Is buying an F1 team and investment or 'financial planning'...?

[Moneyseeker]

With today's Marussia driver/in/out and the recent takeover of Caterham, it got me wondering....

Why would you buy or invest in an F1 team, particuarly one at the back of the grid that faces a big task and an even bigger investment to achieve any points and earn any FOM revenue as a bare minimum, let alone attrach significant sponsorship?

Similarly why would you invest in a driver that has always paid heavily for every mile they have run in any sort of racing car and are unlikely ever to be a paid professional driver, let alone earn enought to repay the many millions spent on them


There is an article here on how has Chilton has funded his drive (2013 piece).
http://www.crash.net/f1/feature/1899...ay-driver.html

"Chilton has stepped up on the back of investment from as many as 40 different companies, each buying into the dream that, one day, he will make it to the front of the grid and be contending for world titles. "

The old adage that how you make a small fortune out of F1 is to start off with a large one, still stands.

So, to got back to my original question is buying into an F1 an investment on which you expect a return or simpy pushing wooden dollars around a business empire to take advantage of any tax planning that may be available?

[Biscuits In A Red Bull]

Is buying an F1 team and investment or 'financial planning'...?

Given the current situation of Formula, I'd say it would be a financial mistake for most people. Most...

[bella]

Originally Posted by Moneyseeker

or simpy pushing wooden dollars around a business empire to take advantage of any tax planning that may be available?

there's your answer, at least for uk based teams. if they're making a loss, it's a handy tax tool for any existing businesses.

in all seriousness, i don't get it either. if i was a businessperson with a pocket full of pennies and a hankering for motorsport i'd do a simon dolan and have a go myself rather than pay for a mates not-stellar son to do it instead.

[FIRE]

It's an expensive hobby.

[davyboy]

Originally Posted by bella

there's your answer, at least for uk based teams. if they're making a loss, it's a handy tax tool for any existing businesses.

in all seriousness, i don't get it either. if i was a businessperson with a pocket full of pennies and a hankering for motorsport i'd do a simon dolan and have a go myself rather than pay for a mates not-stellar son to do it instead.

I'd be very surprised if every dollar generated via that 'innovative sponsorship' scheme can not be traced [directly or indirectly] back to daddy's bank account.

[Casper]

Originally Posted by davyboy

I'd be very surprised if every dollar generated via that 'innovative sponsorship' scheme can not be traced [directly or indirectly] back to daddy's bank account.

Why does everyone in motor sport think it is a sin to have wealthy parents? The sons and daughters of the wealthy have as much right as you or me to go racing any way they choose. I have never understood the hate that people exhibit on this issue.

[davyboy]

Originally Posted by Casper

Why does everyone in motor sport think it is a sin to have wealthy parents? The sons and daughters of the wealthy have as much right as you or me to go racing any way they choose. I have never understood the hate that people exhibit on this issue.

I never said it was a sin and I don't think anyone else here is either. If I were Grahame Chilton, I'd probably be doing exactly the same thing... more power to him. I think the issue here is the fallacy that Formula One is the top echelon of the sport made up of the world's very best drivers who get there on merit.

[Casper]

Originally Posted by davyboy

I never said it was a sin and I don't think anyone else here is either. If I were Grahame Chilton, I'd probably be doing exactly the same thing... more power to him. I think the issue here is the fallacy that Formula One is the top echelon of the sport made up of the world's very best drivers who get there on merit.

You made it exactly as you meant to, a wealthy parent giving money to a son to go racing. If you did not mean that why infer that he used his Dad's bank account? There is no fallacy, it takes money to get to the top and if the person does not have it or can get it then that person misses out. It has been that way since car racing evolved and in the pre-war period it was the mostly the wealthy that raced and no one thought that was an issue. The real fallacy is that just because the driver has talent he deserves to be a world champion or at least in a series such as F1 with no effort on his or her part to finance that journey and it should be given to them on a platter.

[davyboy]

Originally Posted by Casper

You made it exactly as you meant to, a wealthy parent giving money to a son to go racing. If you did not mean that why infer that he used his Dad's bank account?

Didn't I just spell it out for you ? Let me say it once again. I do not think it's a sin that Max Chilton's drive has been funded by his family. I said I'd do it myself if I was in his dad's position. How more clear can I be ?

[JoestForEver]

IMO buying out F1teams is more like a tax circumventing strategy. The loss on F1 can be deducted from your company profit. Furthermore, if the team is classified by British government as a SME, such an investment will earn you more tax credits.

[Armco Bender]

You can make millions out of F1.......if you start with billions.

