The announcement of the FIA’s plans for Formula 1 in 2010 come as no real surprise. The federation has made it clear that it is not going to brook any argument over the funding of the teams because it believes that the economic crisis is such that small teams will be going out of business before any agreement can be reached with the big manufacturers. This is also why the FIA has not allowed for any “glide-path” with the budgets coming down over a period of several years. The federation argues that the problem is happening now and immediate action must follow.
I tend to agree with that. It is clear from the developments in F1 politics that the pressure is on in F1 circles, not just on the teams but also on the promoters. Bernie Ecclestone started to say even before the FIA announcements that he intends to cut payments being made to the teams unless they agree to sign up to a new Concorde Agreement. At the moment the teams and Ecclestone are working with a memorandum of understanding that they would stay in the sport until 2012 if Ecclestone paid them 50% of the revenue. Ecclestone now seems to be saying that this deal is not good enough and that they are free to leave F1 whenever they wish. He says he will only pay them if they commit for the next five years and even then he is only willing to pay on the basis of the original deal, which was 47% of the TV rights only.
This sounds like Ecclestone trying to worry the teams into accepting whatever they can get. In the old days that might have worked, but the emergence of the Formula One Teams’ Association (FOTA) is a clear indication that the teams are becoming less and less willing to go along with Ecclestone’s business model, and understand that if they work together they will gain more.
For years Ecclestone has been pushing up the fees paid by circuits and TV companies in order to fund himself, his business partners and to provide money to keep the teams happy. In recent times the teams have insisted on getting a bigger share of the income but they still get just 50% of the overall revenue, while Ecclestone and his partners take the remaining money out of the sport. Ecclestone is now suggesting that the teams should now subsidize the circuits, while he and his financiers remain with the same share that they currently enjoy.
This is bound to cause controversy.
At the moment there are three players in the F1 political game: the Formula One group, the F1 teams and the FIA. The on-again-off-again alliance between Formula One and the FIA (essentially Ecclestone and Max Mosley) means that the teams have traditionally been in a weak position and it has not helped that they have often been divided amongst themselves. There are always 10 opinions on everything.
There is a fourth group that should also have a voice, but the race promoters have never managed to work together and have followed Ecclestone in fear of losing their events. In most sports it is the owner of the venue who has ultimate control over the broadcasting activities. They may license people to do that on his behalf. However, if the promoters had a strong leader and could club together to establish their own organisation, they would become a political force. It would be a political challenge to get so many competing bodies to work together, but the teams have achieved this (for the moment) and the promoters could as well. There is sound logic behind the idea. If they were then to ally with the F1 teams the power of Ecclestone and the FIA would be seriously undermined.
Ecclestone seems to be confident that this will not happen and that the teams will not try to start their own championship. This belief is presumably based on the fact that starting a new series in a complex business and would be too much hassle and too much cost for those involved, most of whom have more important things to worry about, either running a team or trying to sell cars in a credit-less world. This is true up to a point but one must note that Ferrari is now heavily involved in the financially-uncertain A1GP Series and thus there could be a ready-made structure into which the F1 teams might jump. Promoters would follow if the price was right.
If the teams did bite the bullet and go down that route then the FIA would be faced with a choice. The federation owns the rights to the “FIA Formula One World Championship”, but under European competition law cannot stop a rival championship unless the cars and the circuits were deemed to be unsafe. The FIA would have difficulty putting together a credible Formula 1 World Championship without the likes of Ferrari and McLaren, particularly if the traditional circuits of Monaco, Spa, Silverstone and so on also decided to jump ship. The drivers would follow the money, as they always do. The media, the fans and the sponsors would go to whichever series had the most credibility – or they would walk away. The credibility would be based on the entry and the circuits involved.
It would be a similar situation that that which British soccer went through in 1991 when the top teams broke away from the Football League to establish their own Premier League, which the Football Association then supported.
The advantage of a new championship would be that circuits, TV companies and trackside sponsors could all be charged considerably less than is currently the case because all the money would be flowing into the sport, rather than going to anonymous bankers. Thus a new series could ask for 50% of the current prices and the teams would be in the same position as they are now. If a new series knocked 25% off the fees for all concerned, and paid the extra money to the teams, then everyone would be happy. There would, no doubt, be years of legal actions over details, but once a new championship was established – and the FIA had made the necessary choices, the financial power might then shift away from Ecclestone and his allies (who would, in any case, be weakened by not being able to pay their debts).
For the most part, however, people in F1 believe that any new series would need to deliver a knock-out blow to Ecclestone and the FIA as the concept of having competing series would be a disaster. They point to the CART-IRL split in the United States, which did massive damage to open-wheeler racing in the US and took more than 10 years to solve. No-one gained apart from the rival NASCAR.
Thus it is in the interest of all concerned to find a solution within the current structures. A budget cap is a good start, as it allows the big teams not only to cut back on their spending but affords some of them the opportunity to set up other businesses, which may ultimately strengthen their companies. Some will not want to go down that path and will have to lay off workers, but if there are new teams coming in (and this is a very big question mark), then there is the potential for the skilled F1 workers to find work elsewhere.
Compromise is the best way forward for concerned. And, most importantly of all, for the fans as well… Mess with the fans too much and one endanger the sport.
“If the fans don’t wanna come out to the ballpark, no one can stop ‘em,” said baseball legend Yogi Berra.
