The current debacle going on in Formula 1 has raised the question of whether there should be customer cars. I have written about this before, but I think it bears repeating. Customer cars was where F1 came from and it should not be where it is going to. If one analyses the sport and asks what’s wrong, the answer is very simple: the sport generates $1.8 billion in revenues and it cannot maintain 11 teams making 20 appearances each year.
That is insane.
To understand why this happens one must look at history. Bernie grabbed the rights to promote the sport and has done an amazing job to build the sport up to the level it is at today. There is still loads of potential for more. However, in doing this Mr E buttered his own toast before anyone else got a taste and at one point he was taking about 65 percent of the revenues and the teams were left with the leftovers. They tried to get together to force him to change but on each occasion Ferrari accepted an offer and split away from the other teams. Ferrari is a key player in the sport and everyone accepts that the Italian car firm is a bit special. F1 and Ferrari go together. Ferrari did what was best for Ferrari. After Ferrari left the opposition crumbled. The end result of this is that Ecclestone has been able to whip the teams into line and keep more of the money for himself and those who have bought into his business.
The problem with that is that over time other teams have, quite rightly, argued that this is not fair and so Bernie has had to make concessions for them as well. Thus today we have a system that is skewed in favour of the big teams. How skewed? Well, read this and weep.
The main prize funds in F1 give the teams a fund of around $800. This is divided in two. One of the two parts in then divided into 10 and so each team gets about $40 million. The other part is divided up based on results, with established percentages for positions 1-10. The championship winners get about $80 million, the least successful get about $10 million. Thus added together, the top team would get around $120 million, the bottom one around $50. The 11th team got a one-off payment of $10 million. These percentages do not change but the revenues go up each year.
In the most recent round of negotiations Ecclestone had to increase Ferrari’s bonus payments to a total of five percent of the revenues: two and a half percent from the team’s overall share of the money and two and a half percent from the promoter’s share. Thus Ferrari gained $90 million before the prize fund was taken into consideration.
In addition to that, there was a new Constructor’s Championship Bonus fund , made up of 7.5 percent of the sport’s revenues (believed to come from the promoter’s share), which is given to the top three teams, based on the number of race wins achieved in the previous four seasons. It is not clear which seasons are included in this calculation, but if we take the period 2010 – 2013 as the guide, we see that the fund (worth around $135 million in 2015) will have been divided between Red Bull, McLaren and Ferrari. There were 77 races in that period, Red Bull won 41, McLaren 18, Ferrari 11, Mercedes 4, Lotus 2 and Williams 1. This meant that Red Bull took home about $80 million in addition to the regular prize money, McLaren took around $35 million and Ferrari took another $15 million. This will change in 2015 as Ferrari’s total between 2011 – 2014 will drop to five, Mercedes will sprint to around 20 and so Ferrari will drop out of the top three and lose its share of this fund.
However, there is also a thing called the Ferrari Protection Right, which gives the team a right of veto in respect of the introduction/modification of any technical or sporting regulations.
Although the Formula One group may now say that they get only 40 percent of the overall revenues ($720 million), it is still a massive amount compared to the 10th team in the Constructors’ Championship which took about $50 million and the 11th, which got just $10 million. There is still a very definite need for a budget cap – imposed by the FIA and not negotiated (although this may no longer be possible because of the need to go through the F1 Strategy Group) and for a redistribution of wealth. There is a strong sense in F1 circles at the moment that the FIA is weak. They won’t say it out loud for obvious reasons but they will say it to people like me and that is the overriding message at the moment: the FIA needs to lead to protect its most important asset.
Customers cars and third cars are simply the start of a slippery slope. Formula 1 is all about excellence. It is about being the best in the world, against the best in the world. If one can buy the most successful car then the competition is devalued – and has less interest for the public. To be the best of the best, you need to earn that status and allowing new teams who have access to cash to usurp teams that have battled for decades to be successful is simply unfair, whether it helps the marketing of the sport or not.
Imagine the situation if the top four teams were allowed to sell two cars to customers. Any more than that and the disaster would happen even more quickly. IndyCar has already been down this path and failed as a result. Once the CART series featured all manner of competing chassis: Chaparral, Penske, Longhorn, Wildcat, Coyote, McLaren, Eagle, March and Lola. Within a few years of open competition the car supply had reduced to just two chassis because the small guys could not compete with the big operations and, in the end, the series ended up with a single supplier.
Formula 1 has always been about constructors – it is what makes it different – and opening the field to customer cars would mean that the back half of the grid would have to make a decision whether to continue to try to climb the ladder, or simply give in and buy success. By doing so they would become dependent on the big teams at the front. There would be little choice because if Johnny-come-Latelys turned up, the smaller teams would be displaced. With four teams providing four others with the best chassis, the effect would be that the fifth placed team, which currently competes for top 10 points, would suddenly become the ninth best team, fighting for 17th place at best. This would impact on the team’s ability to score points, and thus its ability to make money.
In reality, it would be worse than that because the top teams would always be keen to protect their brands and so as to ensure that their customers did as well as possible they would become more and more involved so that the eight two-car teams would very rapidly become four four-car teams. This would have two serious effects: it would increase the power of the big teams – which would be dangerous for the promoters and regulators – and it would wipe out the smaller teams. At the same time it would also destroy the manufacturing base of F1 so that if one day a couple of the big teams had to close down, the sport would instantly lose eight cars.
It is much healthier for the sport to have 11 teams who are independent of one another. Not all may be competitive, but all have ambition to succeed, rather than settling for customer status. The best way to strengthen the F1 grid is to find a way to restrict ridiculous spending on irrelevant parts and at the same time try to ensure that the money that the sport generates remains in the sport, rather than going off to faceless financiers who do not know nor care about the business, as is currently the case.