Knock-on effects

If Caterham does not make it to Austin, the F1 grid will shrink to 20 cars. The creditors of Caterham, however, will also be out of pocket and, as they scramble to stay afloat, we may see a knock-on effect as they put pressure on other teams for money. Several other F1 teams are struggling quite badly and if another team goes, F1 hits trouble. The word is that, under the terms of the agreements between the FIA and the Formula One group, the latter undertakes to provide 20 cars at every event. If it fails to do this, then it is in breach and the deal could be cancelled. Under the terms of other agreements, the teams undertake to help the Formula One group achieve this goal. However, the terms of all of these deals are not known publicly – as they are all confidential contracts, which leaves us with the absurd situation of having what are, in effect, rules but we don’t know what they are. Why all this has to be secret is an interesting question as a little transparency would not hurt anyone. We don’t need to know the sums of money involved but I see no logical reason why the rest of the information is required to be secret.

As far as I understand the teams will use their best endeavours to make sure that there are 20 cars available. However there also seem to be ways in which teams can avoid having to run a third car, by claiming that they cannot afford to do so. At the same time there are serious complications and very real worries about having some teams running cars that do not count for the World Championship. There is also the question of how the teams providing extra cars are chosen.  The problem with this is that – inevitably – teams that provide third cars will use these cars in a strategic fashion and that can influence the World Championship, because although the third cars do not score points and do not count for prize money the results they achieve are declared null and void and are not awarded to the next best finisher. This means that third cars can be used as weapons to take points away from rivals and that the overall effect is to push the middle ranking teams further back down the grid, weakening their hopes of raising sponsorship. This means that mid-ranking teams are forced to the back and may ultimately suffer the same fate as the current backmarkers, which will weaken the manufacturing base of F1 in the long-term. The only thing that makes F1 different to all the other championships is that the teams each build their own cars. If this is allowed to slide there is a danger that the series will ultimately go the way of CART, which went from being a multi-manufacturer series to becoming a one-make series. Formula One tends to never look beyond its own horizon, but there is an example of what happens when the big teams are allowed to have too many cars in NASCAR.  This happened in the US stock car series between 2007 and 2009 when the shortage of money led to a string of mergers that destroyed the midfield, leaving the big teams completely dominant. It began in 2006 when MB2 Racing was taken over by Dale Earnhardt Inc (DEI). Just over a year later DEI was forced into a merger with Chip Ganassi Racing to create Earnhardt Ganassi Racing. In the course of 2009 Petty Enterprises merged with Gillett Evernham Motorsports and then a few months later merged with Yates Racing as well. At the same time Bill Davis Racing was swallowed up by Penske Racing. The problem was exacerbated in NASCAR by the fact that cars are allowed to change their sponsorship from one race to the next which meant that the big teams went to the middle team sponsors and offered them better deals for a limited number of races, thus sucking all the money out of the midfield. NASCAR eventually restricted owners and their affiliates to four cars only and the midfield is now gradually building up again as a result.

In F1, there may now be a Strategy Group that calls the shots but the team contracts that were signed do not take this into account and so unanimous agreement is required for change and none of the middle-ranking teams are going to agree to third cars on a more widespread basis as they know that this will be detrimental to them. Thus the only sensible way way forward is for the FIA to regulate on budgets, which will add value to all the teams and as a result to the championship itself. The FIA is not doing this and has shown no obvious interest in getting it done.

At the moment the value of F1 does not look like it is growing: teams are getting into trouble, the sport has failed to break into the US in any meaningful way, there is a lack of any obvious succession plan and there are the negative impacts of such things as the Munich Trial and F1’s unseemly behaviour with regard to President Vladimir Putin at the Russian GP. The owners of the F1 group, CVC Capital Partners, has shown itself to be pretty unemotional about the sport, its only creed being the pursuit of profit and the containment of risk factors. The group wants to sell the Formula One group, but with the value under threat (or already dropping) the best way forward is to put more long-term value into the business, rather than pulling off short-termist stunts, such as pay-TV deals and high-paying races in non-strategic countries, which might be willing to pay but do not have very positive global images. Some would argue that the best way to put value into the business is to reduce races fees so as to gain access to more lucrative markets and those that have more strategic value; to spread its profits wider in order to have healthier competitors, willing to work to improve the sport as a whole; and to embrace new revenue streams that have not been developed.