Honda website
Honda website

JUNE 10, 1996

F1 - an investment opportunity?

FORMULA 1 team owners are poised to make vast profits in the next few years as a series of new commercial arrangements are finalized by F1 boss Bernie Ecclestone and the team bosses.

The extra income will come from increased fees from TV right deals and contracts with race organizers, and from expanded merchandising operations.

Formula 1 racing has been defined since March 1981 by what is called the Concorde Agreement - which is in effect a contract between the teams and the organizers. In the original Concorde Agreement the FIA retained ownership of all the rights relating to the Formula 1 World Championship, but agreed that these could be exploited on behalf of the FIA by FOCA (Formula One Constructors' Association). FOCA later sub-contracted this work - and the risks it entailed - to Bernie Ecclestone's own company Formula 1 Promotions and Administration (FOPA).

The financial clauses of the Concorde Agreement have always been secret. They detail how income is divided up between the teams, the FIA and Ecclestone. There have now been three separate Concorde Agreements (1982-86, 1987-1991 and 1992-1996). A new one comes into effect on January 1, 1997 and is due to run until the end of the year 2001.

The new agreement is believed to have very different percentage splits between the three parties involved, with Ecclestone reducing his share and the teams getting nearly half of the money generated. The FIA will continue to take 30% and Ecclestone will take the remaining 23%.

In 1992 FOPA was listed to be Britain's most profitable company, making a $22.5m profit on a turnover of $27m - an 80% profit ratio. In 1993 Ecclestone became Britain's highest ever salary earner - with wages of $45m, a figure which he matched in 1994. This indicates that FOPA's profits have surged ahead since 1992. There has been evidence of this in recent months as the prices of F1 TV contracts have been hiked. Britain's ITV, for example, is understood to have paid ten times the fees previously paid by the BBC. Similar deals are negotiated in all the major TV markets, and with F1 being broadcast in around 120 countries, the money involved could be huge.

With the teams taking nearly half of this income from January - each receiving a certain percentage for appearing and then another slice based on their performance - top teams could soon be making as much as $20m a year from TV fees alone.

There are similar price increases in the fees being demanded to hold races. Newcomers are said to being asked for $15m a year, and with a 16-18 race calendar, this could generate another $270m a year.

In addition to all this income, F1 teams are now looking at potentially large gains from merchandising. Ecclestone has been negotiating a merchandising deal with The Walt Disney Company in recent months and - judging by the success in merchandising American sports and British football - this could easily bring in hundreds of millions of dollars more.

F1 sponsorship will, of course, never disappear but the potentially-huge profits will mean that owning a Formula 1 team could become less of a labor of love and more of an investment opportunity. It is probably, therefore, not likely to be very long before F1 teams start going public and selling shares.