Open top menu
26 Oct 2014

Formula One heads to Austin next weekend and not for the first time American race fans won't bear witness to the product they were initially thought they were sold.  It's not on the same level as Indianapolis 2005 but the absence of Caterham & Marussia in Austin and again in Brazil will see the grid shrink to 18 cars.  Add to this that the current World Champion has stated he won't qualify in Austin owing to a full Powerunit change and we have but 17 cars qualifying on Saturday.  5 cars short doesn't sound too bad but it does have an instant effect on the qualifying format.  The Sporting Regulations regarding 'Qualifying Practice' have the following to say:

From 14.00 to 14.18 (Q1) all cars will be permitted on the track and at the end of this
period the slowest eight cars will be prohibited from taking any further part in the
session.

Lap times achieved by the eighteen remaining cars will then be deleted.

b) From 14.25 to 14.40 (Q2) the eighteen remaining cars will be permitted on the track and at the end of this period the slowest eight cars will be prohibited from taking any further part in the session.

Lap times achieved by the ten remaining cars will then be deleted.

c) From 14.48 to 15.00 (Q3) the ten remaining cars will be permitted on the track.
The above procedure is based upon a Championship entry of 26 cars. If 24 cars are entered seven will be excluded after Q1 and Q2 and if 22 cars are entered only six cars will be excluded after Q1 and Q2.

As we can see this poses an immediate problem, owing to the number of competitive cars falling 4 below the remarks in c).  I'm quite sure the FIA have a contingency for the situation but it'll be interesting to see how they complete the session.  I'd imagine they'll scrap Q1 and extend the running time of Q2 and Q3 with 8 cars being eliminated from the revised Q1 still leaving the top 10 battle.  The other option may be to retain all three qualifying sessions and simply lose 4 from Q1 and Q2.

The immediate effect of two teams in trouble (Marussia & Caterham, with the latter in administration and the former likely to enter it, having been struggling financially for some time with Spa being a turning point) is apparent with their withdrawal from these rounds, but how about the long term effects?

Put simply Formula One is expensive, always has been, always will be, people that believe otherwise will always be found out.  The problem for Marussia and Caterham is that they were mis-sold a product in 2009. Did they go back to the bank looking for compensation? No they soldiered on believing that their fellow competitors would fall inline and cut them some slack.  5 years down the line and the gap has begun to widen once more, costs are increasing but unlike last time the teams aren't unifying in a way that will bring balance.

For those that don't know how Marussia & Caterham came into being it was off the back of the last financial crisis, when we lost manufacturers like Honda, Toyota and BMW.  The then FIA president Max Mosley proposed a two tier regulation system for 2010 onwards, where those that could compete for 40m or less were allowed more technical freedom than those that ran without budgetary restriction.  The larger teams collided with Mosley over it but the wheels had been set in motion with plenty of interested parties looking to enter under the budget cap.  In the end Mosley was forced out, 1 regulation set remained with no budget cap installed, however all the teams now unified (for their own interests) under the FOTA (Formula One Teams Association) guise set about installing what they considered a more measured 'resource restriction', not only capping personnel levels but also Wind Tunnel time & CFD usage.  These were measures that looked to hamstring the teams and reduce costs, however Formula One teams can't be contained in this manner and although they say they were running to their own rules no one truly policed the activity.  Furthermore F1 teams always find other ways, just look at how quickly they recover downforce when the FIA adjust the regulations...

The 3 new teams that emerged in 2010 came into being very, very quickly and in all fairness never really stood a chance of making a mark in their opening season.  However the Formula One they had initially signed up for was gone, and with it any real chance of competing with the rest of the field.  Eternally running at the back of the grid is not only bad for team morale but it's bad for business.  It makes you less interesting to sponsors as you rarely feature on the TV feeds, (unless being lapped) meaning if you can get sponsors they won't be paying as much for their exposure.  It's an infinite loop that requires sacrifice and/or massive financial input from the owner.  Which ever way you cut it whether your budget is 40m or 150m it will all get spent, being in Formula One to make a profit is not an option and can only be used a vehicle to race or get exposure for your own brand.