[Paradise City]

If you got sponsors to pay the bills, kept the entry on the market as a going concern, cashed in on driver 'contributions' into your pockets whilst keeping R&D and rest on a shoestring, just ticking over .

Yeah, it could be done - but not by the average mortal millionaire. You'd need a shark-type like Eccelstone to keep all the balls in the air so to speak.

[bjohnsonsmith]

Originally Posted by Armco Bender

You can make millions out of F1.......if you start with billions.

[chunterer]

Originally Posted by Paradise City

If you got sponsors to pay the bills, kept the entry on the market as a going concern, cashed in on driver 'contributions' into your pockets whilst keeping R&D and rest on a shoestring, just ticking over .

Yeah, it could be done - but not by the average mortal millionaire. You'd need a shark-type like Eccelstone to keep all the balls in the air so to speak.

Isn't that what Jordan did?!

[chunder]

I would think as in most motorsport at ots of levels, getting invovled in motorsport for a company is a nice way to offset a lot of income into sponsorship and a very nice way to avoid paying lots of tax on it.

You are unlikely to see it back, but if you are CEO, why not spend it on something you are interested in, the chance to meet similar people from business, network.

That is what big business is all about, I very much doubt a Mallya is involved entirely and only because he thinks his companies will benefit hugely from being in F1, it might be a small issue, but the main ones are a nice way to offload some income without getting taxed, and a very ncie way to spend your time.

[bella]

i believe the tax benefits of sponsorship in the uk system are no longer significant. which is why i think you see more b2b (eg caterham, air asia and airbus) and multi company owning-businessmen having teams - the benefits are to be had in offsetting loss-making companies (teams) against other ones that make a profit and whathaveyou.

which kind of makes it conflict against the old school road and race car manufacturers like ferrari and mclaren. and going back to the original post - you wouldn't buy a f1 team unless you had some serious money laundering to do for either legal or illegal reasons.

[davyboy]

Originally Posted by bella

the benefits are to be had in offsetting loss-making companies (teams) against other ones that make a profit and whathaveyou.

Offsetting a company's loss making entities against its profitable entities doesn't necessitate owning an F1 team. The only advantage in buying a failing F1 team would be in acquiring a deferred tax asset - i.e. large accumulated past [paper] losses that could be used to offset current profit in another entity. You'd do that by making the acquisition and then shutting it down. There'd be no sense in maintaining it as a going concern that continues to incur real losses.

[chillibowl]

but if those losses are being subsidized by or funded through your company's already large advertising budget then in a manner of speaking its an expense as opposed to a loss.

if some of the smaller teams are able to effectively grow the number of people connecting to them via the various social media platforms and if FOM starts pushing more traffic to those team's platforms then there is a case to be made that owning an F1 team, as an extension of your advertising priorities, is a very good deal as well. certainly a good deal compared to other sports franchises operating at the global level.

teams right now are pushing B2B which while lucrative misses the point imo.

given that F1 tends to attract (and i could be wrong about this) adults who tend to be uni educated, higher disposable income etc i think there is a massive opportunity to return to an era (via social media) of using F1 as a platform for selling more commercial goods. Red Bull is is a case of that approach working imo.

given that several billion mobile phones have been sold over the past decade and almost none of it was done with the aid of F1's advertising reach should be proof positive how little the market places values F1's ability to connect with the consuming public.

anyways i think there is a lot of untapped potential for f1's commercial expansion and that alone makes f1 a good deal...question is can you afford to stick around long enough for the organizing body to also come to that conclusion?

[davyboy]

Originally Posted by chillibowl

but if those losses are being subsidized by or funded through your company's already large advertising budget then in a manner of speaking its an expense as opposed to a loss.

Not sure why any business entity would want to generate losses for no other reason than to generate losses. What the losses are subsidized by is neither here nor there at the end of the day. There are also fiduciary implications for directors of UK limited companies to think about as well.

[chillibowl]

we are talking about a series of interrelated corporations reporting their income and/or losses to a parent corp.

for example Merc or RB are (apparently) fine with their f1 teams running a loss as there are both tax advantages to the parent corporation (offsetting those losses against gains) plus there is the added benefit of advertising as the F1 team's profile helps to sell cars/drinks or whatever other commodity that the parent corp actually sells.

of course its still a loss but its mitigated and the benefits while intangible are considered valuable none the less. from the point of view of the parent company there is potential advantage in having some branches run a loss in the short term. presumably when they sell that branch those losses (having already been mitigated via tax savings and promo) may yield a profit once everything is added up.

and even if it doesnt they have crafty accountants who can make it seem like it did.

