The F1 season is over, and though I have only been a casual fan, watching very few of the actual races, I have been observing the politics with keen interest. Chris Harris wrote a very interesting article on Jalopnik.com on F1, stating that Americans expect everything to be a sport (to paraphrase) but noting that F1 is actually a business. With F1 in apparent crisis, I have some thoughts and opinions.
Let’s look at F1 as if it were a business. F1 is owned by the Formula One Group (FOG, which seems to be what they are in at the moment, a fog), which itself is owned by Delta Topco, out of the Jersey Isles in Great Britain. It is made up of CVC Partners, Wadell & Reed and LBI Group and they are effectively the board of directors. What is not owned by them is owned by Bernie Ecclestone (along with other much smaller interests) and he is its CEO.
The individual teams and tracks may be looked at as either franchisees or semi-autonomous divisions of the much larger business. Each keeps a separate set of financials but are tied to the overall well-being of the larger corporation. I say this as all teams share in the revenue with the Strategy Working Group (AMG-Mercedes/Petronas, McLaren, Ferrari, Red Bull and Williams) getting a majority of that money.
The product they sell is F1 racing; the glamour, the technology, the personalities and, lastly (it seems), the on track action. This is what FOG sells this to the TV broadcasters. They buy the rights to televise the races in their respective media markets. Now, this is what makes the sport run. From here, several entities make the money. The television rights holder gets money from companies wanting to advertise in the various specific markets. The Teams get money from companies putting advertising on the cars and drivers. The Tracks get advertising dollars from race naming rights.
But all of this is driven by the belief that enough people are watching the race to make it financially worthwhile. And what they are watching are F1 races. People want to see a compelling story on the track; the popular driver winning, the under-dog boxing above its weight, the new driver making a headline. Like a soap opera, they want an evolving story line, changing race to race. As the season winds down, people want to see a fight for the title. We Americans want to see “Game 7 Moments”, those last minute upsets when the title is decided at the last second.
So, where are we now?
By the fourth race of this year, we knew 2 things; AMG-Mercedes/Petronas would win the constructors title and either Nico Rosberg or Lewis Hamilton would win the Driver’s Championship. Knowing that, why watch the season? It’s like reading the last chapter of a book first. And, as I have said before, I don’t watch a race to see who finishes 3rd, 4th or 5th. I want to see the winner fighting for it!
The finances are taking a toll…
At the start of the season, F1 had 11 teams. With Marussia is out of business and Caterham close to dead, F1 is down to 9 for 2015. The top 5 richest teams get a significant amount of the shared FOG revenue, making them richer, with the bottom teams getting a very small amount.
There are essentially 2 pots of money FOG distributes to the teams. The first has TV revenue equally among the top 10 teams with new teams getting $10 million. On top of that teams get a prize pool based on the previous years results and “success, results, heritage and longevity”. In other words, FOG can give more to any team for just a good old boy.
In order to get the sale of TV rights tied down under threat of the collapse of F1, Bernie Ecclestone made a deal at the time with the top teams for their support. This deal created the second pot. It is a $230 million budget specifically for those 5 teams: Ferrari gets $100 million, Red Bull gets $70 million, McLaren gets $40 million and Williams and AMG-Mercedes/Petronas each get $10 million.
The economy has not helped. With the economy in a slump, companies normally willing to sponsor teams and drivers held on to their money to see how the economy would improve. This meant there was less money around and the money that was there is going to the teams with F1 history and a record of success. This forced many teams to lower what they charged, offer smaller sponsorship packages with the hope of getting more smaller sponsors. And the small teams now have a bigger hurdle to deal with.
When the subject of distribution of F1 money is raised with many team principals, the big teams argue its better to make the whole pot bigger, rather than change the percentage they make. AMG-Mercedes Toto Wolff even went so far as to blame Caterham and Marussia of spending too much! It’s easy for him to say, AMG-Mercedes gets $20million more from both pots than the 2 little teams. This attitude only continues the to widen the separation between big and little team. This mindset is not at all healthy for a business…..
The engine that drives everything.
The change in engine formula (Power Unit is PU…whatever) has hurt everyone, with the smaller teams, who voted against the change, being forced to accept the significantly higher lease costs passed on by the big teams, I mean the manufacturers. With a plan for $9 million leases more than doubled with the new engine, and the budgets shrinking due to the economy, the small teams were, well, screwed….
To me, it doesn’t make sense that the small teams are forced to rely on the manufacturers who, essentially, have their own teams competing directly against them. Why would AMG-Mercedes give Force India its best engine when it has its own team competing directly against it! And with results helping, to a small extent, determine the next years revenue sharing, there is a serious conflict of interest here and the small teams lose! (That’s a story for another day).
The way the current rules are written basically legislates no room for adjusting the balance of performance (BoP). While BoP has been an issue for years in sports car racing with many teams complaining about fairness, it generally works. Look at the WEC, ELMS and Tudor for proof. If all the teams are complaining, than balance was found, sort of.
In F1, there has historically been a method of maintaining competition. The recently adopted rules (the new Concorde Agreement or CA) mean that if a manufacturer got a significant advantage, they could have it for years. This is because any changes have to be unanimous among the Strategy Group members. Why should AMG-Mercedes accept any change? It could have been any team that got it. Where the Strategy Group missed was with changing the basic design (from V-8 to turbo-charged, hybrid V-6’s), no method of balancing during the early development stages was considered. Worse yet, they put in a restrictive design freeze.
Red Bull’s Christian Horner has even gone so far as to say Renault/Infiniti is considering leaving the sport. If that is not a big red flag, I don’t know what is.
Bernie Sounds Off..
Bernie Ecclestone, the CEO of this business we call F1, continues to speak from the heart. When your Bono or Bob Geldoff, its OK. But as a CEO, everything you say is considered the official word of the corporation. AS I see it, F1 is targeting 70 year old men who own Rolex’s and not people on social media, like Twitter and Facebook. Young people need not apply. It goes further, saying on one day F1 doesn’t need the bottom teams, then saying the next day they do. This coming from a guy who compared women to appliances.
He has no filter for what he says in public. I can only imagine what he says behind closed doors. Ask Marge Schott and Donald Sterling about that. As F1’s CEO, he needs to act more professional by keeping his thoughts to himself and speaking only to promote the whole of F1. He doesn’t and that lessens the value of the product. From just watching the news, how many CEO’s have lost their jobs to one or two off-handed comments? A good board of directors has little tolerance for for this in the real world. F1 is not the real world, unfortuntaely.
There is Good News!
There are some good things happening, though. HassF1, with Ferrari power, are set to race in 2016. Haas either has or has access to everything an F1 team needs. Through the Stewart-Hass Nascar team in North Carolina, he has engineering from a number of universities, about a dozen composite companies and even owns the only full sized rolling bed wind tunnel in the US.
Audi, who has been extremely successful in the WEC with V6 turbo hybrids is looking closely at F1. They have hired Stefano Domenicali, formerly of Ferrari, for a“non-motorsports” position. It doesn’t make sense for VW, who owns both AUDI and Porsche to have them both competing in WEC. WEC’s loss would be F1’s gain. I’m already imagining the Silver Arrows fighting it out again.
Still…
I still feel F1, the F1 Strategy group, FOG and Bernie are not taking care of the quality of its final product, the racing. Bernie can’t shut up and The choices being made by the F1 Strategy Group are only in the best interests of the top 5 Teams and are not in the best interests of F1 as a whole. If the top 5 teams get their way, we’ll have a 10 car F1 race with little action at the front of the pack. That’s not an F1 I would spend money, or time, to watch.