The budget cap is now part of the furniture in Formula One having been introduced in the 2021 season.
At the time, finances in the series were spiralling out of control and no one could compete with the spending power of the big teams, with reports estimating that the likes of Mercedes and Ferrari were spending in excess of US$200 million per season prior to the limit.
You only need to go back as far as 2019 to find the last time a team went out of business in Formula One, emphasising how some outfits were spending beyond their means in an effort to keep up. The Force India team would have disappeared if not for investment from Canadian businessman Lawrence Stroll, eventually creating the Aston Martin outfit as it is known today.
Finances have since been hit by the Covid pandemic, which needs to be taken into consideration when analysing the status of each team’s finances. Even so, a clearer picture of the wider impact of the budget cap is now developing, especially in light of the recent 2023 financial results released by the teams.
With the Ferrari, RB and Sauber teams all based outside of the UK, this won’t be a complete picture, but the figures from Companies House will give an indication of the direction of the majority of the grid.
So, how healthy are the finances of the Formula One teams after three years of the budget cap?
The teams
Alpine
This season has been nothing short of a disaster for the Enstone-based team, which currently sits ninth in the constructors’ standings, meaning things may get worse before they get better.
The team’s most recent results offer a sign of the downward trajectory, as profits fell 70 per cent year-over-year (YoY) to UK£7.8 million (US$10.4 million). This was the highest percentage decrease across the seven teams’ profits.
While prize money rose 8.5 per cent thanks to good on-track performances during the 2022 season, the downturn in results in 2023 meant that revenue from sponsorship and merchandising fell seven per cent. The Enstone-based team did manage to secure new partnerships with Qatar Airways, Xbox, Amazon Music, and MNTN.
Alpine also welcomed investment from Forest Intermediate Holdings, which consists of Otro Capital, RedBird Capital Partners, and Maximum Effort Investments. The group purchased a 24 per cent stake in the Renault Group-owned marque, and the financial impact of this will likely be felt in the future.
The team’s financial results also state that Formula One remains ‘pivotal’ to the Renault Group and that the Alpine brand is ‘synonymous with motorsport across multiple racing disciplines’, which should allay fears of the company looking to sell anytime soon.
Aston Martin
Since Lawrence Stroll stepped in to save the team, there’s been strong investment to ensure Aston Martin are heading in the right direction. 2023 saw a minority investment from Arctos Partners, which valued the outfit at UK£1 billion (US$1.3 billion), underlining the positive progression.
Bear in mind that the Canadian billionaire purchased the former Force India team for UK£90 million (US$114 million) in 2018 and it’s clear that growth has been rapid. Part of that will be down to the progress made by Formula One under the ownership of Liberty Media, which in turn has driven team valuations, but turnover at Aston Martin specifically has increased exponentially from UK£18.1 million (US$23.5 million) in 2020 to UK£244.6 million (US$317.5 million) in 2023.
However, the substantial investment in the team’s wider infrastructure has seen Aston Martin fail to make a profit in the last four years, falling as far as a UK£52.9 million (US$68.7 million) loss in 2022.
The team’s new headquarters cost around UK£200 million (US$262 million) to construct, so the benefits of this investment will likely come down the line. Plus, with legendary designer Adrian Newey on board from 2025, alongside full factory support from Honda in 2026, Aston Martin will be optimistic that their on-track performances are likely to improve and, therefore, the team’s overall prize money should increase.
Commercially, the team didn’t have the best year in 2023, but the season was headlined by new agreements with Saudia and Valvoline. The outfit also downgraded its partnership with Cognizant to give more focus to Aramco.
Haas
The US-based team has always operated within its means and, with one of the smallest budgets in Formula One, stands to benefit the most from the introduction of a spending limit.
The outfit’s approach relies on its technical partnerships with Ferrari and Dallara, who supply the majority of the team’s parts, which is why its administrative expenses of UK£105.5 million (US$136.9 million) are so high compared to its cost of sales, which stand at UK£12.6 million (US$16.4 million).
Razor-thin margins are the name of the game for Haas, though. After all, this is the only Formula One team out of the seven analysed here that kept its YoY percentage changes across turnover, cost of sales, administrative expenses and profit to single digits.
Finishing eighth in 2022 meant Haas did not receive the lowest possible prize money, although that will be the case in the next set of financial accounts after finishing in last place in 2023.
Commercially, the team found the year fruitful, having agreed deals with MGM Resorts International, Play’n Go, TravisMathew, Oakberry, New Era, Chipotle Mexican Grill, and Hantec Markets. Most notably, Haas agreed a US$20 million-per-season title sponsorship with MoneyGram.
