Financial statements released on Tuesday revealed that prize money paid to F1’s 11 teams accelerated 6.1% to a record $797.5M last year, "driving a 32% fall in operating profit at the race series," according to Christian Sylt for FORBES. The bumper prize money payment "calls into question the financial model of some F1 teams which spend nearly all of their revenue in a bid for victory."
They do this in the belief that it is "better to win on track and make no profit rather than make money and finish low down the standings." It leaves them "with very little profit and little money in the bank to draw on if there is a dip in their performance which in turn reduces their prize money and sponsorship."
This "describes the situation that several of the teams currently find themselves in and throughout this season there have been questions as to whether they will all survive to the start of 2015." Remarkably there "seems to be a simple solution." If the teams’ yardstick of success "was profit rather than on-track results (which are not mutually exclusive) then it is hard to see how they would be in their current predicament." Increased payment to the teams "wasn’t the only reason why F1’s profit reversed last year." Further pressure "was put on the business by the beginning of a new agreement" with the FIA. The "annual fee it receives from F1 increased four-fold last year" to an estimated $40M.
There was also "less money coming in to pay it as the cancellation of a Grand Prix in Spain led to revenue dropping" 4.3% to $1.3B (FORBES, 9/30).
