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Formula One Group made a bigger loss in 2018

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Formula One Group made a bigger loss in 2018
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Feb 28, 2019, 2:21 PM

The Formula One Group generated increased income in 2018 compared to the previous year – but a hike in expenditure meant that the organisation made a bigger loss overall.

The news comes as F1 and the teams continued what are likely to be increasingly complex negotiations over both the sport's rules and the commercial arrangements for 2021 and beyond.

Liberty Media's annual results, issued on Thursday, indicate that F1's revenues rose by some $44m from $1783m in 2017 to $1827m last season.

However, only $6m of that was due to "primary revenue" - income from race fees, TV and advertising/sponsorship – with the rest coming under the "other revenue" heading.

Having made a profit of $47m in 2016, followed by a loss of $37m in 2017, F1 has posted an increased loss of $68m for the 2018 season.

The income paid to the 10 F1 teams has continued to fall, from $966m in 2016 to $919 in 2017 and $913m in 2018.

Liberty notes that income from race fees was "flat", despite there being 21 races as opposed to 20 the previous year.

The company points out that the combined fees from the German and French GPs did not make up for the fee lost due to the absence of Malaysia.

"Race promotion revenue increased modestly primarily due to contractual increases in race promotion fees, as well as a contract amendment for one event that provided for an increase in promotion revenue which was fully offset by a reduction in advertising revenue related to that event.

"This contract amendment was neutral for total Primary F1 revenue.

"In addition, race promotion revenue in 2018 was impacted by the calendar variance, with the non-occurrence of the Malaysian Grand Prix in 2018 not fully offset by the return of two European races in France and Germany."

Liberty says that its TV income also similar to the previous year, and was hit by problems with a partner.

"Broadcast revenue was essentially flat for the full year 2018 as contractual rate increases and favourable foreign currency movements were offset by the early termination of one contract with a failing broadcast rights broker."

Crucially, Liberty has admitted that advertising and sponsorship income, which it has regarded as a key area of growth since it bought the business, actually fell in 2018.

It notes: "Revenue from new sponsorship agreements and growth in certain contractual agreements did not fully offset the aforementioned contract amendment that saw a reduction in advertising revenue fully offset by an equal increase in promotion revenue (which was neutral to primary revenue)."

The increase in "other" revenue derives from several sources, and is "primarily due to higher logistics revenue, higher digital media and TV production related revenue, increased revenue from various fan engagement activities and higher spare part sales for the F2 and GP3 support series".

Liberty stressed that F1's performance was hit by increasing costs, "as the business continued to invest.

"Cost of F1 revenue increased primarily due to logistics and travel expense, higher costs associated with providing the chassis and component parts to F2 and GP3 teams, digital media development and spend on fan engagement, which more than offset reduced team payments."

The company also notes that it was hit by bad debts associated with partners: "Selling, general and administrative expense increased primarily as a result of increased marketing and research costs and increased bad debt expense due to payments issues with two commercial partners."

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Series Formula 1
Author Adam Cooper