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Ferrari feedback unearths £445m Red Bull budget error

NEWS STORY
02/12/2013

Last week Ferrari's infamous Horse Whisperer reappeared with a small article that left many scratching their heads in confusion.

The piece was entitled 'Slow on the uptake with summer blunders' and it stated that "when the championship finishes, the moment arrives to take stock. If it's enough in sport to look at the points standings, in business some trust in summer valuations, even if they are carried out under a parasol. For that reason, months later, a reconstruction of the budgets of Formula 1 teams developed by an Autosport colleague has transformed itself into journalistic fact. It's a pity that the cited figures are largely fantasy and they can draw even distinguished newspapers into conclusions that are wildly erroneous."

When Pitpass editor Chris Balfe saw the Horse Whisperer's piece he asked business editor Christian Sylt to see what all the fuss was about. He soon found follow-up reports saying that the Autosport article in question was called 'The true cost of Formula 1' and was published in print and on its website on 31 August. It fits Ferrari's description as the article does indeed contain a reconstruction of F1 team budgets and was written several months ago. It claimed that Ferrari has a budget of £250m including engines and although the Italian manufacturer suggests that this is wrong, it is nothing compared to the error that the article makes about this year's champions Red Bull Racing.

Austrian energy drinks company Red Bull owns two F1 teams and they are run by completely different companies. Italian company Scuderia Toro Rosso SpA runs Toro Rosso whilst its flagship team, Red Bull Racing, is run by two UK companies. The author of the Autosport article has read their financial statements, which have been lodged with the UK authority Companies House, however he does not seem to have understood them.

The first of the two companies is Red Bull Racing (RBR) and its financial statements say that its 'principal activity' is "the management of a Formula One motor racing team." The second company is Red Bull Technology (RBT) which owns 100% of RBR. The financial statements for RBT state that "the principal activity of the group is the design, development and manufacture of Formula One racing cars. The principal activity of its subsidiary is the management of a Formula One motor racing team."

RBT is the highest-level company involved with Red Bull Racing within Red Bull itself. We know this because the financial statements show that 100% of the shares in RBT are owned by Red Bull GmbH which is the actual drinks company.

Crucially, RBT's financial statements clearly state that they "consolidate the financial statements of Red Bull Technology limited and its subsidiary undertaking(s)." This is why the financial statements refer to RBT as "the group."

You don't have to be a financial genius to find the definition of consolidated in a financial context. Even a standard dictionary gives a pretty good indication. For example, the Oxford English Dictionary defines it as to "combine (a number of financial accounts or funds) into a single overall account or set of accounts: (as adjective consolidated)consolidated accounts."

What this means in practice is that the turnover (which is another term for revenue) shown on the consolidated accounts for a company includes that of the subsidiary companies. Accordingly, in simple terms, if company X has turnover of £1m and is owned by company Y, which itself has turnover of £2m, then the consolidated accounts for company Y will show turnover of £3m.

As the turnover shown on RBT's financial statements is consolidated it already includes the turnover of RBR. Adding RBR's turnover to this again would be completely inaccurate as it would be duplicating it. However, this is precisely what is done by Autosport.

The reconstruction of Red Bull Racing's latest budget involves combining the 2011 turnover of RBR and RBT and then adding 10% for good measure. The article states that "Companies House records RBT's 2011 turnover as £215m (declared profits £4m), while RBR registered a bottom line of £640k on £177m spend. Adding 10 per cent for economics (2010/11 turnover increased by double that after RBR withdrew from FOTA/RRA activities) provides a global spend of £445m."

Most worrying of all is that Autosport then draws conclusions about the team's budget from this error. It claims that Red Bull Racing's "actual spend... lies between RBT's turnover and the total, pointing to £250m annually for the overall RBT/RBR F1 operation." Given that this is based on an error it is not surprising that the conclusion too is flawed. As previously stated, RBT is the highest-level company involved with Red Bull Racing within Red Bull itself. Accordingly, it is hard to see how Red Bull Racing's "actual spend" could be higher than that of RBT.

Sylt says that the catalogue of errors in the article did not surprise him. The author is an industrial engineer by training who later moved into journalism and at the same time set up a travel company offering trips to F1 races. Given the complexity of the subject it is no surprise that mistakes are made by writers who don't have a long track record purely writing about the business of F1. The error simply muddies the waters of reporting on the business of the sport and should really have been weeded out by Autosport's group F1 editor Jonathan Noble. Clearly it has gone too far when Ferrari itself has to step in.

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1. Posted by Chris, 05/12/2013 4:24

"The numbers are all in the article. Autosport says that Red Bull Racing's "global spend" is £215 million from company A plus £177 million from company B with the additon of "10 per cent for economics." This "provides a global spend of £445m." The calculation is inaccurate because company A already includes the £177 million from company B so Autosport has doubled it. In fact the global spend is £215 million not £445 million."

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2. Posted by chaz, 02/12/2013 23:50

"As much as you quote Christian Sylt, I feel that his writing is biased, unclear and not well thought out. When talking about numbers, I have never seen a presentation that was all talk and no tables or figures. Please the reader some even half-baked tables or figures to get your point across, it would be most helpful. Sorry I have a hard time believing any reported F1 financial dealings or the explanations written."

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3. Posted by GoodPublicity, 02/12/2013 15:30

"Autosport.com should stick to republishing news releases, which seems to be the limit of its competence."

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4. Posted by Jamie, 02/12/2013 13:04

"Again, really like this site and the business articles and I always look forward to reading them, but over the past few months I get the feeling the aim of any story is to discredit any other journalist who dares write about F1 business (Joe Saward/Dieter Rencken), or any publication that no longer employs Christian Sylt on a freelance basis. It does just become a bit embarassing and makes Pitpass come across as very bitter. As readers of the site we come here for the facts, and we get them for free and with a level of detail no newspaper will ever have the space to give so we are spoilt, but you are spoiling your reputation with the non-too subtle digs at fellow professionals. "

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