|Spending $120M per year, Gene Haas knows his team has 0.00000% chance of winning in F1|
American tycoon Gene Haas has confounded the critics and managed to keep the budget of his Formula One team at around half that of the front-runners according to financial statements filed with Britain’s companies register writes Christian Sylt of Forbes.
The team’s finances raced into the spotlight this week after a loose drain cover ripped through the rear of its car driven by Frenchman Romain Grosjean in practice for Sunday’s Malaysian Grand Prix. “Things like this in 2017 shouldn't happen on a permanent circuit. They shouldn’t happen on any circuit. This is not acceptable and not up to the standards," said Haas team boss Guenther Steiner.
The cost of the damage was estimated at between $700,000 and $1 million which would make a dent in the bottom line of any of F1’s ten teams. Haas is more careful with its spending than most of them.
For years F1 has been struggling with accelerating team costs which come to an average of around $250 million annually per outfit. A $150 million budget cap is currently being considered and Haas Formula, the British company which runs the team, would fall comfortably within it.
Its latest financial statements reveal that in 2016 costs came to $116.8 million and the company had just 57 staff. It reflects a report by this author in July last year for American motoring magazine Autoweek which forecast that the team's budget would be around $100 million. Bearing this in mind it’s no surprise that Mr Steiner recently threw his support behind the proposed budget cap.
Haas has managed to keep its spending in the slow lane by taking advantage of a new regulation which allows teams to buy in more parts than before. Doing so reduces costs and Haas uses a Ferrari engine with a chassis created by Italian manufacturer Dallara which also makes the cars for the F2 junior series.
Relying on suppliers reduces research and development expenditure which, along with staffing and engine spend, is one of the biggest costs for any F1 team.
Haas has also benefited from economies of scale by drawing on the North Carolina design department of its sister outfit, the championship-winning Stewart-Haas NASCAR team. The facilities there include a $50 million windtunnel as well as a 125,000sq ft shop. The icing on the cake is that the machine tools used to build F1 cars are made by Haas Automation, the company which made Haas his estimated $740m fortune.
It isn’t possible to confirm how much is spent on F1 by HAAS Formula LLC, the team’s North Carolina parent company, as it doesn’t release its financial statements. However, it is understood that including the workforce there brings the overall total to around 200.
Like Haas, former F1 champions Red Bull have a separate company which manages their F1 team whilst its parent carries out design work and related projects. It is far more extensive than the work done by Haas as it doesn’t rely on an external supplier like Dallara and this is reflected in its financial statements.
Red Bull Racing, the company which manages the F1 team, had 58 staff last year but, at $264 million, its total spending was more than double that of Haas Formula whilst its parent company Red Bull Technology had 758 employees.
The impact of signing shrewd supplier deals is laid bare in Haas Formula’s financial statements. They state that “the company has two major suppliers, that contribute a significant portion of the car parts and technical support required for the company’s race car development." It is understood that this refers to the Ferrari engine lease and the design services supplied by Dallara. Reflecting this, the financial statements reveal that the team has “commitments under operating leases" and “commitments to acquire services." The former cost the team $24.7 million last year whilst the latter came to $36.5 million.
In addition, the 57 staff were paid a total of $5.3 million and the financial statements show that “other operating leases" cost the team a total of $20 million last year. It incurred a $14.4 million hit on currency exchange differences when the value of the Pound plummeted following Britain’s Brexit vote in June last year. Next up was a $2.2 million charge on depreciation of the team’s assets and finally $13.7 million of administrative expenses.
It brings the team’s total expenditure to $116.8 million which was covered by revenue in the form of fees from HAAS Formula LLC. The same goes for its small subsidiary in Italy which gives design support and had costs of just $7.6 million last year. Although its financial statements don’t show staff numbers, they state that it only spent $627,000 on salaries.
Its British counterpart had $123.1 million of revenue from HAAS Formula LLC last year leaving it with a $5 million net profit after paying the $116.8 million of costs and $1.3 million of tax. The bulk of the profit went in the bank as the financial statements show that the team had cash reserves of $5.6 million by the end of 2016, up from $1.6 million the previous year.
Its bottom line should get a boost in this year’s results as the team has started to receive around $30 million of prize money in line with its eighth place in the 2016 standings. Haas says it needs to do better.
Although this year’s racing has been closer between Mercedes and its rival Ferrari, the former is still a staggering 102 points ahead of the latter in the constructors’ championship. Haas F1 currently lies in the same position that it finished in last year and this hasn’t been lost on its founder.
“I think there needs to be some kind of a randomness in the sport where even a team in the back has some possibility of winning once in a while," said Haas recently. “Not every race, but if you can never win in this sport, it’s really not going to be much of a sport."
When asked if he was considering pulling out of F1, Haas ominously added: “Well we’re certainly committed to Formula One. But if we never have a chance to win, I’d really have to question why we’re here." Christian Sylt/Forbes