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The Business of F1

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INDEPENDENT PUBLICATION BY 20 / 03 / 2016 #0366 raconteur.net qualify your CV in pole position for the latest engineering vacancies www.randstad.co.uk/engineers Brands that partner with F1 teams pay big bucks and get different types of bang for their money Businesses in the UK can learn valuable lessons from the management of top motorsport Sir Jackie Stewart, the three-times champion who founded an F1 team, shares his views on the sport FORMULA 1 HAS A HISTORY OF ACCELERATING RETURNS TWO-WAY TRAFFIC WITH PARTNERSHIP DE ALS F1 CAN SHOW BUSINESS SOME TWISTS AND TURNS WISE WORDS FROM A FORMER CHAMPION F1 is often seen as more of a business than a sport – with big money at stake 03 05 06 08 THE BUSINESS OF F1 Formula 1 revenue races to new record As the cars line up for the start of the 2016 Formula 1 season at today's Australian Grand Prix in Melbourne, F1 is accelerating towards future growth, despite controversy on and off the track F ormula 1 seems to thrive on con- troversy. Just weeks before the start of the 2016 season it was unclear what format qualifying would take and new regulations for 2017 were being tested in the face of complaints from competitors. But whatever happens on the track, the sport's parent company is heading in the right direction of profit – not loss. The latest accounts available, for the year ending December 31, 2014, show F1's parent, Jersey-based company Delta Topco, made operating profits of $519.8 million on reve - nue which accelerated 3.2 per cent to a record $1.8 billion. There are several tricks under its bonnet which have fuelled this growth despite a stagnating economy. F1 doesn't own any tracks or teams so its costs are kept under tight control. The com - pany only has around 352 staff and its biggest single cost is a pay- ment of 63 per cent of its gross profits to the teams as prize money. Over the five years to 2014 the prize money payment rose by 31 per cent to $863.1 mil - lion due to a boom in interest in F1. It is a staggering sum, but as it is a profit share, it mitigates risk for Topco. That's not all. Only 10 to 20 per cent of Topco's con - tracts need to be renewed annually as they have an average length of around five years. To insulate against inflation, the key contracts also contain an escalator clause which increases the amount paid by 10 per cent annually. This makes F1 very different to other sports companies and teams as its performance is not related to the events on track. It gives it a stable outlook and has driven Topco's valua - tion to $8.6 billion, according to figures from minority shareholder Ferrari. The Italian motor marque listed on the New York Stock Exchange in October and this led to an increased level of financial disclosure for the company. Its main in - volvement in F1 is through its famous racing team which features former cham- pions Sebastian Vettel and Kimi Räikkö- nen as its drivers. However, Ferrari also has options on a 0.25 per cent stake in Topco and has had to release a valuation of it under its IPO obligations. It shows that between December 31, 2014 and September 30, 2015 the valuation of the options increased 1.7 per cent to $12 million giving Topco an equity value of $4.8 billion. The company had around $4 billion of debt last year with at least $200 million in cash in the bank giving a net of $3.8 billion. Added to the equity this gives Topco an enterprise value of around $8.6 billion. It surprised many in F1 with one sports writer wrongly sug - gesting the value is inflated and claim- ing that "the price is clearly too high". This overlooked the fact it is based on an independent valuation from Ferrari, which is required by the stock ex - change, so it is far from inflated. F1's fortunes have actually been boost- ed by a steady stream of new races. Russia and Austria joined in 2014, while Mexico returned after a 23-year break in 2015 and Azerbaijan is the new entry for 2016. It is part of a savvy strategy from F1 chief ex - ecutive Bernie Ecclestone who has taken the sport and its 425 million television viewers to emerging markets where it is used to drive tourism. The limited number of slots on the F1 calendar has fuelled a bidding war in the amount countries are prepared to spend to get a race with the highest hosting fees rising to more than $60 million annually. F1 chief executive Bernie Ecclestone has taken the sport and its 425 million television viewers to emerging markets where it is used to drive tourism Together, fees from race hosting and broadcasting amount to $1.2 billion of F1's total revenue with a further $161 