Running on empty?

Defending the crown: all eyes are on Alonso, who could well bag another F1 win in Bahrain, this time for McLaren Mercedes.

It was a strange scene. In front of the BAR-Honda motor home at the Monaco Grand Prix, superstar P Diddy and supermodel Naomi Campbell were posing for the paparazzi. Moments later they were joined by Robert De Niro. It was typical of Formula One - fast cars, fast cash and first class celebrities, a cocktail that always ensures the sport is at the pinnacle of the glamour world.

But behind the motor home, things were getting a little heated, as team owner Craig Pollock did some more sums on the back of a packet of Lucky Stripe cigarettes. "It still doesn't add up. We need some money fast, very fast," he said.

That was six years ago. Pollock has since lost control of the team he built from scratch, and seen none of the US$20m he invested in the sport come back to him. Like almost all the 11 teams preparing to line up on the starting grid at the Bahrain International Circuit next Sunday, sponsors have changed, budgets have rocketed and profits have disappeared. It may be the sport every single company and individual desperately wants to be associated with, but the burning question remains: Can you actually make a single dollar out of Formula One?

That depends who you are in the sport. Earlier this year, Forbes magazine placed the sport's supremo Bernie Ecclestone on their billionaires list, with a personal fortune of US$3.6bn. Most experts would put him closer to the US$5bn mark. Either way, no one disagrees that the man who single-handedly changed the shape of the sport has done extremely well for himself. Last year he sold off the remaining 25% stake he held in Formula One Management (FOM, the company that controls the sport) to CVC Capital Partners, but still remains in managerial control.

But while Ecclestone carries on counting his cash, the rewards don't seem quite as lucrative for the teams. In 1995, Ecclestone wrestled control of the sports television rights in a 15-year deal that effectively gave him all the income - and it was then up to FOM to distribute different shares of that cash to F1 teams.

So just how do teams make any money? Currently, they each pick up around US$20m a year from television rights and prize money. The biggest income is by far sponsorship cash, which averages at around US$120m a year. Last year the 11 teams on the starting grid between them raked in US$664m in sponsorship. Throw in another US$5m from merchandising, and up to US$25m from trade supplies and engine sales, and middle ranking teams can expect to pull in US$170m a year.

Sounds good? It should be, were it not for the astronomical costs of running a team. The biggest costs are often salaries associated with a 400-strong workforce, which can often include over US$10m a year on drivers. Most teams budget to spend US$55m on salaries alone - with a further US$25m going on travel, catering and hospitality.

"We are talking big money before you even build your first car," says McLaren Racing's managing director, Jonathan Neale.

He adds: "At McLaren, if you take into account just the number of flights and hotels we book each year, all around the world for a very large number of people, we are talking about millions and millions of dollars."

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READERS' COMMENTS

Formula 1 Geared towards Pomp, not Profit
Posted by Chris J, Denver, USA on Sunday 8 April 2007 at 17:50 UAE time


Formula 1 is designed as a typical "European" sport. It is meant as a show for the wealthy and priveleged who clap respectfully with gloved hands. The prestige plays well in the Arab world, but unfortunately, the sport was never built to be profitable. 
 
Enter US-styled racing. NASCAR has the highest profitability of any racing sport in the world. The tickets are cheap, average people go see the races, and sponsors love it. If Bahrain would have spent its Formula 1 circuit money on 3 oval tracks (and other snooty royals did the same), it could have had races going every weekend, with average Bahrainis attending and racing. They could have built a successful enterprise from the ground up. 
 
But it's not about the people is it. It's not about the profit. It's about the "pomp" and for that Arab and European sport suffers.

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