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Red Bull wins F1 spending race with record costs of 200m

NEWS STORY
11/11/2014

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.

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READERS COMMENTS

 

1. Posted by ape, 05/12/2014 15:15

"Hmm there were some signs lately that the nice Bull is changing into a Bully."

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2. Posted by Spindoctor, 12/11/2014 13:12

"In a sense, the specific annual numbers are irrelevant. If RBR has "only" spent 200 million (is that total, or net of its money from CVC?) it doesn't help the "minnows" one bit. McLaren, Ferrari & Williams are also spending very large amounts to finish (a diminishing) 1/2 a second a lap behind Mercedes. Success in any season isn't directly proportional to expenditure, but regular failure is most certainly inversely proportional to cash expended.

If a new team could afford to put (say) 175m p.a. into building a team for (say) 5 years, and in the process poach a lot of the best talent, they might be able to compete with the big boys. Of course that figure doesn't include finding premises purchasing a sophisticated IT infrastructure, and building a state-of-the-art wind-tunnel, which would all be front-end-loaded into the costs.... Buying a "failed" team would help, but not necessarily that much.

In today's F1 the "small" teams are just placeholders, or "vanity projects" making up the numbers and to some extent subsidising the big boys by buying their technology. If you were a potential entrant into F1 surely all this would give pause?"

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3. Posted by bfairey, 11/11/2014 22:31

"No mention made of Ferrari's under the table payment."

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4. Posted by Peter Rickitt, 11/11/2014 18:03

"Red Bull (aka Dieter Mateschitz) has clearly taken the BUSINESS decision that its involvement in F1 adds to its brand's standing even at their high cost - and they are clearly correct. One should not criticise that; what they can be criticised for is their (aka Christian Horner) disingenuous promotion of changing the engine regulations because they have been left standing on the sidelines - a 'bad-loser' mentality (mirrored by Vettel) that stupidly denigrates the very brand that pays the team's bills.
It also mirrors the increasingly disingenuous behaviour of Mr. Ecclestone that is affecting the F1 brand, about which venture-capitalist CVC as owner must be concerned, especially when encashment of its investment must be high on its agenda. When selling any investment, something has to be seen to be 'left in the pot' for the next guy to see as an opportunity for profit - with all the current wrangling, Mr. Mackintosh of CVC must be 'unclear' as to a way forward for CVC: he needs constructive ideas from fans, not criticism for doing his job as a venture-capitalist for the investors in his funds, because he can clearly not trust the sport's other stakeholders.
Finally, some advice to the board of Daimler-Benz:
- you have demonstrated your engineering skill;
- your competitors want to change the rules, even to the Ecclestone/Horner point of going back to V8s;
- further opportunity for advancing technology that is useful for road vehicles may thus be limited;
- historically, you have always come in, blitzed the opposition and then got out at the top; and
- so why change the habit that has served you so well in the past ?

What then, Mr. Ecclestone ?"

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5. Posted by Chris SA, 11/11/2014 12:42

"What you are forgetting is what it cost Red Bull to get to this position. They needed deep pockets when they purchased the team, now that they have become successful they are managing the racing company very well. Can they spend more, absolutely, but wont until they need too. Management of the finances is critical, they have done that very well."

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6. Posted by MrShadow, 11/11/2014 12:38

"Of all money going to the teams, half is divided equally and the other half is based on how well they perform.
Apart from that those committed in long term get extra money.
It does not seem unfair to reward those performing better, even if society seems to want to do the opposite.
As for budgets just take a look at the Premier Leage and you will find there is nothing that high about them."

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7. Posted by kiwi2wheels, 11/11/2014 11:07

"The other side of the argument is that they had to spend $$$$$$$$$$ to become successful in the first place.

It is all about smart business practice and spending money in the most expedient manner to achieve success.

Jaguar was hardly a front running team when it was taken over................."

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8. Posted by auto56489, 11/11/2014 10:30

"So, the way I read it is that Redbull only spend 13M out of their pocket??
Talking about false competition! What a joke indeed!!"

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9. Posted by Jonno, 11/11/2014 9:10

"What a joke. Red Bull can afford to spend 200m because that's what Bernie gives them and if necessary, they can dip into the massive wallet of Dietrich Mateschitz for some pocket money.

It's time F1 stopped the secrecy and paid the teams by results, after all teams are given equal expenses to compete for a year. All of the prize money should be laid out for everyone to see. If any other sport was run in the same way, it would be regarded as corrupt.
"

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