brawn, Fry and co agreed to it. In addition to their bumper payouts, they still hold a stake in the team as the press release trumpeting the deal revealed that Daimler will own 45.1%, 30% will belong to Aabar with "the balancing 24.9% stake remaining with the current owners."
They have certainly had a bumpier ride this year than in 2009, however. Mercedes Grand Prix, as the team is now known, currently lies fourth in the championship with no race victories under its belt. Nico Rosberg has regularly outpaced his team-mate, seven-time world champion Michael Schumacher, who lies three places behind him in the standings.
According to F1's industry monitor Formula Money, Schumacher has cost the team £101,260 for each point that he has scored thus far in 2010, compared to a cost of £12,477 for Rosberg. The team's ownership may have even bigger resources now than in 2009 but its return on investment looks set to reverse.