Formula E Still Flourishing Despite Losses

Formula E, the electric-powered auto racing series, has accelerated to a value of $870 million over the past four years despite losses surging to a combined $140 million, according to a recent report.

The championship launched in September 2014 and uses cars that produce little noise and emissions. That enables them to race in city centers, and organizers pay hosting fees to British management company Formula E Operations (FEO).

According to its latest financial statements, in the year ending July 31, 2017, FEO received a total of $33 million (€28.7 million) from race promoters and Formula E’s 10 teams in return for services it provided to them. Broadcasters, including Fox Sports in the United States, paid a further $21.6 million (€18.8 million) with sponsorship fees bringing its total revenue to $108.8 million (€94.5 million).

It was far from the first time that the company had ended up in the red.

The Telegraph had previously broken the news that FEO had a $40.5 million (€35.2 million) net loss in 2016 and lost a staggering $67.3 million (€58.5 million) in its first full season.

Before any wheels had even begun turning on track, the company had lost $7.3 million (£5.6 million), driving up the red ink to a total of $139 million, as shown by the following pages from its financial statements.

Formula E doesn’t deny that it had an uphill struggle. In a recent interview with former Formula One champion Nico Rosberg, Formula E’s chief executive Alejandro Agag admitted that in the early days, “we were really close to going under. We [had] started — we got capital, then we were running out of capital but we made the first car, and on the back of the first car we raised more capital and then that capital was enough to do three races. But then we ran out of money.

“We were not supposed to be that much on the edge — but s*** happens! No one knew — only two or three employees knew. At one point I owed $25 million to our suppliers and I had $100,000 in the bank, that was the situation.”

He explained that FEO avoided hitting the wall thanks to investment in its Hong Kong-based parent company Formula E Holdings (FEH) from John Malone’s Liberty Global and broadcaster Discovery Communications. A string of other investors followed suit.

In 2016, my report in the British newspaper Sunday Express revealed that FEH had received investment from Swiss private bank Julius Baer and New-Wave, the ultimate parent of Weibo, China’s answer to Twitter.

More recently, my report in The Telegraph revealed that German insurer Allianz bought a 3.5% stake in FEH in November last year when Rosberg also became an investor. As the table below shows, he owns 0.2% of the company whilst the largest shareholders are Liberty and Discovery with 23.9% and 14.4% respectively.

Agag said that before they fueled Formula E with investment, it was so stretched that he “had to pay the air freight of the cars to go to the Miami race from my [own] pocket. Then at the Miami race we finalised the deal with Liberty and Discovery, capital came in and from there it’s been a great success story financially.”

In July last year, Agag told Reuters’ F1 sports correspondent Alan Baldwin that Formula E is “doing incredibly well financially according to our plan.” He added that “we could have broken even this year but we decided to invest more in marketing and promotion…It’s really up to us when we want to go to break even or not. We could be in break-even now, we could be in break-even next season but we may decide to invest more in marketing and promotion.”

Earlier this year, he made a surprise bid for full ownership of FEH for a reported $690 million (€600 million) but has since said that Liberty and Discovery put the brakes on it. “It’s not going to happen,” he told racing magazine Autosport “because Liberty and Discovery don’t want to sell. We are of course on great terms – I put up the offer but they clearly took it very seriously and basically got back to me with the message that they’re long-term investors in Formula E. They believe in the future of the championship and they want us to continue working together and they don’t want to sell.”

In a recent interview, Rosberg said that Formula E is now worth $870 million and FEO’s latest financial statements forecast a smoother road ahead. They state that “the third racing season, which was completed during the financial year, was successful and managed to increase interest in the championship. This should reflect in increased sponsorship revenue streams as well as broadcasting and advertising revenues going forward.”

Testimony to this, in January Formula E announced that Swiss engineering group ABB had become its new title sponsor and it is reportedly paying around $14 million annually. Since then, beer brand Heineken and German electrical equipment manufacturer Bosch have also signed up as sponsors. Nevertheless, there may still be obstacles ahead.

As my report in The Express recently revealed, an ongoing case in the European Court of Justice could lead to Formula E being forced to change its name and it admits that manufacturers could leave.

The financial statements point out that “over the past year, Mercedes, Porsche and Nissan have been added to the roster, leading Formula E to have one of the most respected group of manufacturers in motorsport. As with the World Endurance Championship (WEC) and Deutsche Tourenwagen Masters (DTM), there is a risk in these manufacturers leaving at some point in the future.” Tesla, the biggest name in Electric Vehicles, has avoided Formula E from the start.

The financial statements add that “further risks are apparent in the changing city line-up. Organizing races on city streets brings its own challenges but as city street racing is part of the DNA of the series and holds appeal to a broad market audience, the Group continues to pursue effective city/promoter agreements.”

Surprisingly, despite being environmentally-friendly, Formula E has still faced roadblocks from protesters. In 2016, locals put the brakes on its London race in Battersea Park due to the work required to turn it into a track.

More recently, Formula E held a race in Montreal which had a shocking effect on businesses in the area. Instead of giving a boost, 70% of local traders reported that the race in downtown Montreal had harmed their business. The Formule Citoyenne organization surveyed 70 traders and 49 of them said they experienced a negative impact from the race whilst 28.6% said they made no gain and only 1.4% made a profit.

According to the group, “although it had a positive impact on some businesses, many traders are still angry at this experience which sometimes cost them a lot.” It added that the lost earnings from the race weekend range from $500 to $18,000 per trader. One of the driving forces was reportedly the competition between the race facilities and local businesses.

“Formula E is a mini-village isolated and autonomous, with its facilities, its infrastructures, its universe. A universe that includes ‘food trucks’ that are not from the area, to the detriment of nearby restaurants,” said a Formule Citoyenne statement. The race got the red light and was dropped from the following season.

Indeed, Formula E’s calendar has changed so much over the years that only two of the races from its inaugural season are on the upcoming calendar which begins in December. Dark clouds are already gathering as the first race is due to take place in Saudi Arabia despite accelerating tensions following the death of prominent critic and journalist Jamal Khashoggi.

It will be the first time that Saudi Arabia has hosted a major auto race and it is especially ironic given that the country’s fortune has been fueled by oil. Agag recently told The Associated Press that “there are no plans to change the Formula E calendar this season. Of course we are monitoring (the situation).” Time will tell whether it gives the series a boost or puts it in reverse.