Should Formula 1 Be Concerned About the Future of Its Smaller Teams?
There was discourse as Formula One’s new Strategy Group met for the first time this week.
Representatives of the four leading teams in F1—Red Bull, Ferrari, McLaren and Mercedes—plus the best of the rest (Lotus) and a team of great heritage (Williams) form the new organisation that will effectively decide upon the direction in which the sport heads in the future.
The obvious immediate concern is why almost half of the grid is not represented. Before, it was a free-for-all, and Caterham, Marussia or even HRT would have the same input and the same volume as Red Bull, McLaren or Ferrari.
But the Strategy Group effectively replaces the Sporting and Technical Working Groups which provided the smaller teams with their voices. These respective meetings grew scarcer in recent times, a casualty of the failure to immediately agree a new Concorde agreement when the previous iteration expired at the end of 2009.
Now, the voices of the remaining teams will only be heard to provide input to team principals on the SG. The SWG and TWG will remain, but essentially only as discussion forums, according to Autosport quotes attributed to Williams’ technical director Pat Symonds.
A Concerning Strategy
The initial meeting covered tyre supply, tweaks to sporting and technical regulations and something of greater significance to the sport’s future: namely what parts can be sold to other teams. In other words, what could constitute customer cars and whether it would be a viable option in the future.
Bob Fearnley, Force India deputy team principal, has been the most vocal of what these changes mean for F1’s smaller teams. He believes the direction the sport is headed, Autosport also reports, will leave the minnows with no option but to withdraw, thus making room for customer cars.
What I am sure about is that there is obviously clear evidence of a move, not only to disenfranchise teams but to burden them with costs on a continual basis. I would assume the reason for that is to [make them] fail, which would allow the customer cars to come in.
He’s not the only person concerned by the issue. Speaking in the FIA Friday press conference at the Japanese Grand Prix, McLaren’s managing director Jonathan Neale said:
It's a contentious subject. Customer cars is a game-changer, certainly for the independent teams; it fundamentally changes that business model and I think before Formula One goes about that, I think it needs to look at the economic sustainability of the various business models that exist.
It would fundamentally change for me what Formula One is and I think Formula One is about the pinnacle of motor sport and that technical element is very important to it, and I believe that the independent teams would say the same thing.
Dave Greenwood of Marussia, which has a technical partnership with McLaren, is also in favour of retaining the current format.
What you can and can't buy from someone else is probably about the right place. In effect it allows us to buy the really complicated bits - gearboxes, hydraulics etc. - and then lets us go off and concentrate on the other parts.
There are two linked questions here. Is a future of customer cars likely? After all, as reported by Crash back at the start of 2012 McLaren team principal Martin Whitmarsh said the team was “philosophically” opposed to the idea, while Williams threatened legal action in 2007 (per Autosport). What part will the Strategy Group play in implementing this future?
Will Red Bull, when advising, be fond of introducing a budget cap into the Resource Restriction Agreement? Will it cede to the smaller teams and force itself to majorly downsize its estimated £235.5m budget? Or will it lobby for an option that enables it to keep pumping money into the sport to guarantee success, and then give itself an added stream of revenue by opening up the possibility of others buying its hugely successful racing cars?
Before anything else, Formula One is a business, and this year has provided many examples of that. At the start of the season, Luiz Razia lost his previously confirmed Marussia drive because a sponsor came up short. Rumours surrounding the fate of the much-maligned Korean Grand Prix gained traction, as did those regarding the future of the race in India from Auto Motor und Sport (via GrandPrix247.com) and Planetf1.com respectively.
Do You Think There Should Be Customer Teams In F1?
Sauber safeguarded its own future by striking a deal with Russian investors, a group which brought with it the requirement of fielding an underprepared, inexperienced rookie in Sergey Sirotkin next season. The aforementioned underperforming Marussia posted record losses, and at the end of the year McLaren will lose its Vodafone sponsorship.
That “showreel” is not to suggest that this year has been F1’s annus horriblis. But it does serve to ram home the point that the position it finds itself in financially can be incredibly precarious even to those previously perceived as untouchable.
Does it seem peculiar that a billion-dollar sport, which can be expected to make $1.5bn this year, leaves its participants so open to financial concerns? That can be traced immediately to the creative rights holders (CRH) and the disproportional way in which the sport’s revenue is shared.
Last year, for example, the CRH (CVC) made £550m in 2012, while first Lotus and then Marussia announced record F1 losses; the latter’s more than £50m. F1’s revenue is shared, in theory, 50/50 between the teams and the CRH. But the reality is the majority of the teams share 47.5 percent of it, 50 percent goes to CVC, the remaining 2.5 percent is a premium paid to Ferrari.
So, based on expected $1.5bn annual revenues, and once the sport as a whole has paid its $300m fees to the governing Formula One Group, the remaining $1.2bn is then shared. The 2.5 percent Ferrari premium works out as $30m paid by both the other teams and CVC. So the CRH earns $570m, after paying Ferrari $30m (which then earns another $30m from the teams’ premium).
The teams earn $570m from Bernie and FOM, with $285m split equally among the top 10, and the other half shared based on success a percentage split between the Constructors Championship Bonus teams—Red Bull (three titles in a row); Ferrari (heritage, 2008 constructors’ champions); McLaren (heritage, but less because it has not won a title this millennium) and Mercedes (2009 constructors’ champions as Brawn).
Previously, there was $10m to be earned by the backmarkers as part of a deal negotiated by then-FIA president Max Mosley to safeguard their immediate futures. That has passed. The bottom line is that the money earned by McLaren, Ferrari and Red Bull from FOM would easily cover Marussia’s entire budget, with plenty in reserve.
It could be conceived that the minnows are feeding off the scraps of F1’s revenue at the moment, but equally it could argued they are simply suffering from not being as successful. Should F1 really pursue a future in which those who triumph are not rewarded?
Of course, this is just part of the bigger picture for the smaller teams. Are they concerned over the future? Yes, because it’s becoming more clouded than ever. With a restricted stream of revenue and no input into the final decisions regarding the direction the sport takes, will they bite the bullet and continue blind into the darkness?
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