With the poor results from the 2023 season alongside the legal issues with ex-title sponsor Uralkali and ex-team principal Günther Steiner in 2024, next year’s financial results may be tough reading for the team.
McLaren
The papaya-liveried team has been resurgent on the track, and its 2023 financial accounts reflect an improvement that now sees it top of the constructors’ championship with five races remaining this season.
Even before this upturn in form, the commercial success of McLaren has been undeniable. In 2023, the team had an impressive 48 brands on board, contributing to a successful year.
McLaren posted a staggering UK£57.8 million (US$75 million) loss in 2022, so turning this into a UK£12.9 million (US$16.7 million) profit just a year later is impressive. Turnover increased by over UK£100 million (US$134 million) to help the outfit transition from the red to the black.
The Woking-based outfit was the only team of those analysed to record percentage increases across turnover, cost of sales, administrative expenses and profit, again emphasising its upward trajectory.
However, it needs to be noted that these are the financial records for the wider McLaren Racing family. While the Formula One entry will be a large contributor to this success, the company’s efforts in IndyCar, Formula E, and Extreme E have also been included.
Mercedes
If McLaren are the most commercially active team in Formula One, then Mercedes are the most commercially successful. Ferrari may have a case of their own for that title, but the famous team does benefit from a substantial legacy payment from the series itself every season.
Mercedes, meanwhile, saw turnover soar over half a billion pounds in 2023, making them the only team to achieve this feat. In total, turnover reached UK£546.4 million (US$682.2 million) in 2023, a 15 per cent YoY increase.
Profit may have fallen by UK£6 million (US$7.5 million) in 2023, but it still stands at an impressive UK£83.8 million (US$104.6 million) for the year, which is far and away the biggest number among these Formula One teams, as McLaren were the only other outfit to hit double figures.
Commercially, the Brackley-based outfit secured notable deals with WhatsApp and Qualcomm, while there was also a partnership announced with SAP that explicitly targeted maximising efficiencies within the budget cap.
The team is also able to count on its position as an engine supplier for three teams – Aston Martin, McLaren, and Williams – to bring in substantial revenue.
Red Bull
The sport’s most successful team at the moment has once again seen its on-track success fail to translate to financial gains, with marginal profits recorded for the last four years.
Profits actually fell 37 per cent YoY for the Milton Keynes-based team, dropping to just UK£1.3 million (US$1.7 million) in 2023. Still, this is a team that is investing heavily in becoming a full manufacturer in time for 2026, which is unprecedented for a company that sells energy drinks rather than cars.
On the flip side, Red Bull are receiving the most prize money of anyone thanks to finishing first in the constructors’ championship, so these slight margins could be threatened by a downturn in form, which it has been experiencing in the 2024 season.
2023 also didn’t appear to be the most commercially successful year for the team, which secured an extension with Tag Heuer and a new deal with Bacardi, but lost its crypto sponsorship with Tezos.
Red Bull was also the last of the ten Formula One teams to secure the top level of environmental accreditation from the International Automobile Federation (FIA) in 2023, which may explain the considerable lack of emissions reporting that the team has done in its financial accounts in recent years.
Williams
2023 was a sobering year for the Grove-based outfit as losses spiralled 344 per cent to UK£80.3 million (US$104.3 million).
Despite their alarming financial performance, Williams have claimed that their results fell in line with expectations, given that the team has undertaken significant investment in all areas of the business to drive both on-track performances and commercial growth.
Revenue was also hit by the team finishing bottom of the constructors’ championship in 2022, meaning it received less prize money.
Commercially, the team has started heading in the right direction, with sponsorship deals agreed with the likes of Gulf Oil, Globant, MyProtein, Stephens, Michelob Ultra and Kraken. However, the full impact of those agreements will only be reflected in future financial reports.
The team will hope that the investments it has made will start to bring results as it won’t be able to stomach heavy losses over a prolonged period of time. At the very least, revenue should improve on the back of a seventh-placed finish in the 2023 standings.
Has the budget cap worked?
It’s definitely a stretch to say every team has become a money-making machine since the move, but there appears to be far less uncertainty now.
Moreover, the budget cap is allowing the smaller teams to compete with the established manufacturers that have historically dominated the sport. The two outfits to record losses in 2023 – Aston Martin and Williams – have invested substantially in their infrastructure in an effort to level the playing field.
Clearly, the budget cap is providing teams with the security to plan ahead and make long-term investments. It’s also made private equity firms sit up and take notice of potential gains to be made within the sport.
It will be interesting to see what the financial landscape looks like after five years of the budget cap and whether all the UK-based teams are making steady profits.
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