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F1's profits reverse by £80m due to new deal with teams

NEWS STORY
23/04/2014

Formula One's profits fell by £81.2m to £169.9m last year driven by a new deal with the 11 teams according to an article in the Daily Telegraph by Christian Sylt.

In the year to 31 December 2013 the teams' prize money increased 6.1% to a record £473.8m making it the single biggest cost for F1's Luxembourg-based parent company Delta 2.

It calls into question the claim, which has long been advocated by some teams, that F1's controlling shareholder, the private equity firm CVC, gets an unfairly-high share of the spoils. In fact it is the latest in a series of revelations which has cast doubt over the validity of this claim.

The first was in analysis in the CityAM newspaper, and reported in detail by Pitpass, which revealed that CVC only takes home 8.4% of F1's annual revenue compared to 44% to the teams.

Next, came analysis in Forbes magazine () showing that since CVC acquired F1 in 2006 the teams have been paid a total of £2.2bn ($3.7bn) in prize money which is nearly as much as the £2.4bn ($4bn) that CVC has received from dividends and the sale of stakes in F1. If the dividends and share sales of the teams over the same period was included in their total it would far eclipse the amount that CVC has made from F1.

Now we find out that their prize money has increased to such a high amount that it has contributed to F1's profits reversing by £81.2m. Yet still some of the teams complain that they are not getting enough money from F1.

Last year Pitpass revealed that the teams' prize money had accelerated nearly 400% over the previous five years and F1's boss Bernie Ecclestone quipped that they "have all got more money than God." It is no exaggeration.

F1 fans can be excused for not feeling sympathetic towards teams which say they aren't getting enough. It really makes you wonder why they say they need more. In fact, there is a good reason for it.

For most businesses, the yardstick of success is profit but not F1 teams. They tend to break even, or sometimes make a loss, as they spend all of the money they receive in a bid to win on track. This leaves them with very little profit and little money in the bank to tide them over if there is a dip in their performance which in turn reduces their prize money and sponsorship. The only solutions available are to get into debt, to get money from their owners or to demand more money from F1. If their performance does not pick up then the first two solutions eventually lead to the team going under whilst the latter is not guaranteed to come off.

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