Tag Archives: Opinion

Formula One: Preparing for the budget cap

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The Liberty Media vision for the future of Formula One Teams is clear. The owners expect 12 commercially viable, profitable, franchises all capable of challenging for race victories. In his role as Managing Director of Motorsports, Ross Brawn, has been mandated with the task of delivering a strategy to ensure this vision is achieved.

12 commercially viable & profitable teams, on paper, sounds fantastic. With the variable of available finances removed, the resourceful nature of F1 teams will truly be put to the test. Outwardly it seems as though there is widespread support from the teams for such a move. Afterall, what business wants to spend more money? With representatives from leading teams including Red Bull Racing emploring Liberty Media to ‘ Save F1 Teams from themselves’ the route to implementing a budget cap should, in theory, be straightforward.

However, As with any commercial decision in Formula One nothing is straightforward. The first major hurdle to overcome is the existing structure around payments and the legacy of disparity. In 2017 Joe Saward explained the complexities around the current structure in this article. The existing structure rewards success and longevity, a something which is not overly inviting to a new team, nor geared towards a midfield team ever being in a position to surprise. In an estimated payment fund of $900M per season, the top 3 teams receive approximately 60% of the revenue, leaving the remaining, currently 7, teams to compete for 40% ($360M) between them. It is estimated that the smallest operational budget in F1 today is in the region of $100M, with only $50M coming from the championship, teams have a significant shortfall to cover.

A more appropriate payment structure would be equal distribution amongst all teams, with a proportional bonus for constructors championship position, similar to that seen in the Premier league as detailed here.  Unfortunately, in order to reach this point, the largest teams, with operational budgets believed to be in excess of $400M per season must agree to a cut in support from the system under which their team structure has been developed. What business would agree to lose as much as 50% of its funding without a clear view of how it will cut costs or increase revenue through other ventures.

Convincing; Red Bull Racing, Scuderia Ferrari, and Mercedes Grand Prix to agree to this change will be one of the key tasks ahead of Ross Brawn through 2018 and 2019 if a new system is to be introduced under the new commercial vision for the sport in 2020.

The task is far from simple, the infrastructure of the top teams has been built around a mindset of a limitless budget. If a budget cap of $150m per season were to be introduced in 2020 with no consultation from the teams, it would be almost impossible for the top teams to comply. From a personnel headcount perspective alone a team such a Mercedes Grand Prix, with in excess of 1400 employees, if an average salary of $50,000 is applied, the team commit 46% of its budget to salaries before considering building a car. Without modifying the current team structure, introducing a budget cap within the next 3 seasons, unless Liberty Media expect teams to make more than 50% of their workforce redundant, is not feasible.

On a more positive note, there are indications that the top teams in question are preparing for the change. A budget cap in Formula One will not mean that the likes of operating entity such as Mercedes Grand Prix or Red Bull Racing will be limited to an expenditure of $150M per season, rather their allocation of resources to F1 will see this limit applied.

As a result, it is highly likely that diversification will be a key element to the future of F1 Teams. Over the past decade, McLaren and Williams have established an industry-leading position in the application of engineering solutions developed to improve performance in motorsport being incorporated into manufacturing processes and commercial entities.  For these teams, this third-party business will likely continue to grow. it is, however,  unlikely Ferrari or Red Bull Racing will view this as an appropriate use of resources or brand credibility.

Instead, expect the very top teams to move towards expanding their foothold in other forms of motorsport.

  • Mercedes Grand Prix has already made steps in this direction with the announcement of a commitment to Formula E team from season 6 of the championship. This alongside the development of the Mercedes Project One, which to many is a clear indication of Mercedes ambitions to return to Endurance Racing. A return which with LMP1 regulations under review and the prospect of the reinvigoration of the FIA Global Engine strategy, Mercedes are well positioned to find success.