million coming from TV production, as well as travel and freight services to the sport's ten teams. Revenue from the sa le of tickets to F1's corporate hospita lity outf it the Paddock Club grew 4.9 per cent to $110.9 million last year. It attracts some of the world's wea lthiest high rollers with recent g uests including Michael Douglas, f ilm-ma ker George Lucas and Mexican billionaire Carlos Slim. Growth last year was driven by increased corporate demand at the new races. The Russian Grand Prix was particularly well attended with President Vladimir Putin watching the race. Corporate hospitality revenue increased by $5.2 million to $89.2 million. F1's chief fi - nancial officer Duncan Llowarch says it was "largely driven by the effect of 2014's calen- dar changes, with results from new races in Austria and Russia outperforming results from non-recurring prior-year events in Korea and India". Advertising and sponsorship received a similar boost. F1's portfolio of partners in - cludes luxury watchmaker Rolex and the Emirates airline which get benefits such as hoardings at the tracks and the right to use the sport's logo in advertisements. Al - though F1 lost technology partner LG last year, it more than made up for it, according to Mr Llowarch. "W hile t he preva iling econom ic con - dit ions cont inued to resu lt in a diff icu lt env ironment for adver t ising a nd spon- sorship sa les dur ing 2014, t he compa ny wa s successf u l in renew ing one sig nif i- ca nt cont ract on improved ter ms which, a long w it h a nnua l uplif t s in ot her con- t ract s a nd t he sa le of a sma ll number of addit iona l adver t ising packa ges, more t ha n offset t he loss of one mater ia l ad- ver t ising pa r t ner. T hese a r ra ngement s a llowed t he compa ny to repor t adver t is- ing a nd sponsorship revenue of $2 5 4.4 m illion in 2014, which wa s $1 3 m illion (5 per cent) hig her t ha n t he pr ior yea r," he says. The power under F1's bonnet has boosted its revenue by around 80 per cent over the past decade and, with long-term contracts in place, there is no suggestion it is slowing down. No doubt the naysayers won't slow down either, but they're unlikely to cause F1 to crash. Although this publication is funded through advertising and sponsorship, all editorial is without bias and spon- sored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0)20 8616 7400 or e-mail info@raconteur.net Raconteur is a leading publisher of special-interest content and research. Its publications and articles cover a wide range of topics, including business, finance, sustainability, healthcare, lifestyle and technology. Raconteur special reports are published exclusively in The Times and The Sunday Times as well as online at raconteur.net The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be repro- duced without the prior consent of the Publisher. © Raconteur Media JOE DIAMOND Motoring journalist for Dennis Publica- tions, he also writes for online motor- sport publications Rumble Strip News and Badger GP. CHRISTIAN SYLT Specialist writer and broadcaster on the business of Formula 1, he contributes to The Daily Telegraph, The Independ- ent, The Guardian and The Wall Street Journal. LUCY MORSON Motor racing specialist, she contributes to Autosport magazine and Inside Line Media. CHARLES ORTON-JONES Award-winning journalist, he was editor-at-large of LondonlovesBusi- ness.com and editor of EuroBusiness. CAROLINE REID Co-founder of F1's trade guide Formula Money, she was staff writer on the first official F1 Magazine and contributes to Racer and ESPN F1. Share this article online via raconteur.net DISTRIBUTED IN BUSINESS CULTURE FINANCE HEALTHCARE LIFEST YLE SUSTAINABILIT Y TECHNOLOGY INFOGRAPHICS http://raconteur.net/business-of-f1-2016 RACONTEUR PUBLISHING MANAGER Richard Hadler DIGITAL CONTENT MANAGER Sarah Allidina HEAD OF PRODUCTION Natalia Rosek DESIGN Samuele Motta Grant Chapman Kellie Jerrard PRODUCTION EDITOR Benjamin Chiou MANAGING EDITOR Peter Archer CONTRIBUTORS FORMULA 1 CONSTRUCTOR VICTORIES Source: Formula 1 OVERVIEW CHRISTIAN SYLT The power under F1's bonnet has boosted its revenue by around 80 per cent over the past decade Ferrari Williams McLaren Red Bull Racing Mercedes Sauber Renault Force India Toro Rosso Haas Manor Racing PODIUM FINISHES CONSTRUCTOR TITLES 16 9 8 4 2 521 240 391 85 51 26 20 3 1 TEAMS COMPETING IN THE 2016 SEASON SAM HALL Sports journalist, he writes for pub- lications including Rumble Strip News, RichlandF1 and L&T Motorsport. KATE HEWITT Specialist writer on F1's feeder cham- pionship GP2, she writes for Rumble Strip News focusing on the junior motor- sport series.

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