TV revenues and GP2 – show me the money…

I see many keep reading my initial posts on GP2 budgets, how the different teams make money and how their different strategies and positioning over the years has taken them to where they are now.  After a series of comments back and forth with Fletcher in previous posts, I think we need to dig a bit deeper and understand not only the “whys” but also the “why nots” – especially in relation to TV revenues.

What there is:

GP2 revenues come from 2 sources – though in most cases its only the first one:

  1. Drivers –  Those who wish to sit in a GP2 car have to put up anywhere between €1 million and €1.3 million per season, plus any damages to the car.  In 2009, many drivers have signed for less than that (see post), but it is an exception that will right itself once the economic situation improves.
  2. Team sponsors – If I’m not mistaken, only ART, Racing Engineering, Arden and Barwa Addax have one of these, so we can say they are pretty scarce in GP2 – not only in 2009 but generally in the category’s 5-year history.

What there should be:

As of today, GP2 team are basically limited to these 2 revenue sources.  Yes, some teams make some additional money serving A1 or Superleague teams, but that is not GP2.  If we compare this to an F1 income statement, we are missing one key line:  TV revenues.

Should CVC share some TV revenues with GP2 teams?   Yes, and here is why and roughly how much:

GP2 TV revenue model

So with this simple calculation, we have added about €1.3 million to the top line of GP2 teams.   This is not money they should/should not get, but money they have earned, just like F1 teams earn their TV money by putting on a good show and having people watch.   Next to F1, 150 million people may seem like little, but it is a lot of people watching a single event every month during one or two days per weekend.

So why are there no TV revenues in GP2?  A couple of answers from my point of view:

  • There is no “GP2 FOTA”: GP2 teams are not organized in any way.  They are there to race, period, and until today have not worried about this issue.  If they made even the slightest effort, they could probably get half of the estimated TV revenues per team, and we all know €650k would go a long, long way to help GP2 teams.
  • Legacy:  Most GP2 teams are evolutions from F3000 or F3.  They are used to running in series where they have no significant TV coverage and where they make money the old fashion way… “earning” it through hard work and rich drivers.
  • Ignorance:  The most basic of answers, is because no one has asked or has asked the right people.
  • Resistance: I don’t think it’s that CVC does not care for GP2, but that they need to squeeze the most out of it.  And given the previous 3 points, CVC has little incentive to alter the status quo.

In conclusion, GP2 has earned TV money and GP2 could really use these revenues – not to make higher profits, but as a possible way to reduce the cost of a seat for drivers.  In this way, the budget for a GP2 seat could fall below €1 million, making the category more appealing and increasing its competiveness in the top-tier racing market.  Teams need to organize themselves, understand the value they are adding to their organizers and owners and map out a revenue-sharing scheme that improves the competitiveness and longevity of their category.

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GP2 Main grid complete… for now

With 3 days to the season opener at Montmelo, we now know who will fill the 3 empty seats in GP2.   According to Italiaracing, enternal fill-in Giacomo Ricci will be at DPR and Trident will field Davide Rigon and Ricardo Teixeira.

Clearly, at least one seat in each of these 2 teams is a non-paying drive.  Both Ricci and Rigon have been filling in for these teams for the past several months, and both Herck (DPR) and Salvadori (Trident) prefer to field a money-losing car than risk the economic fine and the likely wrath of Bruno Michel. Read more of this post

GP2 Asia has its Asian champ… perfect excuse to call it quits

kobachampWell, Bruno Michel must be happy with himself this week.  He has reached the target of having an Asian driver win the GP2 Asia Series, as Kamui Kobayashi took the title this weekend in Bahrain.   Just as a note, the next Asian driver was Sakon Yamamoto in 9th, and then Hamad Al Fardan in 20th.  Not much of a talent pool, especially when considering Kobayashi is the Toyota test driver and Yamamoto is an F1-refugee driving for ART.

More than happy, though, Bruno Michel should actually be relieved and it should make for the perfect excuse to end this ill-fated invention on a “high note” (I’m being generous, of course, but any reason isgood to kill GP2 Asia).

