Is there a crisis in F1?

You can read today that Formula 1 is in crisis, because there is not enough money about. That is true, but only up to a point. In reality there are two problems: the F1 teams cannot agree on how to stop spending, and not enough money being created by the sport is finding its way back into the business.

The first problem is really just a question of 11 Team Principals being unable to agree on a cost cap, so they go on spending, even if they cannot afford it, as though they are in some kind of 1970s nuclear arms race. It is plain stupid. This could be solved by the FIA instigating a financial regulation that required the agreement of more than 50 percent of the teams. Without a Concorde Agreement, the rule-making process is not set in stone and the federation can do as it pleases, within the limits of its own rules. However, the federation is incredibly cautious in all matters relating to F1 so it is hard to see any decisive action in the short term.

Last year a team with a budget of around $145 million (Williams F1) won a Grand Prix, fairly and squarely. The team had the technology and the prowess to beat bigger organisations which have budgets that climb to atmospheric figures, the biggest being $344 million if one counts the holding company of a team that claims to have a smaller budget. Winning should not be about who has the most money to throw at the competition, but rather who is the cleverest. In this respect, racing with a budget cap would be a far better advertisement for the best team, as it would have achieved success in the most cost-effective manner, which is of course attractive to modern car manufacturers who are always looking for ways to create cars at less cost.

The major teams today spend around $240 million apiece each year, which Williams proved last year is about $100 million more than you need to do the job. A cost cap would turn all the money being spent above the $145 million limit into profit for the big teams, adding value to their businesses and allowing them to expand into other sectors and by doing so create more stable enterprises. The smallest teams this year are running on budgets of $100 million, and, judging by the track action this year, this is enough to keep them within reach of Williams.

TV money should provide for everyone, including the 11th team in the Constructors Championship, in an equitable fashion. It is daft not to make allowances for the tail-ender because if there is no 11th team then it will mean that the bottom four or five teams can cruise along and take the money rather than worrying about dropping out. It is in everyone’s interest that the 11th team gets something to help it survive, but not enough money to make 11th an attractive place to be… and, of course, all the midfield teams face the prospect of ending up in P11 if they make one really bad car.

The same basic problem has existed in soccer for some years with ambitious team owners spending wild amounts of money to buy all the top talent and to build bigger stadiums to capitalise on their success. The result was that by 2009 UEFA concluded that around half of the 650 or so teams in Europe were in deficit and that their combined debts were around $1.6 billion. Today, four years later, that figure is reckoned to be closer to $11.5 billion.

In consequence UEFA developed the Financial Fair Play Rules (FFP) for teams that compete in its competitions, hoping that the domestic championships would also follow suit. Britain’s Football League has done that with its own version of the FFP with the aim to enable teams to break even and control salaries. The wages for the Premier League clubs are now limited to a percentage of the team’s turnover and to ensure that the teams comply there are transfer embargoes that will be applied. The rules that will begin in Britain next season will mean that Premier League clubs cannot make a loss in excess of $165 million across a three-season period, and even then only if the loss is guaranteed by the team owners; the financial projections are shown to the Premier League and if almost all of the loss is covered by injections of equity from the club owners. There are also restrictions on the amount of Premier League Central Funds that can be used to increase player wages. If a club exceeds this cap then additional wage cost must be funded by increased commercial revenues that the club itself made during the season in question.

It is not exactly a budget cap, but it is a smart way to solve the problem and one that the F1 teams would do well to look at. Perhaps someone should hire Richard Scudamore, the CEO of the Premier League, to fix this problem. He is in his mid-fifties, he’s trained as a lawyer, he has done some stonking deals during his career and dealt very effectively with a bunch of competitors who cannot see the wood for the trees. And he’s done the same job for 15 years and might like a change…

The second problem that needs to be addressed by F1 is that despite the huge commercial success there is not enough money coming back into the sport. It is rather out of kilter with the normal sport/promoter split of the earnings. The private equity people who control the Formula One group have already made vast fortunes out of their F1 investment, and now they want to strip out even more cash before they depart. They do not care a jot about the sport, nor about any damage they do while they are involved. Their sole aim is to extract money and all decisions are made based on what will produce maximum returns for them. Private equity companies exist to exploit, so one cannot blame them for doing what they do, but it would be best for the sport that this be stopped in the future. With a change of control mechanism in the 100-year commercial deal between the FIA and the Formula One group, it should be possible for the federation to insist that any new owner is less profit-oriented and gives more back to the sport. A renegotiation might thus be possible because CVC will want to protect what is left of its investment. If that does not happen then the commercial rights must either be bought by the interested parties, or they must be taken away from the current lessee and given to a more benevolent organisation, which is not going to be easy to achieve, unless there is a good legal reason to terminate the 100-year deal.

