11/11/2014
NEWS STORY
Red Bull Racing has no chance of winning either Formula One championship this year but one title it has already taken in 2014 is that of being the sport's biggest-ever spenders according to an article in the Independent by Christian Sylt.
The latest accounts for the Milton Keynes-based team show that in the year-ending 31 December 2013 it spent a record £196m. As the bulk of the development work for its current cars was done last year this reveals the team's budget for 2014.
Despite spending a blockbuster amount, Red Bull Racing's performance this year actually reversed. It lies second in the standings and has failed to score a fifth consecutive championship.
The team's budget stands in stark contrast to that of F1's backmarkers which spend well under half of the amount that it does. On Friday Marussia closed its doors after scoring just two points this year. Caterham, F1's worst-performer, spent £42m on last year's campaign and is trying to raise a further £2.4m through crowd-funding after the team went into administration in October. Since then a war has waged in F1 about the difference between the budgets of the frontrunners and those at the back of the grid.
The catalyst of the crisis is F1's high-octane costs and inequitable distribution of prize money which favours leading teams like Red Bull.
Its 2014 budget was up by £20m and although F1 has repeatedly attempted to cut costs, the accounts show that the team's spending has surged by a staggering £64m over the past five years.
Its income hit £197m in 2013 and comes from three main sources: sponsorship, prize money and payments from its owner, the energy drinks company Red Bull. The first two sources accelerated last year meaning that Red Bull itself could reduce the amount it poured into the team by £54m to £13m.
The boost to the team's fortunes is largely thanks to new prize money terms which were introduced in 2013. The basic pot is a share of 47.5% of F1's profits which is divided into two with one half split equally between the top ten teams and the other paid to them in a sliding scale depending on their position in the Constructors' Championship.
Red Bull Racing also gets a share of a bonus prize fund of at least £60m and the criteria for payment is that Red Bull itself, rather than the team, had to sign a contract committing to stay in F1 until the end of 2020. By signing the contract directly Red Bull could be sued for breach of contract if it pulled out of F1 before the end of the decade. In contrast, a team that signs the contract can simply be shut down if its owners want to pull out of F1 as it leaves no recourse against them.
The drinks company's direct support is revealed in the accounts which state that “Red Bull is committed to participating in Formula One for the foreseeable future having agreed terms with the commercial rights holder to sign up to a new Concorde Agreement to 2020.” It is rewarded accordingly as the £60m bonus prize fund is split between Red Bull Racing as well as Ferrari and McLaren which also directly sign the F1 contract. They are the top three teams based on races won in the four seasons prior to 2012 and as Red Bull Racing leads this group it gets at least £23m of the bonus fund.
It has fuelled Red Bull Racing's success. Last year, its biggest single cost was research and development spending which came to £83m and was up 10% on 2012. Staff numbers also rose by 17 giving a total of 675. Total staff pay came to £62m with the highest-paid director, believed to be team principal Christian Horner, getting £2.4m.
Red Bull Racing's performance has dipped this year due to the switch from 2.4-litre V8 engines to more environmentally-friendly 1.6-litre turbocharged V6s. The team's outlook is even cloudier as next year it will lose four-time champion Sebastian Vettel to arch rival Ferrari.
F1 teams are in particular financial trouble because, unlike most businesses, profit is not their hallmark of success. Instead, their benchmark is winning races which increases their prize money and raises the value of the team. They tend to spend almost all of the money they receive in a bid for victory which leaves them with low profits and little savings to rely on if sponsorship or prize money falls.
Testimony to this, Red Bull Racing made a net profit of £1m in 2013 and finished the year with just £187,000 of cash in the bank. With the support of Red Bull behind it, the team doesn't need to do any better.