10/06/2011
NEWS STORY
On hearing Ferrari president Luca di Montezemolo's recent comments that the F1 teams may "create our own company, like the NBA to run the races, the television rights," anyone would think they were being short changed. When the teams' current contract to race in F1 expires at the end of next year they reportedly want to increase their share of the sport's profits from the current 50% to around 70%. However, in light of new research one wonders whether this is really necessary.
The data is based on the latest edition of F1's trade guideFormula Money, which is compiled by Pitpass' business editor Chris Sylt, and it shows that if the teams' share stays at 50% they will get total prize money of $1.8bn by 2017 (see table below). Given that the teams received a total of $658m last year this is a huge increase and it is thanks to F1's accelerating revenues.
The projections show that by 2017 the total amount of money made by F1's commercial rights (from broadcasting and circuit fees, trackside advertising, corporate hospitality etc) will reach $3.7bn - more than double last year's $1.6bn revenue. There is good reason for this.
The projections are based on a uniform 12.7% annual growth rate which is pretty conservative as it is the average achieved over the past five years. In reality, F1's revenue is set to explode exponentially over the next few years as new races are added to the calendar. The addition of new races does not bring with it an increase in costs anywhere near equivalent to the percentage of revenue gained. The running costs of F1 remain relatively static except one and this is its biggest - the prize money payment to the teams.
According to Formula Money's data, the teams' share of prize money has tripled over the past five years since it was just $215.7m in 2006. This boost came as a result of F1's rising revenue as well as a new deal, signed in 2006, which doubled the teams' share.
Formula Money's projections show that in five years time the total team prize fund will come to $1.6bn, with the winner of the constructors' championship taking home a $222m reward. This amount is bigger than the entire annual budget of seven of the current 12 teams and compares to the $87m that Red Bull Racing received for winning the championship in 2010.
This could mean that prize money overtakes sponsorship as the biggest source of revenue for F1's teams. However, whilst the teams' revenue will skyrocket, it is far from a foregone conclusion that their profit will increase by a similar degree.
F1's boss Bernie Ecclestone has said that the teams will not get an increase in their share of prize money and, as Pitpass reported, he added that if the negotiations delay their signing a new contract to race in F1 they may have to pay for the privilege of doing so. It could be a costly gamble for the teams and it will be interesting to see whether they will opt for the bird in the hand rather than two in the bush.
| 2010 | 1,587 |
| 2011 | 1,789 |
| 2012 | 2,016 |
| 2013 | 2,272 |
| 2104 | 2,561 |
| 2015 | 2,886 |
| 2016 | 3,253 |
| 2017 | 3,666 |
Source: Formula Money