Read more of this post

The evolution of GP2 teams – Average position

GP2 teams have enjoyed very diverse fortunes since the category was launched in 2005.  So, which are the “best” teams?   To avoid subjective discussions, and base the answer on hard data, here is the average position in the team championship since 2005, as well as their “label” according to the 3 groups we created in an earlier post (stars, survivors or backmarkers):

team-standings-chart1

The chart shows what we expected at the top and at the bottom, with some surprises – such as Arden and Piquet, which are higher that expected.  Both still live off their best seasons when Kovalainen (Arden) and Nelsinho (Piquet) were fighting for the GP2 title.In terms of economics, the chart helps illustrate one of our basic points about GP2 success:  if you are consistently successful on track, you will be financially viable.  Today, as illustrated in previous posts, all the teams in red are GP2 backmarkers and facing serious financial troubles.  As simple as this chart and its interpretation may seem, how come some teams are at the top and some at the bottom when they all started out on equal ground in 2005?

Read more of this post

Teams (part II): the GP2 Survivors

After the top 4 teams in GP2 come what I would call the “survivors”.  They are survivors because they fight year after year – sometimes even every half-year – for their drivers and their budget.  Some years they make money or break-even, while others they lose a bit of money.

The GP2 Survivors:

  • Arden:  Coming off a 2003 and 2004 championship in International Fsperez3000, Christian Horner’s team started off strong in the inaugural GP2 season in 2005, challenging for the drivers title until the last race with Kovalainen at the wheel.  Since then, Arden has been a searching for its bearing, finding it few times, but has counted with the invaluable backing from Red Bull (Horner’s “real” employer).  For 2009 Arden has switched Red Bull for Telmex as a title sponsor through Sergio Perez.  I would set Arden’s total budget for 2009 just under €1.8 million – with most money coming from Perez and some from Mortara.  This will be a breakeven season for Arden, but they will survive.
  • Super Nova:  David Sears’ team, like Arden, came on strong from F3000 (2002 champs) and had a positive 2005 GP2 season finishing 3rd in the team standings with Carroll and Pantano, and 5th and 6th respectively in the drivers championship.  After rebounding slightly in 2007 with Filippi and Conway (after a mediocre 2006), Super Nova finished 2008 in a mid-pack 7th place (with Parente and Soucek).   In 2009 they will regain Luca Filippi and have drafted Javi Villa from Racing Engineering.   I estimate each driver brings it at most €700k each,  so Super Nova have signed these drivers optimstically hoping to find the missing €400 to €500k sometime during the season to break even.  The team was rumoured to be up for sale, so I’m not sure how Super Nova’s finances will look towards the summer.
  • Piquet GP:  Wildly inconsistent in their team results (6th, 2nd, 11th, 3rd), Piquet benefitted from Nelsinho’s results early on and suffered Xandi Negrao’s during the same period.  After Piquet Jr’s departure to Renault F1, the team has found little stability in its drivers.  2007 was their worst year in GP2, with the weak Negrao-Roldan Rodriguez lineup.  2008 should have been their year, with Maldonado and Zuber, but they fell short due to their lack of consistency.  For 2009, they have Rodriguez back and Alberto Valerio adding some Brazilian blood.  I seriously doubt their budget will be much more than €1.5 million – leaving Piquet GP in the red about €300k for 2009. As with the others in this Group B – my bet is they will somehow manage to survive.
  • DAMS:  Held up by its Toyota Racing Development (TRD) seat, DAMS is consistently a mid-pack runner in GP2.  Kobayashi is TRD’s big bet, after the success of Kaz Nakajima and his graduation to F1 in late 2007.   Jerome D’Ambrosio is another good driver, growing well in GP2 after his Formula Master title in 2007.  Budget-wise, they should be the strongest of this group, though slightly under the targeted €1.8 million breakeven mark.  DAMS can support a year of this €200-300k loss, partially subsidised by its highly lucrative A1GP presence.  Definitely a solid team that will endure 2009.

The three GP2 realities

As the second 2009 GP2 Series test at Barcelona draws near, I continue to wonder about the budgets for the main series. I already talked about the top 3 teams (ART, Barwa Addax, Racing Engineering) which most likely will have a positive season earnings-wise. To this list we should probably add iSport, who should be well funded by Diego Nunes and Giedo van der Garde. Other teams such as DAMS, Arden and Super Nova seem to be surviving, but they are clearly in another group.

To clear things up, I will make 3 groups that I will address in 3 separate posts.

3-gp2-groups1

Inside look at GP2 budgets

It is common knowledge that a full season budget for GP2 costs between €1.0 and €1.3 million per driver.  Consequently, revenues for a GP2 team should be about €2.2 million for a profitable and money-making season.  As few teams have a title or team sponsor, the budgets are generally covered fully by the drivers and their sponsors.

In 2009, most teams will be fighting for survival- barely making the €1.8 million breakeven point for the category (revenues, but no profits).  What is the general picture for this year? How do the different teams make their revenues this year? Who will make what?