The plans to float the Formula One company are teetering (at best) and the uncertainty has led CVC Capital Partners to try to entice buyers with a $290 million dividend after the deal is done. In other words, if you buy shares you will get money back straight away. That is a pretty desperate step and an indication that the float is pretty unlikely to happen. It has achieved one aim, however, of putting a nominal value on the business and now it is a question of finding which investment firms will pay the most. The financial markets of the world are not peopled by idiots (for the most part) and investors are likely to be very wary. Perhaps there are some investors who are willing to take a risk on the commercial rights remaining with the Formula One group, but even they must consider what might happen if, for example, the situation in Munich gets any worse.

There have been signs for a while that the FIA is waiting for an opportunity to terminate the commercial agreement and create a new structure which will better serve the federation, providing money for club development around the world, road safety campaigns and assistance for talented youngsters to climb the racing ladder. The 100-year contract may have looked good 13 years ago (which is arguable), but today it looks like a very poor deal. There have been hints in recent weeks that there might be a second candidate in the FIA elections this autumn, but these have now faded away again as the problems in Munich are likely to reach a head before the FIA election.

For the moment the teams are not doing anything about this. The biggest teams have been pacified with larger payments from the Commercial Rights Holder, which means that it is not in their interest to rock the boat too much. However, everyone knows that F1 with only four teams is not a sensible option and the idea of customer cars is just padding the grid and disguising the problem. There need to be changes in the deals for the smaller teams, but all this is only possible if an earthquake occurs.

The key question therefore is whether or not there will be an earthquake.

69 thoughts on “Is there a crisis in F1?

  1. I like the idea of customer teams. It’s how Williams started after all. Different times then true but I’m sure there could be some rules made so it would be possible for the lower end to buy cars but desirable to eventually build their own?

    As for the overall money situation it sucks! CVC was one of the worst things to happen to F1. Bernie turned the sport into the fantastic global spectacle it is today bless him but when he sold to them he really sold everyone out!

  2. I think the sport is in a shambolic state. Any team manager saying otherwise is deluded or just trying to cover themselves for they way they are conducting their business.

    A few years ago places on the F1 grid were do valuable that to get on the grid BAT spent millions to buy the Tyrell team to then shut it down and start over anew. Now there are 2 open slots on the grid that noone has interest in – and at least one team openly up for sale that noone wants.

    Similarly we have a season with “only” 19 races after Bernie was unable to find a circuit to fill the gap at the prices levels he has set.

    How long can Marussia & Caterham continue with their current results. How long will Red Bull be prepared to keep keep bankrolling 2 teams? Will Force India continue to be viable if it’s owners financial issues elsewhere grow?

    I can see the whole thing collapsing if something significant does not change. And all this when the sport “has never been more popular” when it comes to viewers. Ridiculous.

    1. How long will the financial genii behind Genii be able to continue to prop up their team, haemorrhaging someone else’s hard earned.

        1. Aside from Grosjean’s desire to keep stuffing his car into the barriers and the consequent costs associated? Reports of a missed sale of the team, lay off of staff, chief architect for the car going on gardening leave, major sponsor failing to complete, dire last financial report……it all adds to the financial black hole. A shame really as the team is really giving the season a shake. Bit like Force India in a way.

          1. They missed payrole one month last year didn’t they?

            Hope whatever happens does work out for the best for them though.

            1. That was blown out of proportion. I am told it was and administrative screw-up at shareholder level. (e.g.: a transfer that had to be made was overlooked for a day or so).

  3. What do the team spend on? is it not engineering skills, spare part manufacture and purchase, and hosts of related sundries? they don’t spend much, I imagine and you will know more, on anything that benefits the service or financial sectors for example. Or investing in offshore hedgefunds. So it’s not exactly money down the drain if allied industries and workers get a piece of the cake. That is, if the theory that money going around makes for a healthy economy is correct

    Am I right in saying that from that cake the biggest portions go to Bernie’s organisation and its various components. Can they brook the idea of smaller slices so that there is still a cake to be had tomorrow and the day after? I imagine, no. Your thoughts appreciated, Joe

  4. Great work Joe, as always.

    I would add a third issue in saying that not enough real commercial revenue is being earned through sponsorship and (secondarily) merchandising. I could offer a barrage of reasons for that view, but expect you are already well aware of those.

