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The cost of winning the World Championship

NEWS STORY
03/03/2008

Renault, more than any other F1 team, knows how to make the most of its victories. Its roadshow travels the world trumpeting the team and its advertisements bearing the winning car have appeared in the global media as well as well over 10,000 dealerships worldwide. However, last year's fall from grace made it tougher to promote Renault as being a peak performance team and now its robust financial reputation has also taken a beating.

In its financial statements for the past two years, Renault has had healthy profits. In 2004 its pre-tax profit was 1.9 million and the following year it made 1.5 million. However, in today's Daily Telegraph, Pitpass contributors Christian Sylt and Caroline Reid report that the team's fortunes hit the wall in 2006 making a pre-tax loss of 3.6 million. Winning the World Championship the previous year increased its turnover 10% to 132 million through increased sponsorship but its costs accelerated even higher.

Renault reaped a prize of around 15.7 million for winning the world championship in 2005 and added three new sponsors to its tally the following year. Existing sponsors got increased exposure from the victory and paid bonuses on top of their huge annual fees. Japan Tobacco was paying Renault an estimated 33 million for title sponsorship of the team and was followed by oil company Elf, which was giving it 10 million per year for prominent logos on the nose and sides of the car.

But the costs of competing in F1 are enormous. Renault spent 134 million in 2006 with payment of its 526 staff comprising over a quarter of this. Its flamboyant boss Flavio Briatore is thought to be the highest paid director receiving a salary of 875,000.

World champion driver Fernando Alonso was Renault's highest-paid employee and his salary was estimated to be 6 million. Winning eight races is likely to have put an even bigger burden on Renault's balance sheet since the drivers are also believed to get performance-related bonuses.

The team's biggest cost is that of producing the 80 2.4 litre V8 F1 engines every season but this is covered by its ultimate owner, the Renault Group SA. This investment is not shown on the team's accounts because the directors don't believe it is possible to provide a reliable estimate of their cost. However, F1's financial monitor Formula Money estimates that Renault spent around 88 million on the team in 2006.

Renault's costs are likely to increase this year since the team has lured back Alonso after he spent last year driving for McLaren, narrowly missing out on winning a third World Championship. "Too many people are emotional about Formula One, but you have to be able to make business decisions with a clear head," said Briatore in 2006 adding, "like all businesses, I have to show a profit."

It may be some time before he can do that again at Renault.

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