Who'd buy an F1 team?

Toro Rosso is up for sale, but buying a piece of the F1 action requires far more than just money. Still, there are rewards to be had 

By David Tremayne

F1 team for sale: it’s not exactly a new phenomenon. In these expensive days of Formula 1, teams tend to change hands quite frequently. At the beginning of 2005, Jaguar had become Red Bull; at the end of that season, BMW bought into Peter Sauber’s eponymous equipe; Honda bought out BAR’s interest in BAR Honda; Red Bull boss Dietrich Mateschitz bought Minardi from Paul Stoddart and created Toro Rosso; and Jordan prepared to metamorphose into Midland after its purchase at the end of 2004 by Russian steel magnate Alex Schnaider. Since then, Midland has segued through Spyker into Force India.

You know what they say about the best way to make a small fortune in F1: start with a large one. These are tough times for the smaller equipes, and even for some of the larger outfits. The last all-new team was Toyota in 2002, and it spends $400 million annually just to finish fourth or sixth every so often.

So, as Toro Rosso has gone onto the market, the first question has to be – why would you bother? Why would you want your very own F1 team, when the annual running cost even of trailing round at the back is upwards of $30m?

For some, ego is a sufficient answer, or else the genuine passion that Stoddart always had together with the wherewithal to indulge it. But there are some more practical answers, too.

Consider this, for example: Deloitte’s Sports Business Group recently published details of a survey into profits in sports which concluded that F1 is the highest revenue generator, with 2007’s 18 Grands Prix each producing an average revenue of $217m. That compares with the US’s NFL, which generates only $24m per game, and the UK’s Premier League, which produces a meagre $8m per event. Based on overall income F1 ranks third behind the NFL and Major League Baseball, but ahead of the Premier League. The revenues comprise the central revenues (from broadcasting, race sponsorship and corporate hospitality), team revenues (including sponsorship and contributions from commercial partners and owners) and circuit revenues (from ticketing and certain sponsorships).

“Global revenues of more than $3.9 billion and total viewing figures in excess of 350 million for the 2007 season make impressive reading,” says Alan Switzer, Deloitte’s director in the Sports Business Group. “With measures such as the future Asian expansion, development of more local heroes (potentially in India and China) and the introduction of night racing, we would expect these figures to continue to rise.”

On top of that, spectator viewing figures are on the rise and average 200,000 per Grand Prix. As these words were written, it was confirmed that tickets for the forthcoming European Grand Prix in Valencia had sold out within 10 days. Television figures are also increasing, which confirms F1 as a good place to do business, especially as the spectre of tobacco is retreating fast. So, if you are a corporate entity wishing to advertise its wares on a global scale, team ownership might well begin to make some very sound commercial sense.

Indian entrepreneur Vijay Mallya started out sponsoring Benetton and then Toyota, using his Kingfisher beer brand, but bought the ailing Spyker team because it was available. “It’s not every day that a Formula 1 team is available for sale,” he concedes. “When I looked at it I saw that there were a lot of resources that could be used to improve performance. There’s no getting away from the fact that 90 per cent of the people were from Jordan, and that Jordan was once a very successful Grand Prix team. It was in the top five. It won races and qualified for pole positions. These were the same guys. 

“What went wrong? Obviously something did but also obviously it was not something that was unfixable. We have a good manufacturing facility at Silverstone, which has produced winning cars. We have people who have been part of a Grand Prix-winning team. With the right resources and direction I have faith that we can return this team to winning ways. And that is precisely what I am doing now. I’ve given them more money, but every penny has to be justified. If there are targets for performance improvements then they are funded, but we are not here to waste money. We’re not here to have a big budget on paper and then show no performance at all. The increased spend and increased performance go hand in hand, and everyone here knows that. Clearly, Kingfisher has the prime space on the car now, but then F1 was always one of our chosen platforms, so that’s not surprising.”

Mallya’s numerous business brands have been built on a lifestyle platform that is perfectly reflected in F1, which is thus the ideal advertising arena for him.

Having watched Spyker claim that its race team was making a loss, as sponsorship money was redirected, technical chief Mike Gascoyne believes that Force India can improve now that Mallya is in charge. “We have every reason for saying we are going to be in good shape. The Vijay Mallya thing has been essential, and credit to the Mol family; they got involved in Spyker, didn’t realise what they were getting into, and it has cost them a lot of money. But they wanted to do F1 and they have been loyal to the team. They put their money where their mouth is and I’m glad for them that it has worked out and that they’ve got a good partner. I think we can look forward to a really bright future.”

But suppose you were to buy Toro Rosso, which recently went up for sale according to owner ‘Didi’ Mateschitz? What would you get, and how much would you pay?