Some would therefore say that Gene Haas is going the right way about it, even if some of what he says at times seem to contradict that.  In short a much longer gestation period for the team to be established and the recognition that he is using F1 as a platform to further his outside business interests.  But can Haas deliver? He comes from Nascar, where teams can actually be profitible a luxury that cannot be afforded in Formula One.

To add further credence to this, figures recently revealed show that Mercedes spent 190.7m on their F1 team in 2013 (Just the Works team not the Powerunit manufacturers spend at Brixworth).  This is the most Mercedes has spent since taking over from BrawnGP but as results have shown it has paid dividends.  This recent pattern of spending has escalated since the disbandment of the aforementioned FOTA, the FIA have introduced measures to limit the teams, including Wind Tunnel & CFD restrictions added to the regulations but without an actual budgetary limit the teams will find a way to spend money, which in turn ends up costing more money.

One such example is the teams demands to 'un-freeze' the powerunits for next season which would inevitably increase costs.  As always the teams that will benefit most from what they term an un-freezing have done well to manipulate the media to further their aims.  The powerunits aren't actually frozen in the same way as the previous V8 era, with a new powerunit presented to the FIA at the start of each season.  The issue is scale of change, with the regulations only permitting a certain quantity of changes from the previous iteration.  In 2015 the manufacturers may amend upto 48% of their previous design, whilst this reduces year on year until 2019 when the design change is as low as 5%.
The idea of the scaling was to prevent a run away manufacturer, allowing others to catch up through development whilst also improving the efficiency of the powerunits, with the aim of also reducing the fuel weight (currently 100kg's per race).  Renault and moreover Red Bull realise that this means that still gives Mercedes the same opportunity to improve, perhaps not to the same level as they have for this year but nonetheless it could still extend its margin.  Therefore along with Ferrari they're pushing for in-season development too, the scope of which hasn't really been talked about but whichever way you cut it, it will increase costs.  These costs have to be accounted for with the manufacturers unable to carrry the full burden, they'd have to increase the cost to their customers too, which as the powerunits are around 3-4 times the cost of the V8's already presents yet further financial issues to the none 'works' teams.  All of the troubled teams (Lotus, Sauber, Marussia & Caterham) have all at one time or another been seemingly defaulting on their payments to PU suppliers, perhaps owing to the vast cost differential from the V8's.  I can see things from both sides, Mercedes don't want to give up their advantage and raise costs and Renault/RBR / Ferrari want to narrow the performance gap.  It's a difficult issue to broach and calls for some clever regulation tinkering, perhaps giving with one hand, giving some staged in-season development (every 5th race) but taking away some of the out of season development, equalizing the basis of the original formula.
Bernie Ecclestone is often seen as the scapegoat for everything bad about the sport, and in fairness doesn't seem concerned about playing the pantomime villian.  However the loss of teams from the sport perhaps has the most impact on him and CVC he works for.  Bernie is the man in the middle, trying to fence deals that give the teams some prize money and of course make CVC (himself) rich.

But do you know how this came about?  Bernie bought and then ran Brabham Racing but could see that making money from a team would be nigh on impossible, as from a commercial aspect the sport had no leadership.  The FIA was (and still is) the regulator, their role is to provide the construct for the race series.  In those days there was no prize money on the table come the end of the season and TV coverage was sparse, only deals brokered by the team bosses would see sporadic coverage and therefore revenue generated.  Bernie saw an opportunity in which he would broker the TV deals, keep a proportion of the revenue, provide some to the teams, (via prize money - GP) whilst the FIA also took a cut too.  This culminated in the 100 year commercial deal that still stands today, whereby Bernie/CVC control the commerical interests of the sport and provide both the teams and the FIA a financial return.
Most recently (circa 2012) the FIA made amendments to their treatment of the teams with the entrance fee being raised and a price escalator installed based on their previous years result (essentially reducing the amount the teams get for winning in the previous season).  This will of course have an impact on the teams, with the those that fill the bottom half of the grid most affected.

Has Bernie made a fortune from F1? Yes

Is he ruthless? Yes - his remit is to maximise the revenue commercially available to the sport, be that from broadcasters, race promoters or large sponsors (Rolex etc).  Formula One is built on the principle fact that it is the pinnacle, if you want the pinnacle of anything it comes at a cost...