    Paul P

  5. You are spot on about creativity within a cap. Here in the US, the most creative major league baseball teams are those that can win with small payrolls. For example, while the New York Yankees earn a significant amount of money from local television rights and merchandising, they have not won a championship in four years. Creativity has allowed smaller market teams like Oakland to punch above their weight. It can be done.

    1. Although baseball is much more personnel based than technology based, and personnel can be improved much more quickly than technology. But the general point is good.

  6. “A cost cap would turn all the money being spent above the $145 million limit into profit for the big teams, adding value to their businesses and allowing them to expand into other sectors and by doing so create more stable enterprises.”

    OK, McLaren & Williams have hived off their boutique operations, but I don’t know if any other teams have either the inclination or talent to follow suit. Lots of sporting organizations are structured to just break even,or manage acceptable losses as tax benefits for their owner(s) until they’re sold for profit.
    .
    “TV money should provide for everyone, including the 11th team in the Constructors Championship, in an equitable fashion.”

    …and meet around 80-90% of their operating costs.

    “The same basic problem has existed in soccer for some years with ambitious team owners spending wild amounts of money to buy all the top talent and to build bigger stadiums to capitalise on their success.”

    …and Major League Baseball too,which instituted a ‘luxury tax’ on teams like the NY Yankees, in large part because of their substantial local tv revenue.

    “Their sole aim is to extract money and all decisions are made based on what will produce maximum returns for them. Private equity companies exist to exploit, so one cannot blame them for doing what they do, but it would be best for the sport that this be stopped in the future.”

    Correct, and if they didn’t operate as such,they’d lose their investor base.

    “With a change of control mechanism in the 100-year commercial deal between the FIA and the Formula One group, it should be possible for the federation to insist that any new owner is less profit-oriented and gives more back to the sport. A renegotiation might thus be possible because CVC will want to protect what is left of its investment. If that does not happen then the commercial rights must either be bought by the interested parties, or they must be taken away from the current lessee and given to a more benevolent organisation, which is not going to be easy to achieve, unless there is a good legal reason to terminate the 100-year deal.”

    The ‘owner’ of the commercial rights should be some form of holding company,limited partnership or trust with different operating companies, (sound familiar?) BUT with the teams themselves as limited partners.

    “There have been signs for a while that the FIA is waiting for an opportunity to terminate the commercial agreement and create a new structure which will better serve the federation, providing money for club development around the world, road safety campaigns and assistance for talented youngsters to climb the racing ladder. The 100-year contract may have looked good 13 years ago (which is arguable), but today it looks like a very poor deal.”

    I have previously argued any number of national automobile associations, like ADAC or AAA, could sue under the claim the 100 yr deal was a breach of fiduciary responsibility that severely limited the distribution of revenue to the FIA member clubs.

    I must say, this is the one area where you seem to pull your punches. I really can’t blame you though,knowing the litigious nature of …

  7. Joe, I have heard team bosses at front-running teams say that the main desire is to win at all costs. Is it simply a pride thing that they want to be the very best at what they do, and will spend any amount to win? Or is the prize that comes with the win the true motivator? Sometimes I really don’t know, but it is such a high-stakes sport.

  8. A few years ago I thought the budget cap would have been the worst possible that could have happened to F1. Since then I completely reverted my opinion.

    Although I also wished the GPWC or the GP1 manifested.

  9. I would say Mercedes have the biggest crisis at the moment thanks to their “secret tyre test” after Barcelona!! They could very well find themselves spending money to win a Drivers Title whilst being excluded from the Constructors Championship!

  10. Great Insight Joe.
    I fear that unless the teams themselves can put their own greed and self-interest to one side there is little to oppose the financiers….a co-operative model with the participants, a sporting John Lewis if you like, may be one answer….each taking a stake, each benefitting from the sports growth, and encouraging new entrants who can also invest…but as you infer having your fate, and your sport, in the hands of those who have no committment to its long-term health or future is a recipe for failure….FOTA shows the betrayal and greed amongst its participants…unless this changes they may have already sealed their fate…but i sincerely hope i’m wrong…
    The FIA need to take a firm hand for the good of F1’s future…Bernie’s done a great job in the most part but now is the time for change…time for the sports heritage and soul to be protected beyond any other selfish interest…

  11. There is a mounting third problem in my view. “The Emperor has no clothes.” Or if one prefers “killing the goose that lays the golden eggs.” Monaco was another non-race. After Spain’s non-race after, well you get the drift. It has become about as exciting of a sporting event as most folks morning commute except for those seeking trills and spills and who have little knowledge of racing and F1 history.
    .
    F1 has always sold itself on a fantasy premise of the best drivers in the best cars battling in a no holds barred race. Some of that was of course hype but much was true. A lot of brave men pushed the limits and some paid dearly. Modern 2013 F1 with its go slower tires, push button passing and aggressive driver penalties have combined to expose the event as close to a farce instead of true top level racing. I had the privilege of hearing Senna explain that racing was about winning not trying to finish second or third. Imagine his response to a call from the pits to go slower to conserve tires and pick up points. I continue to shout from my vantage point of following F1 all of my 70 years that this model is broken. When in doubt F1 deciders you should ask what would Senna do? Or maybe what your long time fans want.

