Models in restructured F1 financing

Bernie Ecclestone has always been very keen to keep the big players in F1 on his side, and thus gave them more money than the smaller team. It achieved what he wanted to achieve at the time. Now that the big teams are no longer supporting his every move, there seems little point in maintaining this system, so he is now telling people that he thinks he might change things in the future.

We all know that the big teams can afford to live without the money and that it has always been a system designed to dampen down opposition, but it is also just Bernie laying down some groundwork for the renegotiation of the commercial agreements, which must be done between now and the end of 2020, when the current deals run out. This is clearly all it is, but at the same time, he cannot throw it all away because he as a deal with Renault that stretches beyond the other arrangements which is going to be a bit of a fly in the ointment. It is highly unlikely there will be no extra benefits for the teams which have been around longest but, at the same time, there is little chance that anyone is going to stomp off. There is no other form of motor racing which provides the same as F1 does. People make a big fuss about WEC, but as we have seen with the GT class at the recent Le Mans 24 Hours, the system can be manipulated and politics can override proper levels of competitiveness. It may sound odd to say F1 is a level playing field but, in this respect, it is true.

To be fair, offering teams equal money is logical, because historical achievement and loyalty to the sport is – and should be – rewarded in other ways, with better sponsorship and more merchandising. Ferrari is trapped in F1 inasmuch as the sport provides all of its advertising and so pulling out really isn’t any option – and they know it.

So what does it all mean if this ends up being the case? Well, we have to guess to some extent because of the secrecy that surrounds the sport. However, we can say with some certainty that Ferrari gets five percent off the top of the F1 revenues, before any other division of money. This is worth about $90 million a year. There are then historical payments that are worth around $60 million (give or take) and there is a thing called the Constructors’ Championship Bonus Fund that divides around $135 million between the big teams. Add all of this up and it  means that there could be another $285 million available for distribution. If all goes to plan this sum will increase in the next few years, as the overall revenues rise (if indeed they do).

Right now, the top 10 teams share around $850 million, divided into two “Columns”. The first is based on the teams’ commitment to appear at races and is shared equally, and the second is based on performance with the percentage scale being 19 percent for the Constructors’ champion, 16 percent for the second placed teams and then 13 percent, 11 percent, 10 percent, nine percent, seven percent, six percent and five percent, with four percent for the 10th placed team. This means that the spread of payments to the teams ranges from $81 million to $17 million. The status of the 11th team remains unclear, but seems to be a one-off lump sum of no more than $10 million in total.

Logically, if there is an additional $285 million available, this would go back into the pot and, knowing Bernie, giving the Formula One shareholders more money as well. This would mean the teams would get an additional $142.5 million to be divided between them. That would mean half the money would go into the Column 1 fund and the other half into Column 2. That would hike the Column 1 money for each team from around $42 million to just short of $50 million. In Column 2 it would mean that the champions would get $95 million (an increase of $14 million) and the 10th team would get $20 million (an increase of $3 million). Overall, therefore, the biggest team would get $145 million rather than the current $200 million or more, while the smallest teams would get $70 million rather than the current $60 million.

Now, the teams will probably argue that the shareholders should not get more than they already  have today indeed most teams will want a further reduction in the promoter’s share, which will be around $900 million based on today’s figures. This is entirely reasonable because the promoters do not do anything which deserves that kind of money. They don’t even promote…

Thus while Bernie’s pronouncement sounds reasonable enough, it really would not make much of a difference to the teams.

If the promoter’s slice were to be reduced to a more reasonable 15-20 percent of the overall figure, things would be very different. Just a few quick calculations reveal the following: with the promoter taking 25 percent (still a pretty high figure), rather than the prize fund being $900 million, it would be $1.35 billion. That would mean Column 1 payments would be increased to $67.5 million per team and the Column 2 numbers would range from $128 million to $27 million. Thus the range of payments to the teams would be from $195 million to $94 million. With some sponsorship thrown in, most of the teams would have financial security and, if they would agree a budget cap of, say, $150 million a year, a lot of them would be profitable businesses, worth a great deal as sports franchises.