The figures are currently closely guarded, but our information is that $80m would buy you 100 per cent ownership of the team, plus three cars and the workforce’s contracts but not the Faenza factory premises. The new STR3, scion of Red Bull’s current RB4, is due to appear in Turkey, and you could run it in 2009 when Mateschitz wouldn’t mind the deal being done (though it could wait until 2010). But thereafter you’d better have the financial wherewithal to build your own chassis, because that’s when the tense customer car ‘agreement’ is scheduled to end.

Here’s the problem for ‘new’ teams. Back when Mateschitz bought Minardi, both Max Mosley and Bernie Ecclestone were convinced they could persuade other teams to accept rivals running customer chassis. Hence Toro Rosso using Red Bull hardware, and Super Aguri being born around Honda chassis. But for once the two powerbrokers reckoned without the likes of Sir Frank Williams and Midland/Spyker/Force India’s Colin Kolles, who have argued forcefully against the idea and are prepared to take it to arbitration to protect their own interests. So forcefully have they campaigned, that David Richards’ plans to bring Prodrive into F1 with customer McLarens in 2008 was torpedoed.

“I think philosophically F1 should be about constructors who design their own cars,” admits McLaren CEO Martin Whitmarsh, who had helped to agree the Prodrive deal. “But I think it is well-publicised that we take a very pragmatic view. When it looked a year ago as though you could have a customer car in F1 we worked very strongly with Prodrive. We checked back with the FIA before we embarked on that programme. Opinions changed during the course of the year, otherwise we would possibly be here supporting a customer team ourselves, so we can’t be too hypocritical about that. The reality is we need to have a strong grid in F1. We need independent teams like Toro Rosso to survive and I think it is up to the bigger teams and to the automotive manufacturers and the FIA to work together to make sure that we’ve got a sport that can keep that many teams in it.”

BMW team principal Mario Theissen agrees. “We were aware of the view last year that it would not be a good thing to have two classes of teams on the grid – teams who go for victory and other teams who just support their number one team – so we are happy about the situation as it is now. Certainly, we support what Martin says. We need the independent teams on the grid and we have to find a solution for them to be able to compete and to be in F1.”

But Williams and Kolles have a point; if they are going to go to all the expense of designing and building their own cars, why should others take short cuts and maybe be more competitive while investing far less at a time when the customer car rule is, at best, ambiguous?

Perhaps the better deal would be to go after Super Aguri, but even here the Magma Group was stalling over buying the team as we closed for press. It would be taking over the $25m debt under which Super Aguri is operating. Magma is headed by former Ford and Maserati executive Martin Leach, and already owns Menard Engineering Limited, formerly the TWR Group, which includes the former Arrows F1 headquarters at Leafield where Super Aguri is based. Thus Magma already has access to the necessary infrastructure to create its own chassis. Funding for the five-year deal was believed to be coming from Dubai International Capital (DIC), which had planned to invest $70m annually but is said to have had second thoughts.

And so to Toro Rosso. There are complications here too, because the manner in which it went up for sale may not bode well. Joint owner Gerhard Berger did not know that Mateschitz was going to make the announcement.

“At the time we began a partnership for Toro Rosso, we had a clear goal of bringing the team from the back row to the midfield,” says the Austrian, who traded shares in his transport company with Mateschitz so each has a 50 per cent shareholding in the race team. Last year Red Bull pumped some $60m of sponsorship into it, but Toro Rosso was meant to supplement that with external sponsorship rather greater than the $630,000 it is thought to have raised. 

“We wanted to build an efficient, good team,” Berger continues. “We also split our forces. Obviously Didi took care of the financial side, and I took care of the sporting side. And, of course, with Franz Tost as team principal.

“We had a clear vision of our concept. Using the Red Bull technology, and as much as possible of its synergies, our concept was within the rules and working well. But with question marks about the future rules, for Red Bull maybe it doesn’t make much sense any more to have two separate teams running. We have to respect this, because as Didi said, even for big manufacturers it is difficult to do.

“I am very unhappy about it, because I have a great partner and I would need this partner in the future in F1. But if it comes to a situation that Didi doesn’t want to keep going on, then obviously I have to see what are the possibilities that I can go on with the team. I would really love to reach the goals.

“I have no idea if there is a realistic chance, and I would just do it if it is a circumstance where you are clearly going to be able, with resources and money, to reach your goals. He stated in his interview that he will only sell if he is sure the team can be in as good or a better situation than they are in today. But I know Didi well enough to think usually you can rely on his words.

“That means for the team there will be no change at the moment. As he said, in 2008 nothing is going to happen, and after that we will see. But I’m sure he will take care that it is going to be done in a way that the team is not going to be hurt.”

Berger says he would like to carry on, retaining his 50 per cent holding, but is realistic.

“For me, it’s not a question of making money. My passion is racing. I want to stay in F1 with the team. But only if there are enough facilities and possibilities to develop the team. If I cannot see that we can move forward, that would not be possible to do. You need to have a strong partner for it.”