    1. I agree. I really hope F1 doesn’t go down the path that NASCAR took. They converted stock car racing into a contrived “show” to pander to an audience that didn’t really understand/appreciate real racing (yes, that’s my biased boiled-down version of the NASCAR boom in popularity). To me, that’s what F1 has been movign toward the last couple years.

    2. “Imagine his response to a call from the pits to go slower to conserve tires and pick up points.”

      Roughly the same as it was to having to turn the turbo down to conserve fuel and pick up points, I imagine. Plus ca change…

  12. Interesting, thanks.

    Not sure though if Williams last year really proved that they can “do the job” for 100 million USD less than the bigger teams. They did win a race on merit but finished 8th in the Constructors Championship.

    1. The underlying Williams car had pace, but was let down by some poor decisions and some of their drivers’ performances. It would be interesting for Joe to give some insight into why he thinks Williams are so off the pace this year.

  13. Joe

    Could you do a quick run-down on how we got into this mess in the first place? i.e. Bernie was granted the commercial rights (at a price), which he then proceeded to sell on to a third party (presumably making him lots of money). How was this allowed to happen?

    cheers

    1. I don’t remember the exact details of the deal, but as far as I know the underlying story was that when Bernie bought Brabham and came into the sport, all the teams were negotiating separately with the circuit owners, logistics companies, tyre suppliers an so on. He offered to negotiate on behalf of all the teams in order to get more bargaining power. It worked well, because Frank Williams and co were not too eager to do it, they did racing, not business. Piece by piece control slipped from the hands of the teams to their representatives. At some point, a believe sometime in the 70s, Bernie invested something like 40m pounds of his own into development of TV coverage, he offered the teams to be a part of the project and invest. They declined, they thought it was too risky. And now we have the result.

  14. Totally agree with the tenet of your article.

    But… just one thing. Doesn’t your point about Williams rather prove that currently $145 mil is enough to win you 1 GP only, and not the championship.

    1. Given their performance over the season, and their performance this year, I’m not sure it even proves that.

  15. Some form of cap on budgets and perhaps ‘fairer’ distribution of commercial revenue would make a lot of sense. However F1 is an arms race as we are dealing with technology that is very expensive to gain a competative advantage through a car. You simply cannot compare F1 to football or baseball where the majority cost is wages, in fact F1 is totally unique in that sense I think and so perhaps all these team principals are crazy but not stupid. I also don’t think the CEO of the PL will be of any great help unfortunately. I’m sure the man is a great professional but he deals with entities that are all under one jurisdiction , the same structures as organisations and not the nontransparent world of F1 teams (with the exception now of Williams I guess). So really the only thing that can be done is a better distribution of commercial revenue but I cannot see that happen anytime soon.

  16. Hi Joe

    The whole industry is in trouble, eg British F3, Formula Ford. You could have bought three new Bentleys (£450k) for the cost of hiring a British F3 car for a 2012 season. Investors now realise the score.

    Moreover, F1 has taken its fans for granted, its lacks vision and has completely lost the plot. Twenty plus years ago, F1 cars were easily identifiable with a number on the side of the car and the running order was displayed for 100% of the fans/viewers to see. Today, if you watch F1 from the cheaper viewing areas, mid way through the race, you will hear people enquiring of the running order of drivers. Selling small hand held TV, before a race is no good, eg if you have bright sunlight, you cannot see the screen. Because each team has the same livery, fans are often too far away from the drivers’ helmets to tell which driver is in which car. Even if you could see the helmets, you would need to memorise 22 helmets, every time you went to an F1 race. BTCC is successful because the fans immediately know the running order of the drivers, there are more races and the races are shorter, which makes them more exciting. If you go to a cricket or football match, fans instantly see the score. If you try to read the F1 running order captions on a 19 inch TV at home, you would need a magnifying glass. It is worse still on the F1 track because the TV screens are too far away. Once the field is strung out, you cannot hear the commentary because of the noise. Even if you could hear the commentary, the commentator is usually talking about the front runners. I have known people who have left the circuit and listened to F1 in their cars in the car park. Can you imagine walking out of Wembley FA Cup Final and listening to the match in you car? It is no wonder that F1 is dying in India, China, etc.

