Formula One: Opinion – Formula Finances

AbuDhabiSFI

As teams prepare for the final qualifying session of the season, what started as murmurs around teams requesting advances on 2015 prize money from Formula One Management (FOM) is heading towards a deafening crescendo with Manor Marussia, Sahara Force India, and  the Sauber F1 team reportedly making requesting support.

The distribution model under which teams are allocated and receive prize funds was established a number of years ago. The model has not changed. The distribution model splits prize fund payments to the team through the season following the season in which the funding was earned. Once a paying position is achieved (i.e. higher than 10th place in the WCC) the team are assured payment for multiple seasons.  Payments are only made in season.

It is the payment structure teams appear to struggle with. Since requests have been lodged it should be assumed the teams in question have insufficient funding or credit rating in place to sustain team plans from December to March.  The Force India F1 Team found themselves in a similar situation in the lead up to the 2015 season, commenting that ‘close season’ is the most expensive period for a team and the only period when they as not getting paid through prize funds or commercial agreements.

Formula One Teams are companies in their own right; they are independent of Formula One. They are masters of their own destiny. They develop their own commercial agreements, agree to the terms of funding distribution models, and should be empowered to budget accordingly. Teams find themselves in a predicament of funding shortfalls in the ‘off season’ because they have made decisions to spend money they, in reality, did not have. A complaint Bernie Ecclestone has often publically voiced.

If a team is not capable of planning capital expenditure over a rolling 12 month period do they really deserve to represent the pinnacle of motorsport?

Perhaps it is cynical to view Formula One teams in this regard, to suggest they should operate as first and foremost as a business, perhaps it would diminish from the racing spirt, but would a more calculated approach to racing really be such a bad thing? To achieve a level of sustained security as to which teams are on the grid and what their position is within the sport may make investment a more attractive proposition.

Looking back to early part of 2015, the financial challenges faced by the Force India team were clear for all to see, the team failed to attend the majority of pre-season testing stating the car they would begin the season with was essentially the 2014 challenger updated to comply with 2015 safety regulations. This hybrid 2014/2015 car was the result of severe budget restrictions limiting payments to 3rd party suppliers. Working to a limited budget the team used this car for the first 8 races of the year, developing the 2015 challenger once prize funding and sponsorship revenue came back to the team. Through these first 8 races, the team amassed 31 points, an average of 3.8 points per race. Once the team were able to introduce the 2015 challenger they achieved a further 89 points over 10 races, (average 8.9 per race) the culmination of these 2 vehicles have left  Force India with 120 points heading into Abu Dhabi, with 5th place in the constructors championship assured.

But what if they had taken a different route? Had the team stuck with hybrid 2014/15 challenger for the entire season and for the sake of argument maintained their points scoring ratio of 3.8 per race they would be heading into Abu Dhabi with 70 points battling with Lotus and Toro Rosso for the 5th they have already secured. Had the introduced the non-budget constrained 2015 challenger from Melbourne and assuming a the afore mentioned average of 8.9 points per race they could have been looking at a total point’s tally of 160 points, but still be in 5th place with an outside chance of achieving 4th against Red Bull Racing.

This simplistic maths ignores the variable points tally other teams would have been able to achieve had Force India’s performances differed from those actually seen, but the point is in both scenarios the possible outcomes in terms of constructor championship performance  do not differ greatly if at all.

The very fact that Force India are again requesting  early payment of prize funds ahead of the 2016 season suggests the team went the wrong way, the desire to race, to compete, overtook the business rationale, perhaps this is what racing is all about, but is it sustainable? Force India over achieved through apparently over spending and are now reliant on external influences to assure 2016 plans.  This is not a criticism of any specific team, rather an observation of the culture of racing.

Across business the way in which a Formula One Pit Crew services a car in under 3 seconds is often cited as the epitome of teamwork, individuals working together towards a common goal. These lessons in teamwork have changed the business world. Perhaps the world of business can give something back to Formula One, and teach teams that a budget is something you work within, not something you take to Bernie when the numbers turn red.

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2 thoughts on “Formula One: Opinion – Formula Finances”

  1. I understand the comments and rational completely having run my own company for many years. However this is called motor SPORT! The key word being sport. If we accept this purely as a business model then we have to accept that only major car manufacturers can participate in F1. We have seen in the past how quickly these manufacturers can depart from F1 when it impacts on their core business ( Honda and Toyota as examples).
    We also should consider in business you sell your product or service at a price that can maintain your operation. However in F1 you get paid for your product according to how friendly you are with Bernie and his cronies, how long you have been in the sport etc.
    This model is geared against new teams ever being able to compete on even terms unless they have unlimited funds they want to spend promoting their core business.
    That is like telling Ameria’s Cup new entrants they can only use one sail and if you do win you only get half the cup until you have competed for ten years.
    If prize money was paid out equally and fairly maybe teams would not have to go cap in hand begging to Bernie. It appears on the face of it that Renault will only come back into F1 if they are granted historical status and get extra money, perhaps if Lotus received this they wouldn’t need to sell out back to Renault, who lets face it are not above cheating to get a win.
    Come on I know Bernie has been great for F1 but F1 has been a great cash cow for him. If you win or wherever you come you should receive the same prize money for that spot regardless of whether you are Ferarri or Force India.
    Personally I think F1 would be better if it was more like GP2 but with more powerful ICE maybe with turbos, perhaps made by one or two real race engine manufacturers such as Cosworth or Ilmor, I remember when turbos and normally aspirated engines competed side by side in F1.
    If the likes of Mercedes,Renault, Ferarri and Honda want to compete to see who has the best engine let them form their own formula instead of trying to control F1.
    As for making the cars more eco friendly, saving 50kg of fuel per car per race when God knows how much Co2 is created shipping thousands of tons of freight around the world is an absolute nonsense.
    If you want to seen to pretend being eco friendly then the cars should run on Hydrogen fuel cells, of course the oil companies wouldn’t be interested in providing sponsorship, but the development may actually be good for the planet.
    Oh and while we are speaking of budgets, surely Bernie should be the first to sell F1 to circuits at a price that they can actually make a profit holding the race and sell tickets to fans at reasonable prices. It is not for governments to have to subsidise circuits so Bernie and CVC can line their pockets even more.
    But he’ll what do I know I have only been a fan longer than Bernie has been running F1.

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    1. Thanks for the comments Peter. I really appreciate you sharing.

      I agree on the SPORT comments, but would add teams like Williams and Mclaren have diversified away from racing only to seek to sustain a viable business and maintain the racing team. This model does seem to work.

      On the Renault come back, as ever with FOM matters we see what Bernie wants us to see. I think there is much more at play than historical payments.

      On engines and environment. Hybrid tech in F1 isn’t about saving the planet through sport, rather showcasing what can be achieved. I believe if / when executed properly F1 is a good platform to do this.

      I also agree with your comments on F1 being affordable for circuits, but again I wouldn’t place the blame solely at the foot of FOM. There is nothing to stop circuits making more of an event of race. Circuits should take more initiative to attract fans and not simply reply of the power of F1.

      Thanks for reading! and Thanks for your perspective.

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