Take a look at the grid for the Monaco Grand Prix each May and just take a moment to count how much money you can see. As gaudy shows of opulence go, you’ll struggle to find a less ashamed display of wealth than that which descends on this tiny principality for one week a year. The Formula One circus brings its biggest guns to the Riviera, and the world’s biggest collection of Super Yachts come together while billionaires host outrageous parties which barely cover the game of one-upmanship bubbling beneath the surface.
With that in mind, it’s perhaps not easy to understand or sympathise with the plight of Formula One teams who are beginning to show the signs of financial struggle. In a sport surrounded by such incredible wealth you’d be excused for not even thinking about the money involved. The cost of running a team isn’t an issue for fans, until it takes a toll on teams being able to race at all. In the last fortnight both the Caterham and Marussia F1 teams have announced their financial difficulties, and have made their way into administration.
These are, of course, smaller teams with much smaller operating budgets, smaller sponsorship packages and…smaller everything, but their looming demise should focus the attention of the Formula One world on the expense of competing and the on-going sustainability of those smaller teams. After all, the Formula One product relies on those smaller outfits to fill the grid, and the larger teams often rely on them to develop young drivers from raw prospects into championship contenders – don’t forget that Sebastian Vettel spent his formative years in Formula One with Sauber F1. That’s Sauber with the fifth smallest budget amongst the 2014 pack, Sauber who might not be far from entering the ‘at risk’ group. For the record, Red Bull outspend Sauber five times over, and the rest of the marquee teams aren’t far behind.
F1 needs to ensure that survival is possible for all of its teams, not just the ones competing for championships, and that means the entire sport waking up to the very real possibility that the current financial model isn’t sustainable. It’s a sentiment which has begun to be echoed not only from garages up and down the pit lane, but also from F1’s orchestrator Bernie Ecclestone. Heading up CVC, the group which ultimately owns all things Formula One, makes Ecclestone the ultimate money man in the sport, yet even he now understands that in order for the sport to avoid catastrophe the shareholders he represents, along with the teams, must be prepared to reassess the financial arrangements currently in place. The reason, perhaps, Ecclestone feels the need to speak up now may lie with his role in the negotiation of the very payments which are now crippling smaller teams like Caterham and Marussia.
F1 needs to ensure that survival is possible for all of its teams, not just the ones competing for championships, and that means the entire sport waking up to the very real possibility that the current financial model isn’t sustainable.
Each team receives its own financial package as payment for competing in F1, the total sum divided up is just over 50% of the overall profits from the sport, and they’re all negotiated privately, independently and remain secret despite regular rumours as to how much the marquee teams receive for attending. Obviously those teams who bring more revenue to the sport are able to engineer more lucrative deals for themselves, to supplement the inflated sponsorship deals already in place and the solid financial backing available to Ferrari, McLaren, Mercedes and Red Bull, but the end result is a scenario where smaller teams without access to the same level of external revenue are also left short by the money coming from inside F1.
The rich get richer, as they say. Unfortunately, the complex contractual arrangements at work in Formula One make actually sorting out this mess incredibly difficult, even though the remedy is obvious to those inside and outside the paddock. There isn’t an immediate option to generate more money overnight; the only viable way to dramatically increase the income of Formula One as a whole is to add lucrative races to the already bulging calendar, but that is an avenue already being explored and comes with its own pitfalls.
More races do indeed create more money, which will ultimately filter its way down to the teams, but with the European well all but dry in terms of room for new circuits the powers that be must look further afield to tap into new revenue options; but that means that teams are regularly transporting equipment and personnel further and further in order to participate. It’s less of a problem for those teams who operate under a global brand: not only can they afford to soak up the plethora of costs involved, but they’re recognised on arrival. Ferrari won’t be struggling to find fans, or investors, in the USA, Russia or Kazakhstan, and they’re able to use that recognition to soften the blow and justify the expense. Caterham, Sauber and the other small teams don’t have that benefit, and that is only compounded by the relatively tiny share of revenues available to them.
Could you reasonably expect people who are only attached to Formula One through their investment portfolios to willingly make less money in order to help out teams who are struggling to make it to the grid each week?
Other than adding ever more circuits and races around the world, the solution to the current financial crisis lies within the sport. All of the teams need to sit down and negotiate a fairer package of payments for all the outfits competing in F1. The small teams will tell you that, and so will Bernie Ecclestone, but those teams who are benefitting hugely from the current model are less likely to accept any cut to their revenues. Even if the racing face of Ferrari and the other big name teams recognise that in order to secure their own survival in F1 they need to show some compassion to the sport in order to preserve it, it would be an incredibly difficult idea to sell to the shadowy investment figures behind most of the large racing teams.
Could you reasonably expect people who are only attached to Formula One through their investment portfolios to willingly make less money in order to help out teams who are struggling to make it to the grid each week? It’s a bad business decision from top to bottom, but one that will ultimately have to be made in order for Formula One to continue as the pinnacle of World Motorsport. The question is, will the money men see what needs to happen and care for the sport in its time of need, or will they allow other teams to perish whilst they stick steadfastly to their contracts and agreements?
James Hirst
Follow James on Twitter @James365
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Image courtesy of globeandmail.com