    Years ago, men climbed up and down inside frames, changed numbers, and everybody knew the running order of the drivers. It would cost very little to display the driver sequence on F1 tracks or to make the captions bigger on TV screens. If they really cared about fans, they would introduce these basic changes. Can you see an Indian or Chinese family comprehending the running order of the F1 drivers, on their first outing to an F1 Grand Prix? They all arrive to their first F1 race with high expectations but many leave disillusioned and confused.

    In countries like India and China, they need to have “free viewing” in certain areas of the track, just to get their fans back. Like the World Series Renault (130,000 fans over a weekend), they could give tickets away on line, but stipulate that fans arrive on track by say, 7- 8am, to stop traffic jams. F1 has an obligation to all of its fans world wide. This industry is not flexible enough, and it needs to get “bums on seats”. Airlines and hotels have had to change, eg it is not uncommon to pay £20 for a flight and find yourself sitting next to a person who has just paid £150. The motor sport industry is no different, eg like the airline passengers, the fans then spend money on site. Once they get the fans back, they can slide up the prices, ie instead of paying £20 for a flight, the airlines often charge £25, a year later.

    Even if they introduced such changes to F1, I suspect that the money would still not find its way back into the sport for the benefit of the younger talented drivers.

    You obviously have a better grasp of the subject, Joe. There are a few of my simple thoughts.

    Jimbo

      1. Hi Joe

        F1 may not be dying in these countries but it is really struggling. Having spent a fortune on the circuits, they obviously cannot let these completely die.

        I understand that Buddh circuit was constructed to take 1,000,000 fans, over a weekend. Only 95,000 people attended the Buddh Circuit for the inaugural F1 race in 2011, and only 65,000 attended in 2012, ie a massive 30% drop. Of the 65,000, these included 3,000 complimentary tickets. One Indian fan told me that he was embarrassed by the large number of empty seats in 2012.

        260,000 fans attended the inaugural Chinese Grand Prix. In spite of a new subway to the circuit subsequently being constructed, that number gradually dropped to 155,000 by 2010.

        No doubt the above figures will drop to a point where they must inevitably rise. However, it is self evident that the considerable drop in the original attendances is due to failures to meet fans’ expectations. The facts speak for themselves, because the stands are half empty.

        F1 is entertainment. It is little different to a West End show’s entertainment. Like an F1 inaugural race, West End shows have a good attendance in their opening night. The price of tickets and future attendances is determined by the quality of the entertainment, and the quality of the show is what makes some people return a second time to see the same show. Subsequent attendances, whether it be F1 or a stage show, depends on audience feed back to friends. It is such a shame for the industry, and fans, that grass root fans cannot get low budget or free entry to thousands of empty seats.

        Jimbo

        1. These figures do not prove a lot. Firstly, are they reliable? They used to ship school children and soldiers in to watch the races in Shanghai to boost the numbers. Secondly, it is not unusual for the second year of any race to see the numbers drop significantly because the novelty value fans have gone. It takes time to build fan bases and I see growth in China and in India. It is not quick

          1. Sorry, I have not had my figures verified. However, if it is true that India’s circuit can accommodate 1,000,000 fans over a weekend, it seems a shame that the space is not used. The Chinese could have saved the cost of transporting soldiers and school children, if they had offered these tickets to genuine fans who would have funded their own transport. Perhaps national pride prevents this! It worked for World Series Renault.

            I went to China’s inaugural race and to India’s two races, and I found the VISA process alone discouraged fans. Adrian Newey Jnr agrees your further layer of costs imposed by the CVC. I do not know enough about the CVC, so does this mean that its organisers are prevented from issuing free tickets because of this further layer of costs?

            A limited number of free on line tickets for “standing areas” in these countries might kick-start new fan bases, make money for the sport and help young drivers.

            Jimbo

        2. Oh. One more thing. 1,000,000 (One Million) people over the weekend? A daily capacity of 333,333. I have been there. I don’t think so. Why don’t you contact Jaypee the builders / promoters and ask. Silverstone’s daily capacity is 125,000 and I believe Brands Hatch is 45,000. Just for some perspective.

    1. Jimbo in relation to your first statement about the cost, you need to recognise that motor racing has always been a rich man’s sport. The increases in professionalism and safety over the years have further pushed up the cost of participation. Therefore there will always be a high cost and most likely the need for pay drivers through the lower ranks of the sport. However, as Joe points out, there is a further layer of cost imposed, being the sums payable to the owners – CVC.