Is he the reason that teams struggle to exist? No - I'm not saying he is an innocent party, however when you know the rules to the game when you start it, you either have to be prepared to play by them or live in the margins.  Unfortunately for the smaller teams those margins mean being financially unstable.  Teams know when they start how much it takes to run, whether they can afford it or not they aspire to be there and some inevitably pay the price for that.

The Concorde Agreement as it is known is a private agreement that binds the teams, CVC and the FIA to provide certain criteria in which the sport can flourish.  The loss of teams is therefore an issue that Bernie/CVC can do without as it is believed that the agreement calls for at least 20 cars to feature at each race.  In reality this number is more likely a grid of at least 16 cars...



Race promoters, Broadcasters etc are also sold the promise of much the same and so financial penalties would be imposed should this not come to fruition.  Extenuating circumstances can always result in a default for the good of all parties but inevitably at some point Bernie/CVC would have to pay the penalties of not providing a full grid.  It is also purported that the agreement to not having 20 cars fielded could be the catalyst for the 100 year lease to be revoked by the FIA, placing the commercial rights back in their hands, something that F1 can ill afford to happen.

The FIA have no desire to run the commercial element of the sport, we only have to look at their new Championship: Formala E as an example.  The electric racing series may be diminutive in comparison to Formula One but the commercial and presentational aspect is one they didn't want to deal with.  Instead Agag is at the helm, negotiating the same sort of broadcast, race rights and sponsorship deals that Bernie/CVC do for F1.  Taking the commercial rights back from Bernie/CVC would be a mistake, not only would it trigger a cascade of contract re-negotiations but it would bring further instability to the sport and likely result in many more teams moving closer to the margins.  The larger teams have already begun to assimilate a level of control beyond the best interest of the sport, with CVC providing them with some shares.  This has led to the Strategy Group which in reality is the bigger teams forcing through regulation change that suits their own selfish demands.  This has weakened the position of the FIA with the once regulator now forced to listen to the very entities they should be regulating.

Talk of 3 car teams has resurfaced of late, much to the dismay of the teams who know they'll be the ones carrying the brunt of the costs.  Not only do I believe 3 car teams is not the way forward it would completely reshape the sport. Just how would we score the Championships? Can the likes of Sauber, Force India and Lotus even support 3 cars?
Even If we only lost Marussia & Caterham and 3 cars did come into existence, the Sporting Regulations would need changing.  According to the regs a maximum of 26 cars can take to the grid, 9 teams would mean 27 and for me that's far too many.  Perhaps even meaning we'd have to think about pre-qualifying again, imagine 6 Red Bull cars vieing for points, whilst tactically denying others positions on the circuit etc. I'm not saying it wouldn't add some spice but come on...

Perhaps trying to soften the loss of two teams from the current grid, the Audi to F1 rumor once again poked its head out the water this week too.  Audi have swiftly moved to deny the rumors, which cited a departure from both DTM and WEC to concentrate all their efforts on an F1 assault.


As nice as it would be to see Audi or indeed any of the VW Groups brands (Lamborghini would be the better fit IMO) enter F1, in terms of cost it doesn't add up.  The only viable option for their emergence in the sport would be as another Powerunit supplier with close allies Red Bull the likely recipient.  As we know though Red Bull have set about rescuing their current ailing supplier Renault, with not only staff and resources from Red Bull being focused at the Viry plant but a Red Bull led restructuring of the company that started with Cyril Abiteboul's re-installation.

The problem for Formula One is often its shortsightedness, it resolves problems when on the brink rather than addressing issues as they arise.  However it is in a constant state of flux making it difficult for those involved to finance and many fans to follow.
Tagged

4 comments:

  1. While the article is interesting I disagree almost completely with the assertion that Ecclestone isn't largely responsible for the sports financial woes. Ecclestone and CVC have for most of the time they owned F1 commercial rights paid out around 50% of the revenue. In the last few years it's moved up to around 57%. Virtually every sports league that retains the rights and sells them off themselves, NFL, EPL, MLB, etc pay out 90%. If 90% were paid out equitably there wouldn't likely be a financial crisis in F1 The FIA could have easily hired a management company to manage the rights while they still owned them.