Something worth remembering…
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BE looks across the Atlantic and sees how the France family have things arranged: NASCAR is the sanctioning body (no FIA/WMSC involvement) and ISC is the track owner/promoter. He sees total control in the hands of one family,no government scrutiny, no manufacturers lecturing him, no team owner demanding more income, and asks himself: How could this be possible in F1?
Answer: demand the high fees from tracks/promoters for the circus to appear once a year, knowing the sovereign promoters will cough-up the dough because the motivation is ego-driven,not economics. Where there are legacy tracks, you argue that is the going rate. When either,or both, finally capitulate, you step in and assume the role yourself (Turkey? Donington? Montreal?Germany? Belgium? eventually Bahrain?…) You negotiate and sign deals with yourself.
The FIA becomes the legal facilitator. It applies the pressure to prospective teams to toe-the-line, or else. Why set the arbitrary date to re-sign for next year? It additionally adds the imprimatur that FOTA presently lacks.
As a side note, the decline in the value of the Delta Topco debt to something like 40% of face value is indicative of the pressure F1 finds itself, notwithstanding BE’s comments otherwise. I wouldn’t be surprised if he looked at buying the debt himself, with a view to reselling or refinancing at a later date,and this contributed to the dissolution of his marriage since his ex-wife would have been required to pledge trust assets in order to finance the purchase of the debt. I have to imagine there were conversations within FOTA about buying the debt themselves, and they decided to go in a different direction.
The solidarity of the car companies is the key to the future of F1. If they stick together they could see F1 reorganized as a sporting “utility”, run by a commission, and operating in a much more transparent environment.
I am a big fan of the A1GP series for the excellent racing it provides, but still i believe that the FOTA teams would consider a series like LMS before cutting a deal with A1. Getting into bed with A1 would mean a fundamental shift in philosophies from at least one side. How will it work? will Mercedes power only A1 Team Germany and Ferrari only A1 team Italy? or will A1 completely abolish their nation v/s nation concept? some other things to consider, current A1 cicuits ware only FIA grade 2 circuits. So for races to happen at these circuits either all manufacturers have to agree to use the current G2004 based spec chassis or all circuits in the A1GP series need to get grade 1 status from FIA. I definitely cant see the spec car option happening and upgrading all the circuits at a time is also a fanciful though at best. This means that contracts with the current grand prix circuits need to be negotiated which is pretty much like starting from scratch, for which the manufacturers or FOTA don’t need A1.
On surface it looks like an interesting thought and a potential threat to F1, but when you look at the feasibility of it, A1 has got nothing to attract all the F1 manufacturers and become a fierce rival to F1. All they have got is a name that sounds synonymous to F1!
I don’t think Ferrari is “heavily involved” with A1 as you put it. Its strictly a supplier-customer relationship which makes them good additional income and free advertisement in emerging markets, thanks to the customer who never knew thought through clearly if they could afford a relationship with Ferrari.
A1 might survive and begin making some money in its own niche way, if it survives the current financial storm but anything more is just a pipe dream.
In the end none of above would even get as far as the evaluation table in board room because both the manufacturers and FOM know that they need each other as much as they hate one another. Without one another both loose their racing credibility.
So with all the hate for each other they will continue to work with in a strained way and the FIA (or more precisely Max Mosley) will keep stirring the stuff up from time to time to show their/his relevance to the whole circus.
Their is no denying that F1 has be guilty of excess, self interest and wasteful spending almost to point of self destruction. Costs and attitudes need to change in order to remain viable and healthy. Maybe a cost cap is the way forward as long as it is large enough to provide funding for innovation and technological development which is F1. It just seems that all the political manoeuvring, cost caps, talk of reducing the payment to teams, track promoters being bleed dry is all done to protect BE and CVC.
I cannot remember if CVC has actually brought anything to the sport and what do they provide. It seems we are paying a group of people a lot of money to get richer or worse to avoid making any losses. Since when did the sport become guarantors for a group of investors who do not provide anything positive for the sport. The sport appears to earn enough money through TV, sponsorship, hospitality, track signage, merchandise etc. to provide adequate money to the teams, tracks and future development but unfortunately over half has to go to the men in suits. So many decisions and important future decisions are shaped to suit CVC with BE and Max being their protectors.
It is time to get the sport working for itself and its future, hopefully FOTA seizes this opportunity.
Interesting post. Something I wonder about, though, is how committed the FIA/Max Mosley are to the interests of CVC/FOM. They seem to be acting in concert in opposition to FOTA at the moment, but I’m not necessarily convinced that will always remain the case
Is it the case that the FIA have some interest in ensuring that CVC/FOM remain in charge of the sport, or is it simply that they are backing them for now, because they don’t think that FOTA are up to the job of going it alone and running the sport themselves?
If at some point in future, the FIA came to the conclusion that the biggest threat to the sport’s stability was the 50% the FOM take out of a shrinking pie, might they simply swap sides?
patrick, in May 2000 the FIA under MM signed an agreement with SLEC (Bernie) for the commercial rights of F1. The “lease” was reported to be for 100 yrs and ratified by the WMSC in July 2000 to forestall an EC investigation of the whole circus.
A strong,robust FOTA can arrange races with tracks that BE has disposed of (think of Germany, France, Silverstone, Montreal etc etc) and under EC laws the FIA must recognize them, albeit not as “Formula One”. Another reason BE trademarked so many variations of “Grand Prix” or “GP”