    2. Jimbo,

      1. Your response is in no way related to the post.
      2. The post is making a pointed statement about Mr E’s possible successor.
      3. It is also discussing budget caps in F1 and not the cost of lower categories.
      4. It is not talking about accessibility for race fans.
      5. In 1993, race numbers were not all that big. Rose tinted glasses? Are you perhaps thinking about 40 years ago?

      However – to take you up on your response; – In your first and last point you reference the cost of the ‘ladder’ and younger drivers in your ‘state of the nation’ diatribe. Perhaps what you are rather naively missing is that that if said nation is in such a poor state, it is merely because of those investors who continue to fund their own whimsical dreams and those of the driver. If it were not for such foolhardy folk the price would be a lot lower in all Formula. Like any business, the business of motorsport is based on relative supply and demand. If there was less demand, the supply would meet accordingly as would the price.

      I will give you an example. In the last few years as Motorsport has become more accesible to those with a little bit of wealth, you have begun to find two types of driver in the junior categories.

      1 is the medium wealth kid with lots of talent who then gets picked up by Red Bull et al. The likes of James Calado, Jack Harvey, Sam Bird, Robin Frijns

      2. Is the relatively wealthy kid whose talent is not so great, but they plug away anyway. Sometimes, the 2nd driver blossoms, but all too rarely. This set of drivers are the ones who keep the grid bulging with their over inflated deals paid by the over-ambitious investor. The likes of Max Chilton, Jordan King, Josh Hill, Alice Powell, Carmen Jorda. These are the utterly hopeless lot.

      More often than not driver type 2 hires all the right sounding people. Sponsorship people, PR people, Mind management people and they begin to believe their own hype. The investor then also begins to believe the hype and so they continue to plough a sizeable mortgage into the driver year on year. This helps to keep the business of motorsport going, but it also helps to criminally inflate prices. Usually the investor is to blinded to realise they are paying too much.

      Further, in what crazy World should F1 be obliged to fund the dreams of kids in lower categories? You mention hotels. Does that mean that the Hilton chain of hotels should help to fund some shoddy village hotel – just because some of the future Hilton staff MIGHT come from the lower ranks of the shoddy village hotel?

      Your reposte smacks of someone with little grasp of the business of motorsport let alone that of F1. It is always great to hear people’s opinion on Joe’s forum, but when they are cast with the authority of a ‘Monday morning Quarter back’ as our American friends say, it becomes a little tedious and does need an opinion to re-balance.

      Thanks

        1. Of everything, I knew you would pick up on that! 🙂 It is a forum for discussion albeit timed to expire and isolated to a topic of conversation.

  17. Wouldn’t the whole Gribkowsky affair be a plausible excuse to try to dissolve the 100 year commercial rights contract, that is if the German authorities decide to indict Mr. E?

    This would seem very much like conduct that would bring the sport and F1 brand into disrepute, Todt could start pulling at that thread and either leverage it to get a more balanced profit distribution or take away the commercial rights from CVC and put together a more sustainable financial model for the sport.

    I’m guessing it’s all wishful thinking, I would be very surprised if anything changes.

      1. I would imagine if they charge him they’ll be fairly confident of getting a conviction. You don’t go up against Big B and his lawyers lightly, even when you are a Government prosecutor.

  18. Putting aside the dubious practicality of a budget cap, if it were enforced such that Formula One teams became routinely profitable, would not the teams mostly or entirely end up owned by CVC-types simply interested in the returns on their investments? I would view that as a nightmare scenario.

    1. Anyone who uses the term dubious practicality does not know much about forensic accounting these days. These things can be controlled within the regulatory framework of the FIA. It is for the teams to show they are not up to dodgy business not the other way around.

    2. I think you have a point with your second point, I certainly hope this wouldn’t be the case we want proper racing teams not just investors with short attention spans

  19. The FIA doing as it pleases is a scary thought. That is, scary whenever they get around to doing it.

    1. Not really. It is the pushing and shoving of a Cold War. Is the FOM ethos better than the FIA principles? The Federation, in theory, has loftier goals than FOM. And these ought to be better for the fans of the sport.

  20. Reading the antepenultimate paragraph, I can only hope this is the first of many articles questioning the governance, or lack thereof, by The Silent One.

  21. Hi Joe
    You said”unless there is a good legal reason to terminate the 100-year deal”. If things go ahead in Germany and go badly would this open the way for such a situation? If it did what does CVC have left to sell? Would this not put the FIA in a very powerful position?
    Similarly the FIA were pushing Michelin until they pulled out so maybe things are falling into place for them to change things there too?
    Kimi to Red Bull next year(with Webber).Vettel to Ferrari with Allison. Surely everyone can’t go to Mercedes 🙂 ! (prediction probably a million miles wide of the mark)
    Thanks for all your great stories. Very much appreciated Joe!!