[wolfhound]

What is the marketing value of 100 million eyes looking at your name on TV every other weekend (but not on the You tube or other media)? I assume for a multinational's marketing budget there must be some value to it.

[davyboy]

Originally Posted by chillibowl

we are talking about a series of interrelated corporations reporting their income and/or losses to a parent corp.

for example Merc or RB are (apparently) fine with their f1 teams running a loss as there are both tax advantages to the parent corporation (offsetting those losses against gains) plus there is the added benefit of advertising as the F1 team's profile helps to sell cars/drinks or whatever other commodity that the parent corp actually sells.

of course its still a loss but its mitigated and the benefits while intangible are considered valuable none the less. from the point of view of the parent company there is potential advantage in having some branches run a loss in the short term. presumably when they sell that branch those losses (having already been mitigated via tax savings and promo) may yield a profit once everything is added up.

and even if it doesnt they have crafty accountants who can make it seem like it did.

I think we're talking cross purposes here. Red Bull and Merc are not involved in F1 to bury profits. They're multinational consumer corporations who there for legitimate brand building and advertising. That's always been the classic reason why such organizations buy or sponsor F1.

Here we were questioning why individuals/consortia would be attracted to buy teams such as 'Enstone', HRT, Caterham etc... as 'investments'. They have been owed by venture capital concerns, banks and organizations who couldn't be said to be deriving a marketing benefit from their F1 involvement.

[chillibowl]

Originally Posted by davyboy

Here we were questioning why individuals/consortia would be attracted to buy teams such as 'Enstone', HRT, Caterham etc... as 'investments'. They have been owed by venture capital concerns, banks and organizations who couldn't be said to be deriving a marketing benefit from their F1 involvement.

i suppose where we are at cross purpose is that i think that the tax reduction or abatement, applying book losses like depreciation against gains from other investments, and the setting of F1 for providing a B2B deals are of tremendous marketing benefit to investment firms.

and given the low cost of buying an F1 team relative to buying a franchise in another global sports league i think the benefit increases.

unfortunately these benefits are only seen by the small subsection of the population capable of investing into the investment vehicles offered by the Genii of the world.

my honest opinion is that i dont like this trend but can see the attractiveness that this easy money brings.

actually, and this might seem like a broken record, this is another reason i like social media so much and suspect why BE is so against it. connecting fans with the teams and their sponsors would again make F1 a platform for those sponsors trying to sell affordable consumer products. in effect it would shift the current balance.

it may seem odd because tobacco is now considered evil but those were the days. teams had one owner (a visible person at that) and the cig money kept them afloat which created a necessity for the the teams to connect with their fans because they needed to help push product. today there is no need for a venture capital firm to connect with the masses as only a select few can investment with them anyways so their teams operate with a different mandate.

i feel as though BE and crew think that changing this trend would be a step backwards in time which is ironic given that social media is the future.

anyways im starting to rant and go off topic.

[davyboy]

Originally Posted by chillibowl

i suppose where we are at cross purpose is that i think that the tax reduction or abatement, applying book losses like depreciation against gains from other investments, and the setting of F1 for providing a B2B deals are of tremendous marketing benefit to investment firms.

and given the low cost of buying an F1 team relative to buying a franchise in another global sports league i think the benefit increases.

unfortunately these benefits are only seen by the small subsection of the population capable of investing into the investment vehicles offered by the Genii of the world.

my honest opinion is that i dont like this trend but can see the attractiveness that this easy money brings.

If there's no other benefit, I can't see why somebody would buy an F1 team to bury profits. F1 is a mass market vehicle with an audience in the billions. If you're an investment business with a target audience of half a dozen, then F1 is of no benefit there.

I knew a guy who used to spend enormous amounts of his business' money on powerboat racing. It was booked into the company's accounts as 'advertising' and had a tertiary tax mitigating effect. Clearly the company derived almost no marketing benefit from it - but it was his pastime so that's why it happened. I can understand that. Maybe GENII is made up of F1 enthusiasts or something

[chillibowl]

possible.

in that article about Genii and Lopez (perhaps from another thread) it says Lopez is a car nut.

in the article he also alludes to the low level of debt the Lotus team has. from what i understood what he was suggesting was that based on the market value of the team there was still room to borrow a few hundred million more.

if they now borrow against the team and then use those loans to buy up other more marketable assets like real estate then despite whatever losses they might be making with the team in the short run the potential for profit in the future may be more.

anyways i cant presume to know what they are up too. the only thing that is clear to me is that they are playing a very different game then the one i understand.