    Eccelstone and CVC have asset stripped F1 to the point, that with the exception of Ferrari, no team is viable without massive funding by the teams owners or the use of pay drivers. F1 is in a death spiral that I don't see it recovering from.

    ReplyDelete
    Replies
    1. Yes that is the bottom line. There is plenty of money in F1 but sadly too much goes straight into the pockets of venture capitalists and too little to the actual participants. Selling the sports commercial rights for a period of 100 years was another massive blunder, we have Mad Max to thank for that.

      Delete
  2. F1 is a professional sport. Professional sports are businesses. Businesses have investors. If the investors aren't making money, the sport will die.

    The investors in F1 aren't the teams. They are the athletes. Their job is to train hard (develop cars) and compete against other athletes (go racing). The reward is prize money. And - as in most professional sports - you are allowed to have individual sponsors supporting your effort.

    Professional athletes understand, that the can't enter, expecting to live off of their prize earnings. There are more athletes fighting for the money, than there is money to fight for.
    Athletes depend on their sponsors to sustain their effort. If they are among the best athletes, they might get the added benefit of reaping some reward.

    Bernie and CVC have developed F1 from amateurs fighting car companies to a full fledge professional racing series, making more money than any other racing series, and also providing the largest prize money in racing at all.

    But that only works, if the athletes are good enough to ensure, that F1 is indeed the "pinnacle of motorsports". If F1 becomes everybody's game, then the quality will drop, and so will the money.
    If the revenue shares are distributed so that they create a sustainable foundation for each and every team, teams will be in F1, just because they can, without really making the effort needed to compete at the top level. Remember the days when teams never managed to qualify at all, or the time when teams got cut by the 107% rule? Those times weren't good for the sport either. Playboys and princes with little to no top racing experience in the fastest racecars on the planet. It was a disaster.

    Yes, Bernie is running a very tight ship, and a lot of money is being made by investors and venture capitalists, but THEY are the people sustaining the sport at its current level. It's quite fair that they make money.

    Caterham hasn't exactly impressed anybody over the last 4 years. This year, it looked like their initial car design was based on "Let's build the cheapest compliant car, and see what the other cars look like. Then we can adapt later!"
    The Caterham nose didn't exactly look like hours and hours of windtunnel work, did it?

    That's just not good enough for F1. I tip my hat at the idea to bring Lotus back in F1 - even though that became a complete shambles. I also commend the effort by every single soul in Leafield, who obviously did everything within their powers to go racing at the top tier. But they failed. They failed, sadly, but also completely. They haven't scored a point in 4 seasons.
    It's not good enough, sorry. And it's not because of Bernie or the F1 revenue model. It's because the Caterham mangement team(s), weren't able to put a succesfull and sustainable business together.

    ReplyDelete
  3. The fact that none of the private teams have a sustainable business model for F1 indeed shows that the present revenue model in F1 is working to consolidate the entrants to a smaller and smaller elite group of manufacturer teams. If one thinks this is good for the sport please reflect on the nature of other premier sports. Would, for instance the Premier League benefit from having just three teams or the NFL? The argument that if you are not wealthy you are just not good enough to play is anti-competition in principle and ludicrous in practice, even in F1.

    ReplyDelete

Whilst I'm trying to keep atop of the blog you may have noticed of late that there is less content appearing. For those of you that haven't realised, most of my work has now been moved over to Motorsport.com where I'm working with Giorgio Piola.

I'm still doing the technical image gallery for each GP with the continued support of friend of the site Sutton Images. However, as always my time is limited and so this might not be updated as quickly as it once was, so keep checking back.

As some of you may have found out already I'm also working with the Missed Apex crew on their podcast from time-to-time, either doing race reviews or dedicated 'Tech Time' shows.

I've embedded the latest version of the podcast below and will update this a frequently as I appear. However, please head over to Itunes if you want it to appear in your player when episodes are available. The show is great to work on and has a great lineup of 'regulars' but has also enticed some bigger names recently too, with Will Buxton and Bradley Philpot on shows during the summer break.


Total Pageviews