    1. Kimi and James Allison to set up their own team called “Choc Ice GP” – the car livery in chocolate brown, Kimi in white overalls. Ashley Cole as brand ambassador.

      There will be no second driver, because Kimi does not need a team-mate, however attempts to clone him will begin immediately to raise Kimi Jr for the 2033 season.

      And there will be no-one on the pitwall because Kimi doesn’t like being distracted, he knows what he’s doing, even when what he’s doing is driving down escape roads and getting stuck behind closed gates.

  22. Joe – perhaps the biggest impediment to securing a cost cap agreement is the self doubt of the major teams. They have so much capital invested in highly paid executives, drivers, and engineers that if a supposedly “inferior” team beat them then they would have to answer to their sponsors / owners to justify their salaries.

    At the moment, winning the spending war at a minimum disadvantages a large part of the field and makes being the leading team easier (ie one of 3 or 4, not 1 of 11).

  23. Four top teams get money from cvc, to keep them on their side is like bribe money. cvc shouldnt have been allowed to get even a sniff at the door 13 years ago. Look what happened when an equity company took over ROVER from BMW, within a few years they whent bust….. could this be the future of F1. Teams must cut their spending and they are not imune to the financial crisis, surley the F.I.A. must introvene and must insist and lay down the law on this one if F1 is to survive to the next stage.Bernie and the cvc company are there to make money even if the is none, They dont really care for the future of F1 only Bernie might if things turn sour….

    1. I think the word “incentive” is less inflammatory than “bribe”, and a mire accurate description.

    2. How dare you mention the Phoenix Four in public. This is still guaranteed to raise the blood pressure if not the hackles of half the UK motor industry suppliers, not to mention the thousands put out of a job.

  24. Thank you very much for an interesting article. The whole situation is a vicious circle, and I don’t see teams like Ferrari, McLaren or RedBull waving their benefits for the sake of smaller teams any time soon. Formula One team were never able to agree, and I seriously doubt they ever will. Especially with the testgate now – a showcase of how “determined” the teams are in finding solutions.
    It’s in the hands of the teams to improve matters in the sport, but for that they have to unite. Bargaining power of every single team in negotiations with Pirelli/FOM/FIA is non existent, even if this team is Ferrari.
    And with current ownership structure of the sport the teams have fairly little incentives to work on improving competitive balance and therefore further increasing revenues of the sports as a whole – they won’t see this money anyway, so why bother.
    This lack of unity also does not improve the team’s situation in their competition for sponsorship money. Big companies choose to sponsor the sport as a whole instead of single teams, and as we’ve established, very little of this money ends up in the sports.
    Unity between the teams would solve a lot of problems, but there’s no unity.

  25. Joe, it would be fantastic if you could write another piece explaining/showing how F1 is actually owned and managed and how each authority/enterprise fits in to the whole picture.
    Who actually owns F1 and what is to stop the teams or another organisation forming a break away championship? Would the FIA allow it to race under their regulations still…

  26. As usual Joe, it’s an interesting piece, but some of your assumptions are a bit wobbly. A few points of my own:
    1) Why do you think the manufacturers want to rely on ingenuity to succeed. It is precisely because they can buy success that they are interested in the sport. It would be far less attractive if success was dependent upon ingenuity alone with fixed resources, because the risk of long term investment with minimal success would be far greater. But I agree this is a problem – it’s exactly the reason that manufacturers come and go like the passing breeze. Actually, it’s more like a tornado, leaving a few hundred families dealing with short term redundancy.
    2) Whether you think that there is a problem in F1 at the moment is entirely dependent on what you consider success to look like for the industry. A lot of people make a lot of money out of F1 every year. Sometimes companies go bust, and the weaker companies come and go. Their staff are recycled to other teams, or in some cases there are personal consequences. It’s EXACTLY like any other business sector.
    3) Where I think there is a genuine problem is that there are insufficient free market controls. I have no problem with someone outspending the opposition (but then, I’m a Manchester City fan!). The problem in football is not expenditure, but lack of resource (it’s like saying that speed kills, when in fact it’s the deceleration that tends to hurt). This is exactly the reason why financial gearing, and viability, should be the bedrocks of FFP, rather than a spending limit. People say that Chelsea/Manchester City etc’s owners are irresponsible for spending so much money, but in one sense they are the more responsible club owners, because they are spending cash that they HAVE. Spending £500m/year is fine if you have £3-4billion in the bank. It’s far less responsible to spend £1m on the club’s behalf when it is already in £5m debt and you are refusing to put in your own capital. It’s all very well saying “we need to spend to compete”, but it takes time to build up any successful business, and in well-managed companies it happens in careful, responsible stages. You can’t blame companies that successfully spend within their means for other companies who refuse to plan according to the reality of their situation and budget. If companies outspend their income indefinitely, then they should go bust, and their fate should only be lamented to the same extent as, say, a high street business.
    4) The nub of this issue is whether you consider these sectors to be “sports” or “businesses”. If you consider them to be “sport” only, then make them amatuer, and the many of the issues of money go away. If they are “businesses” then take away all of the restrictions and safeguards, and let the businesses go at it in a competitive way. Let’s have no more of this syndicated performance-fixing, cartel-based distribution of income, and patronising rescuing of the slowest and weakest. When Mateschitz goes for an hour’s conversation with the commercial rights holder to apply pressure to a pan-industry supplier, or Mercedes agree an illegal test outside of the sporting regulations, let’s call it what it is – anti-competitive market fixing. And let’s see them held to account.

