Last year, the Williams Formula One auto racing team recorded a net profit of $19 million (£14.1 million) on revenue that accelerated 3.5% to $248.2 million (£184 million). It is especially impressive because F1 teams typically invest all of their income in car development, leaving their profits stuck in the slow lane. Williams is an exception — so why has its deputy boss said that it is at risk of closing within a matter of years?
Williams isn’t the oldest or most successful team in F1, but it is unique. In 1977, Sir Frank Williams founded his namesake team with its former engineering director Patrick Head, and he still controls it through his 51.3% stake. However, the team isn’t just owned by the Williams family; it is operated by them, too. Sir Frank is the boss, and his daughter Claire is the deputy team principal, which differentiates Williams from every other outfit in F1.
Unlike many of them, its revenue comes not just from prize money and sponsorship but also from an advanced engineering division that brings technological developments from F1 to other industries. As we have reported, they include collaborating on an aerodynamic device, resembling the wing of an F1 car, which clips to refrigerator shelves in supermarkets and channels the flow of cold air onto the products. Williams has also helped to develop a capsule, called Babypod, which is inspired by F1 driver safety systems and is used as emergency transportation for newborn babies.
That has diversified Williams’ revenue stream and helped to keep its wheels turning. In 2011, Williams also became the first listed F1 team when it floated 24.1% of its shares on Frankfurt’s junior exchange. Sir Frank’s stake gives him control while 3.6% is held by an employee trust, with 9.3% in Head’s hands and 11.7% owned by American investor Brad Hollinger.
It is a powerful combination of history, stability and transparency that is rare in any sports series, particularly one as cutting-edge as F1. It also gives more visibility into Williams’ finances than those of any other team, which is why it unveiled its 2017 results this month whereas the latest financial statements for its rivals cover the previous year.
“The team at Williams delivered solid results last year, and our 2017 financial performance reflects that continued progress,” said Williams’ chief executive, Mike O’Driscoll. “Revenue was up at both the Formula One operation and Williams Advanced Engineering in 2017, following on from a strong performance in 2016. Our results gave us confidence to continue investing in our facility and technical capabilities.”
As we have reported, O’Driscoll is an industry veteran who has skilfully steered Williams to financial success even though it lacks the high-octane resources of many of its rivals, which are owned by billionaires or auto makers. However, its results could have been even more turbocharged if F1 had taken a slightly different direction.
One key difference separates F1 from many of the other open-wheel single-seater series. It is clearly explained in F1 company documents that state that “to be eligible to compete, a Team must be a ‘constructor,’ which means that it must design and manufacture certain key parts of its cars itself, including the chassis, which means that each Team’s cars are unique.”
In contrast, many of the other open-wheel single-seater series insist that certain parts of the car, such as wings and engines, must be made to standard specifications. In extreme cases, the entire car is made to a standard specification, and teams are allowed to buy them from independent manufacturers. They are known as “customer cars,” and they put the brakes on skyrocketing development costs for teams.
Interestingly, Williams has been one of the fiercest critics of taking F1 in this direction. Over the past few decades it has resolutely resisted moves to dilute the definition of a constructor even though it would reduce costs and benefit Williams, which lacks a wealthy benefactor.
In 2013 F1’s former chief executive Bernie Ecclestone told British newspaper The Daily Express that “customer cars will be a good thing. Everybody needs to agree to that, but Frank Williams is the one who is against it.”
It reflects recent comments from Claire, who said: “We are a constructor. Frank and Patrick fought for our independence for decades, and they did an incredibly good job. One of my responsibilities is to protect our independence. And that’s incredibly important to us.”
By insisting that teams are constructors, F1 has fostered an arms race that would have been averted if it had introduced customer cars. Williams resisted it, and ironically, it could end up paying the ultimate price.
Although O’Driscoll has managed to boost Williams’ revenue and maintain a healthy bottom line, it has still been outspent by its better-funded rivals, as we recently reported. This is reflected in its results as the team finished fifth last year and currently lies in last place. F1’s new owner Liberty MediaLMCA +0% has said it wants to correct this imbalance by limiting team budgets to $150 million, which is close to Williams’ F1 spending of around $175 million last year.
The next opportunity to do so comes in 2021, when the teams’ current contracts expire. The leading outfits are opposed to the budget cap because it would prevent them from increasing investment to get an edge on track. However, the plan has been particularly well received by Williams, with Claire saying that it had left her feeling like “cracking open a bottle of champagne.” F1 news agency GMM reported that she also told German outlet Blick that “except for the top three teams, nobody will win in the future. The financial discrepancy compared to Ferrari, Mercedes and Red Bull is just too big. It is impossible to keep up.”
If Williams continues to be outspent, its chances of winning reverse, and so does its earning potential from sponsorship and prize money. It explains why Claire recently said that if the plan to cap budgets skids off track, then Williams will have to close its doors.
“If I look at it from my perspective, if we don’t do this, then Williams will close, the whole of the company,” she said. “I was very positive about it, but then there are some of the people that are very negative about it. We are lucky that this works for us, but I think it probably demonstrates the fact that our team, track performance aside, is a good model of how a Formula One team should be operating in our sport.”
Staking the future of the team on the introduction of a budget cap seems highly risky. F1 has tried and failed to introduce a cap on budgets for decades. Although Williams is almost within the limit, the top teams are far from it and would have to make thousands of staff redundant. Then come the questions of how to police it and how to define F1 spending.
F1’s most famous team, Ferrari, is actually a division of the auto maker and rotates engineers between its road car and racing divisions. Are those engineers covered under F1 spending? At the other end of the spectrum, what about the receptionist of the factory that houses both the F1 team and the auto maker?
Not only would it have to be possible for Ferrari to produce a precise profit and loss statement for its F1 team, but it would have to hand it over to prove that it is within the limit. That’s not something it does already: Its financial statements do not include the P&L of its internal divisions.
If Williams is forced to close its doors because the budget cap gets stuck in the pits, then it could be argued that it has only itself to blame for repeatedly resisting the moves to introduce customer cars. Bemoaning the surging budgets alone seems contradictory; customer cars would have cut costs.
This attitude isn’t purely driven by Williams: The F1 community has collectively failed to address the root of the arms race, which is that each team has to be a constructor. This is the cause of its escalating costs, and capping budgets merely puts a sticking plaster on it rather than resolving the problem.
Given the obstacles in the way of introducing a budget cap, F1 might have an easier ride by insisting that teams follow the model of America’s Haas team, which has taken advantage of a new regulation that allows outfits 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.
Haas currently lies in eighth place, two spots ahead of Williams, and as we have reported
, its running costs are among the lowest in F1. There is good reason for this. In a nutshell, there is no point in it spending more on the parts that it has bought in, so the effect is similar to introducing a budget cap.
The fact is that insisting on teams being constructors is anachronistic and unnecessarily boosts costs. Haas has proved that steering away from this doesn’t dent a team’s ethos or competitive ability. If F1 wants to get a budget cap over the finish line, this seems to be the direction that it needs to head in.
This article originally appeared on Forbes