Unravelling the Haas sponsorship drama

Nikita Mazepin in the all-white Haas on Friday of F1 testing last week

The Haas Formula 1 team currently finds itself in a somewhat awkward position after removing Uralkali branding from its car on the final day of testing last week.

The team’s title sponsor hails from Russia, a nation which this week commenced hostilities on the Ukraine after a long period of rising tensions.

Speaking in Spain, four-time world champion Sebastian Vettel stated his intention to boycott September’s Russian GP, while McLaren’s Andreas Seidl branded the race’s position on the calendar untenable.

For now, it seems the race is off. However, Formula 1’s statement announcing as much was vague, stating that “it is impossible to hold the Russian Grand Prix in the current circumstances”.

So, what happens if those circumstances change, and what circumstances are regarded as acceptable by F1 for the race to go ahead?

Those issues are an aside for Haas at the moment which is this week set to delve into the legal and commercial implications of its decision to remove Uralkali branding.

Team boss Guenther Steiner has claimed the team is not at financial risk, despite what seems to be the loss of its title partner.

“There are more ways to get the funding,” Steiner said on Friday in Spain. “There is no issue with that one.”

There is no doubt that the loss of Uralkali will have some impact, but delving a little deeper and it’s reasonable to suggest the team will be relatively stable in the short term.

Formula 1 teams derive their income primarily from three sources. The first is branding, sponsorship, and licenses, and it’s into this bucket that Uralkali falls.

The second is prize money from the sport itself, which is paid out based on a sliding scale laid out in the Concorde Agreement, the latest version of which was signed by the current crop of teams in 2020.

A third source is from benevolent owners, which often times manifests itself through sponsorship of another business they may be involved in. Red Bull Racing, for instance, is owned by Dietrich Mateschitz, who also owns the Red Bull drinks company.

The same is true of Haas, which is owned by Gene Haas, who made his fortune selling CNC machine tools and whose Haas Automation business adorns his team’s sidepods.

A team’s outgoings have typically been far less structured, and they’d usually be compelled to spend every penny in the pursuit of performance. F1 was a spending race, though that has changed.

The introduction of a cost cap last season has gone a long way to stabilising the sport, limiting their spend to $145 million last year, $140 million this, with a further $5 million reduction for 2023.

It’s believed Haas is operating below the $140 million threshold, but it’s a useful number to keep in mind when understanding how much of an impact the loss of Uralkali might be.

To understand the impact the loss of Uralkali would therefore have we need to get an idea of what it is contributing – information that is not publicly available.

However, we can approximate it by reverse engineering the team’s financials based on what is known.

Arguably the simplest value to estimate is the share of the prize pot Haas will receive.

Under the latest Concorde Agreement the team which finished last in the constructors’ championship is entitled to 6 percent of the prize money pool – an improvement from the previous structure which heavily favoured the sport’s front runners.

In 2019, Haas received an estimated $70 million in prize money after finishing fifth in the championship, which was paid out under the previous structure.

For the same season, Williams (which had finished last in 2018) received $60 million, though $10million of that was a special payment due to the team’s historical significance.

Last week, Liberty Media announced payments to teams for 2021 were $1.068 billion, broadly on par with what was seen in 2019.

It’s therefore reasonable to suggest that Haas’ prize money income would be somewhere in the region of $60 million.

Suggesting Haas operates to $120 million a year, a figure someway below the cost cap, half the team’s income is therefore derived from the sport itself.

That leaves a budget hole of $60 million before taking into account income, though that is unlikely to be especially significant.

In terms of sponsors, Haas Automation has a large presence on the car, arguably equal to that of Uralkali, so it’s not unreasonable to suggest that its value to the team to be broadly equal – or $30 million.

It’s reasonable to estimate the team therefore maintains a budget of $90 million without Uralkali, well down on the cost cap and likely the lowest on the grid by some margin.

There is no doubt that it’s a sizeable hit, but not a catastrophic one it would seem. And, as Steiner says, there are other means to get the funding.

Haas Automation, for instance, could step up its investment.

It was estimated the American company had revenues of over $500 million last year, suggesting it could step in with either increased sponsorship or, should the business owner feel so inclined, a loan.

That’s assuming Uralkali doesn’t reappear on the car, or even choose to continue without a branding presence on the car to assure Mazepin’s position.

There is of course the prospect of picking up an appropriately talented pay driver in place of Mazepin, though there are few available with such hefty chequebooks.

Will all this in mind, Steiner’s assertion that the team is safe is fair.

That’s not the same thing as saying the team is comfortable, but the sponsorship market in F1 is vibrant at the moment, with strong interest especially out of the United States.

Regardless, it makes for a difficult week for Steiner as he looks to steady the ship once again, this time just weeks out from the start of a new F1 season.

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