Part of the problem for any prospective buyer is Toro Rosso’s location, in Faenza, Italy – Minardi’s old base. The perceived wisdom is that the UK is the best place to base any F1 enterprise, but moving Toro Rosso would be fraught with political problems.

“Our company is Italian,” Berger stresses, “and the value of every company is the people. Our people are at home around Faenza, so for us it’s clear that Toro Rosso is going to be an Italian company.”

That might suit stories which suggest that former Ferrari team principal Jean Todt and his son Nicolas, who runs the title-winning ART GP2 team, are interested in buying into the squad, but Berger nixes that notion. “Simply because there has never been any discussion. I read all these stories about a deal with Nicolas Todt, but there were never any talks other than the fact we have Sébastien Bourdais in the team and he is his manager. There was never one word discussed with Nicolas or Jean Todt about any other thing.”

The other possibility, about which Berger says little, is that South African entrepreneur and A1GP boss Tony Texeira might take over Mateschitz’s shares. “I don’t know Texeira, and I never spoke to him. But I know he was interested at some stage.”

Meanwhile Stoddart has made it clear that his love affair with F1 is far from over, especially now he has wrapped up his Champ Car team in the wake of the IRL takeover.

“If a team were to come onto the market at a sensible price that I felt I could do something with, then I would be interested,” he says. “There’s a monumental difference between starting a new team and taking an existing one – all kinds of financial differences. Would I be interested in starting a new team? Not until Max Mosley has gone. Would I be interested in buying an existing team? If the right opportunity came along, I would definitely be interested.”

One other thing a Toro Rosso buyer will get is the ongoing Ferrari engine supply deal, which runs through to the end of 2009, but Berger admits that the rules over customer cars are an irritating complication.

“This thing always comes up. I am still 100 per cent sure we are right with what we’re doing, we are within the regulations and we are fine. But it looks like we’ve lost a couple of friends in the paddock. The other teams that have big facilities, like [Williams], are totally against it. And some others too. Are they right or wrong? I think they are wrong, because if you took one of their manufacturers away then I think they would understand what it is like to be in Formula 1. Yes, if you have a manufacturer behind you, it’s easy to say you don’t want any cheaper version of F1. But, when you’re trying to find $400m on the market, you see the market is different to what you need in F1.”

This is a worrying time for Toro Rosso employees, whose contracts would be sold to a new buyer. “Sure, they are worried,” Berger concedes. “For the employers, we have a difficult job. You don’t do your job well if you are not secure about what is happening tomorrow. You always have in F1 three, four or five teams where you don’t know what is happening next year. But maybe it is even more motivation to prove that we can do something good.”

Is $80m a good deal when you have to find another $60m to replace Red Bull? It’s a moot point. Toro Rosso made $13m in Formula One Management money last year, from television coverage and prize money, but it will need to design and build its own car for 2010 and beyond, and setting up a design and manufacturing side could easily cost you another $50m, while setting you on that treadmill of expenditure from which there is no escape for those who wish to remain competitive enough to fight in the midfield.

Could it be that the David Richards’ model is the right way to go after all, at least to get that initial toe-hold in F1 in 2009?

“We had two pre-conditions,” he explains, still believing it would have cost $50m to set up Prodrive’s effort around customer McLarens in 2008. “One was to be competitive, the other to be financially viable.

“From day one we wanted to be in the middle of the grid and have a chance of scoring points. The only way to be competitive was to start on a sensible basis, with McLaren chassis, and I don’t believe the infrastructure costs would have been enormous. Not like they would have been to set up a team from scratch. That took Frank Williams 25 years to do. The model was there; we would have contracted with McLaren for a competitive product without the need for vast infrastructure. In our model the sponsorship was sustainable, and while we wouldn’t have made money in the first year, we would have been well into profit by year three.

“I think to have started up a team from scratch and to have expected to have been competitive would frankly have been grossly naïve. Our budget for year one would have been around $70m, and while you could do it for that from scratch, you would not have been competitive, and in this business nothing spirals upwards.”

Prodrive, unlike Toro Rosso, which would be a going concern with championship points in the bag, would not have been eligible for FOM travel assistance, but Richards believes that would only be worth around $3m a year, something he could have lived without in the early stages. But he also believes that the money within F1 should be distributed more equably.

“There is a fundamental flaw in some people’s thinking. F1 is a ‘dog eat dog’ world, but it would be so much stronger with 12 instead of 11 franchises. That would add value for everybody. The distribution of funds is currently wrong; all 12 teams should receive income, albeit with the top 10 receiving more.”

He also believes that setting up a new team, around a customer car for 2009, would only work in a year of rule changes. It just so happens that the rules will change significantly next year, with the arrival of kinetic energy recovery systems (KERS) and heavy revisions to the aerodynamics. Perhaps Prodrive will yet make the interim jump, with customer cars in 2009 presaging the team’s own car for 2010. But it remains to be seen who might take the plunge with Toro Rosso.