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Credit to Sean Bull Design for the concept Mercedes Formula E livery 

  • Similarly, Red Bull Racing through their partnership with Aston Martin has acknowledged an interest in taking the Valkyrie racing, and under guidance from Ross Brawn will no doubt be seeking to bring the Toro Rosso team entirely in-house.

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  • McLaren has taken the decision to take control of their GT programme, and have already explored further engagements in championships including Indycar following the positive coverage generated through the one-off partnership with Andretti Autosport at the Indy 500 in 2017.

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  • Ferrari continually talks of a return to Endurance Racing, and could, similar to Red Bull Racing consider a strategy of an in-house B-team with which budget cap compliance could be achieved.

In conclusion, political posturing between the top teams in Formula One, Ross Brawn, and Liberty Media throughout the 2018-19 seasons will likely overshadow on-track performances. Fans of the sport should take any empty threats from top teams to walk away from the sport as just that. Empty threats. The financial implications of such a move make the option unviable. Instead, teams will double down on motorsport, getting involved with more championships, with the eventual winner being the fans.

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Formula One : The Future of Pirelli in F1

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Pirelli returned to Formula One in 2011 as the sole tyre supplier and official championship partner. Pirelli, founded in Italy, recently acquired by ChemChina, joined the championship with a clear mandate from Formula One Management to ‘spice up the racing’ through the development of a range of tyre compounds with significant performance variables and accelerated levels of degradation. Initially, this new philosophy around tyre performance at the pinnacle of motorsports was well received with a positive response from fans and media around a new element of unpredictability surrounding an F1 weekend.

However, as teams and drivers adapted to the Pirelli approach to tyre compound chemistry, car set up and driving techniques evolved to minimise the challenges the tyres presented. This led to increasingly aggressive approaches to performance and degradation levels in tyre development culminating in the “challenging” 2013 British Grand Prix in which teams were supplied with tyres which were not capable of performing at the levels required. The result of which was a race which saw numerous failures throughout the field and a strategic re-evaluation from Pirelli.

In the seasons since 2013, Pirelli has maintained the vision of producing a range of compounds with varying levels of performance and high levels of degradation but with a more conservative approach. The result of this restraint has been races in which teams and drivers focus on tyre management over performance, understanding the optimal approach to a race has often been to extend the life of a tyre rather than push it to its limit. As such, in recent seasons, drivers have rarely complimented the performance of Pirelli’s efforts over a Grand Prix weekend.

Creating positive media coverage in a sole supply situation will always be a challenge. Since there is no competitor to beat, victory becomes the default leaving the only newsworthy coverage that of failure.  In such an environment it can be a challenge to understand how Pirelli quantify benefits from its sponsorship of Formula One. Over seven seasons they have developed a reputation for producing tyres with excessive degradation and minimal differentiation beyond coloured side walls. Would an F1 fan seriously consider buying Pirelli tyres for their own car based on how they perform in Formula One?

So where does this leave Pirelli?

At the end of each season, Pirelli produce an end of year summary detailing all every fact and figure imaginable around; corning speeds, top speeds, lap times, number of overtakes, number of compounds used by each driver and the figure which stood out to me the most, the number of sets of tyres produced in a season.

In 2017 Pirelli produced 38,788 sets of F1 tyres, which equates to approximately 3,258 tons of tyres. Of these, only 12,920 sets (1,085 tons of tyres) were actually used. This means two-thirds of F1 tyres produced in 2017 were never raced and simply destroyed. Whilst Pirelli makes it clear all tyres were recovered, a system in which such a vast number of tyres are produced and shipped around the globe and never used is hugely wasteful and frankly embarrassing for both the manufacturer and the sport. The strategy of an ever-increasing range of tyres being made available for a Grand Prix weekend has resulted in the requirement of an inefficient and cumbersome supply chain. Something which will only increase in 2018 with further tyre compounds and team selection freedoms being added to the Pirelli ‘menu’.