In my opinion, and as has been proven true in the category, there are four different ways to survive in GP2.  These revenue models are a matrix sponsor revenues vs. driver budgets (and their sponsors).  To illustrate this point better, I have drawn up a grid showing the 13 teams and their position regarding income from sponsors and/or drivers (as of the end of March 2009) and the 4 revenue models that currently apply in GP2:

gp2 revenue models

For further clarification, let’s take a closer look at these four models with examples.  Note that these revenues/budgets are estimates that apply only to the 2009 GP2 Main Series.

Revenue model 1:  Team with sponsor and full-budget drivers

Team:  ART Grand Prix

Driver 1:  Pastor Maldonado

  • sponsor: PDVSA
  • estimated budget:  €1.3 million

Driver 2: Nico Hulkenberg

  • sponsor:  Dekra, Deutche Vermogensberatung, Wili Weber?
  • estimated budget: €1 million

Team

  • sponsor: Richard Mille (luxury watches)
  • estimated deal size:  €300k
  • Total team revenues 2009:  €2.6 million
  • 2009 outlook:  Another solid and very profitable season for Vasseur, Todt and company, with a good shot at winning both the driver’s and team championship.

Revenue model 2:  Team with sponsor and partial-budget drivers

Team: Racing Engineering

Driver 1: Dani Clos

  • sponsor: Majestic Hotel Group ( hotels in Barcelona and Paris), Mediapro Group
  • estimated budget:  €1.2 million

Driver 2: Lucas DiGrassi

Team

  • sponsor: Estonian energy drink brand Fat Burner
  • estimated deal size:  €300k
  • Total team revenues 2009:  €1.9 million – plus
  • 2009 outlook:  Despite winning the 2008 driver’s championship, RE will make it a break even season in 2009, though with a very good shot at winning  the driver’s championship with DiGrassi.

Revenue model 3:  Team with no sponsor and full-budget drivers

Team: iSport

Driver 1: Giedo van der Garde

  • sponsor: McGregor (Dutch fashion group)
  • estimated budget:  €1.1 million

Driver 2: Diego Nunes

  • sponsor: Nescafé, Garoto (Brazilian candy company)
  • estimated budget: €1.25 million

Team

  • No sponsor
  • Total team revenues 2009: €2.35 million
  • 2009 outlook:  iSport still commands top-dollar for its seats, still amortizing its 2007 driver and team championship; 2009 will be an average year in terms of on-track results, but profitable for Paul Jackson.  Unless van der Garde can put his iSport in the top spots, the team’s “caché” for 2010 may start to decrease.

Revenue model 4:  Team with no sponsor and partial-budget drivers

Team: Super Nova

Driver 1: Luca Filippi

  • sponsor: NorDiesel
  • estimated budget:  €800k

Driver 2: Javier Villa

  • sponsor: Mapfre, Farho, Asturias, Feve
  • estimated budget: €900k
  • note: with strong cross-subsidization of GP2 Asia drive from Villa’s cash, estimated total of €1.2 million

Team

  • No sponsor
  • Total team revenues 2009: €1.6 million
  • 2009 outlook:  Estimated to be under break-even by at least €200.000 for 2009.  Has 2 good drivers that can win races, and hopefyll Filippi will last the whole season on his budget, unless David Sears finds a replacement with deeper pockets.

After this snapshot of these teams, the question is: which is the winning model?  The short answer is there is no single winning model to earn money in GP2.  Teams with similar historical results make their revenues from different sources, as can be seen.

What is true for everyone is that breakeven for a GP2 team in 2009, after the category’s cost-cutting measures, should lie at about €900k per driver.  That said,  many drivers have signed for less than that, with teams surely banking on a “better than nothing” vision of the 2009 season.

I believe competitive drivers like  Alvaro Parente, Andreas Zuber and Davide Valsecchi all have budgets €300k to €500k under the team’s breakeven line.  Teams will bet on this approach for several reasons:

  1. If I’m going to give up revenues, might as well do it with a race-winning driver that will raise the level and image of my team
  2. There’s always time to bring in a well-funded driver, even if not a race winner from the start
  3. 2009 is a recession year, and I need to lose as little money as possible – even if I have to dig into my reserves
  4. I sign the driver now and work on raising more cash during the year, or in the worst case substituting for a better-funded one later in the season

So in summary 2009, is a year for surviving. Let’s see how large the debt of GP2 team gets and how many teams will face the wrath of Bruno Michel.