    If business F1 is to be, then surely it should be the very embodiment of a competitive market?

  27. Writing as AP
    There was a link in one of the earlier threads, to a newspaper interview with CVC in which it was said that CVC took only 35% of the proceeds of F1 and the rest went back to the teams.

    Football is an anathema to me, but in any case it seem to use Italian restaurant mathematics, being bankrupt has no effect upon the clubs continuing.

    A cost cap can never work because it will take year of analysis to discover if anyone overspent last year. Let’s not forget how clever these people are at pushing the very edges of the rules. The definitions of spending would take a few years to agree upon, not that all teams would agree anyway.

    However I still think that what Bernie has constructed now commercially will collapse within five years due to lack of sponsorship as the tv audience declines. (Karen has given the figures so one cannot argue, Bernie includes every 3 second news-clip in the figures)

    Many of the commenters do not seem to realise why the FIA had to separate themselves from the commercial side in the first place and consequently suggest setups with the FIA in control of the money.

    Basically they with Bernie were very naughty, they created a monopoly, and the EU Commission smacked them and told them to give some toys away; consequently they are not allowed to be directly involved with F1 finances. Nor was the commercial rights holder allowed to be involved with the rules. The almost signed new setup seems to flout the EU commission ruling.

  28. As much as I enjoy when you write about the business side of F1 I believe your numbers don’t match your conclusions. You say Williams spent 140 million to win while other teams spend 240 and up to 366 million for the same result. I don’t know which team spent 366 million but if it was Red Bull then thay just spent over a 50 million per win, if it is McLaren the ratio is slightly higher at 60 million and even if it is Ferrari, each win cost them som 122 million, well below Williams budget. Maybe that team is none of the above but that would only mean that the ratio per win of these teams, according to your numbers, are even better because they would be spending around 240 million per year.

    Now I think I understand what you mean, it only takes 140 million to win one race (140 million a year to win once every 8 years) but if there is some sort of economy of scale for multiple wins then the incentives to invest more than that grow exponentially.

    Truth is, none of it really matters, you cannot extrapolate those numbers the way you did even because you might end up reaching the oposite conclusions. This means I can prove you wrong even if you are right (by the way I think you are not, but it would take to long to elaborate).

  29. I love how people on here try and pick holes in everything you write, Joe!

    Do you think there’s a chance that we could all be reminiscing in a few years about F1, that sport we used to watch? By that I mean: do you think there’s a chance F1 could actually die?

    1. Things that make this much money do not die. It needs some fixing but that will happen naturally.

  30. What needs to happen is to decide if F1 is in the entertainment business or an engineering business, or a bit of both.
    Because if its entertainment, then spec cars are the way forward, as in NASCAR, all that has to be done is to make a decision. It just needs leadership. and thats long gone, so until there is enough cash crisis, then nothing will happen.
    If its an engineering exercise, then it will be the last man standing, because ego will never allow an equalisation of spending.
    If its a bit of both, then the same rules apply, but it will just yake longer to die.
    Just think about a F1 series without, for example, Red Bull when “someone” gets tired of the spending, how many people out of work?
    Sorry, but its not will it survive but when will it fail, so until that time, lets just enjoy what is left.

    1. There is always another lunatic… Not everyone in F1 is blind or stupid. The business of F1 grew out of the mess that the Silver Arrows teams left in the 1930s when their domination drove everyone else away. AND we were having this same argument 30 years ago and F1 is still here despite the best efforts to strip every penny out of it.

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