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 and so he is now telling people that he thinks he might change that 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 that must be done by the end of 2020, when the current deals run out. This is clearly all it is and, at the same time, he cannot throw it all away because he as a deal with Renault that stretches beyond the other deals so that is going to be a bit of a fly in the ointment. So, it is highly unlikely that there will be no benefits for the teams that have been around longest, but at the same time threes little chance that anyone is going to stomp off because there is no other form of motor racing that provides the same that 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 that 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 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. Ad all this up and that means that there will be another $285 million available for distribution. If all goes to plan this sum will rise in the next few years as the overall revenues rise (if indeed they do). Rights now the top 10 teams share around $850 million, divided into two “Columns”. The first is based on the teams’ commitments to appear and is shared equally and the second is based on performance with the percentage scale being 19 percent for the winner, 16 percent for the second placed teams and then 13 percent, 11 percent, 10 percent, nine percent, seven percent, six percent, five percent and four percent for the 10th placed team. This means that the spread of payments 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 that the teams would get an additional $142.5 million to be divided between them. That would mean that 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 per team. In Column 2 that 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 situation which means the biggest teams get $200 million or more, while the smallest teams would get $70 million rather than $60 million.

Now, the team’s will probably argue that the shareholders should not get more than they have today and indeed most teams will want a further reduction in the promoter’s share, which would be around $900 million based on today’s figures. This is entirely reasonable because the promoters do not do anything that 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. Now, 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. Rather than the fund being $900 million, it would be $1.35 billion. That would mean Column 1 payments would be increased to $67.5 million per teams and the Column 2 numbers would range from $128 million to $27 million. Thus with the promoter taking only 25 percent (still a pretty high figure) the budget range would be $195 million to $94 million. That would mean that 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.