In recent years Michelin, a leading industry competitor, have repeated statements that the current philosophy of Formula One around the use of tyre degradation as a key variable in racing, is of limited strategic merit and is not in keeping with how they believe tyre technology should be presented in motorsport. Instead, Michelin has focused their efforts in Formula E and the World Endurance Championship, showcasing innovations around all-weather tyres, low profile tyres (18-inches, compared to the 13-inch profile used in Formula One), and minimal degradation allowing competitors to push the performance of a tyre throughout an event.

Increasingly Formula One and its regulations are focused on reducing unnecessary waste. limiting fuel use through a race, and limiting the number of power units available to a team through a season. This focus on efficiency appeals to existing OEM’s in the sport including Mercedes, Renault, and Honda, and again sits in contrast to the wasteful and confusing approach mandated to Pirelli. For the 2018 season there is no longer any opportunity for Pirelli to change their approach to racing, but with minimal technical regulation changes set for 2019, perhaps the management of Formula One should look to change the conversation around Pirelli’s role in F1 and encourage the manufacturer to innovate relevant style.

For 2019, perhaps Pirelli should look to consider a simplified approach to tyre compounds, produce tyres with increased variance in performance yet minimised levels of degradation, and adopt 18-inch low profile tyres, enabling the end user to better relate to the product they see racing on a Sunday.

It is understood 2019 is the final season of Pirelli’s current agreement with Formula One. Without change, will it be their last?

Opinion: Formula One – WIN on Sunday, TEST on Monday

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Horrendous weather conditions plagued the build-up to the 2015 United States Grand Prix with teams achieving minimal track time on Friday or Saturday. This led to a heavily condensed race schedule with qualifying taking place on the Sunday morning, and the only dry running over the entire weekend taking place in the race itself, and what a race it was!

With very little time to refine car set up for the race, teams and drivers went in to the race having to rely on pre-work ahead of the race weekend and instinct. The result was one of the best races of the season.

Wouldn’t it be great it all races could reach the levels of excitement achieved in Austin? Are there any elements of that weekend the sport replicate?

Let’s rule out the obvious, random sprinkler systems are not the way forward! As much as every commentator likes to refer back to Bernie Ecclestone’s flippant comment from a few seasons ago it’s not really a feasible option. Any claims of purest racing would be lost once and for all. So if controlling the weather conditions isn’t an option, what else can we look at?

Should Formula One consider a shorter race weekend? Condense the event from three days to two perhaps even one? The one day format seems to work in Formula E. On the face of it reducing the time a driver and team have to refine set up based on performances in Austin seems to bring raw talent to the fore. Drivers no longer able to rely on highly analysed data to define the best possible approach to a lap and the race. Driver and teams have adapt to what they have and respond to the circuit on the day. This lack of data seems to be what created great racing.

On the negative side, a one or two day schedule significantly devalues the product; circuits, promoters, and broadcasters are have to offer to the paying public and sponsors. If you remove Friday from the schedule ticket prices should be adjusted accordingly and as a consequence revenues will be reduced. So how do you reduce team’s ability to perfect set up and not devalue the overall product?

Why not move the Friday sessions to Monday? The amount of time spent at a circuit by teams will not be impacted rather shifted by a day. Teams will have chance to try out upgrades for future races, but do so with no immediate impact on the race weekend. Pirelli would get their wish for increased testing. Everyone wins!

By moving the Friday sessions to Monday teams may be more inclined to run junior or development drivers safe in the knowledge the race car would not be damaged ahead of a race weekend. Both Lewis Hamilton and Kimi Räikkönen have recently called for a revamp of the format of a race weekend, could this be the way forward?

Of course in time team would adapt and invest in new technologies, Mclaren performances in Austin served to highlight that despite everything going on with the team they have a truly first class simulator, confidence in the data from the simulator had a huge impact on the teams performances and very nearly resulted in their best result of the year. If the race weekend format changed team investment plans would follow suit, but in the short term fans would be in for some thrilling races and F1 action on a Monday morning!