Ron Dennis, who seems to be staying on at McLaren, despite no obvious sign that he has found the money to buy out his partners, made headlines last week when he said that it is no longer possible to find title sponsorships in the sport.
He argued that traditionally a title sponsor would provide between 40 and 50 percent of the budget of a
team. With budgets now around $350 million, it is clear that no one is going to pay at that kind of level, particularly when one can get a shirt deal with a top Premier League soccer team for around $30 million. It is interesting to note that Dennis sees the answer being to sell smaller deals to raise the same kind of money, rather than finding ways to cut back on the profligate waste that goes on in Formula 1.
Success in F1 in recent years has come from teams spending bigger and bigger sums to get better equipment and better people than the opposition and all attempts to cut back have been insignificant or impossible to agree upon. The FIA might have imposed a spending limit in the rules, if it had had any backbone, but instead it sold its decision-making powers in exchange for cash. One likes to think that the logic in this was that the federation believed that the sport would ultimately collapse and it would start a new championship and retain all the commercial rights, but there is no real indication that there is any strategy beyond the incumbent president remaining in power.
The teams are relying on increased TV revenues to pay their bills and these are going up because more and more of the coverage is switching to pay-per-view. The downside of this short-term strategy is that it is not going to attract new fans, unless there is more promotion and the use of social media to draw in new fans. Only when pay-per-view is fully accepted in a market used to free public TV will things change – and that will probably take a generation. Unless TV companies bundle F1 with other content and offer it at lower rates, hoping to attract more customers.
The drop in fan numbers actually suits the commercial rights holder who is happy to watch the teams squabbling while they get weaker because it means he will be stronger at the next round of negotiation regarding revenue splits, which needs to be done by 2020. His primary targets are the big powerful teams because these take most of the money and if they were smarter they would realise that it is in their interest to keep the small teams around them – and cut costs. The problem is that several of the big operations are not really committed to the sport in the long term and so aim for shot-term success and will then leave when and if they don’t get their way. The team that should be standing firm is Ferrari, which is integral to the sport, but it takes the money each time there is a new negotiation, hoping to outspend its rivals to enjoy some domination.
Logically, financial control is a better route for all concerned but it needs someone to have the force of character to make it happen. There is little hope with the FIA and so Ferrari and McLaren must be the motive forces towards such an arrangement. That would require some detente between the two organisations. The likes of Red Bull and Mercedes might be persuaded to join in, but all that is required is a majority in the Strategy Group (ie four teams and the FIA) and a financial control package could go through. If this body was dismantled the task would be easier because the teams that currently have no voice would by definition support budget control.
At the end of the day, what would work best for everyone is a fairer distribution of the revenues, that could only be forced upon the asset strippers at CVC, but if faced by a united front of teams they would have little choice but to get what they can. They have had plenty already and no one in F1 will weep at their departure.
Until that happens the teams will continue to be divided and conquered and will go on wasting their energy with what amounts to an arms race similar to the Cold War when governments continued to spend money simply because the others were doing it. In the end it took the collapse of the Soviet Union to stop this silly game.
In a perfect world, the competing teams would own the sport by way of some kind of trust or foundation, which would have a performance-based reward scheme. This would have a commercial division doing deals for the foundation and the FIA would be paid to regulate. If there was possible F1 would be much better off and a great of worthless effort would be saved.