F1 needs a new financial formula

2014-12-28 20:00

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Minnows of the sport in a catch-22, writes Michelle Foster

The 2014 Formula 1 Championship ­began with 11 teams and 22 cars on the grid, but ended one team and two cars down.

At least four of the remaining cars – from Caterham and Sauber – are in limbo for the 2015 season because of financial issues, despite the sport generating more than R11 billion for the season.

F1 budgets have spiralled out of control. Although there have been calls for a budget cap to be introduced, nothing has ever come of those calls.

There have been some attempts to reduce the costs of competing by introducing standardised parts and longer-lasting engines and gearboxes. Cutbacks on testing and the number of team personnel at race weekends have also helped.

All that was then undone by the arrival of more environmentally friendly ­1.6-litre turbocharged V6 engines, which cost three times more than their predecessors. An average car costs around $10?million (R116 million), of which more than 70% is spent on the engine alone.

This has increased the financial burden on the teams, especially the smaller outfits who have to buy their engines. A strange move, given emissions and the cost of transporting the circus en masse to 21 different destinations.

Financial details in F1 are not easy to find. Teams don’t like to reveal their true budgets, but when converted from ­dollars to rands, their estimated annual budgets are scary.

Teams can spend up to R1 billion per season, with Ferrari and Red Bull at the higher end of the scale, and Marussia and Caterham at the lower end. Between them you have reigning world champions Mercedes and McLaren at R3.5 billion, while Lotus reportedly spent around R2.5 billion. Williams, Force ­India, Toro Rosso and Sauber had budgets of about R1.7 billion.

With those numbers in mind, one can begin to understand why a sport that brings in R11 billion is struggling to keep all its teams on the grid.

In addition, the teams do not receive all of the revenue, which is largely generated through TV rights.

The teams are awarded just 63% of the total income, with the rest heading to F1’s commercial rights holders. That 63% is divided into three prize funds: Columns 1, 2 and 3.

However, before that happens, Ferrari take their cut. Believed to be 5% of the revenue, Ferrari are handed a slice of the pie just for being Ferrari, the oldest and most successful team in F1. Many are against this Scuderia payoff.

After that, the rest is divided, albeit not equally, between the teams. Column 1 goes to the top 10 teams over the last two seasons in equal portions; Column 2 is based on the results of the past season, with first earning more than 10th; while Column 3 pays roughly R100 million to each team outside the top 10.

But with the perennial backmarkers coming in with a budget of R1 billion, this leaves them well short of where they need to be. Being lapped at the back of the pack is also not the best way to attract sponsors, leaving the sport’s minnows in a catch-22 – they don’t have the money needed to get the results and they don’t have the results needed to secure the money.

Incensed by their situation, the likes of Lotus, Force India and Sauber have called on F1 supremo Bernie Ecclestone to give them a fair share of the prize ­money, while also asking the FIA to help cover the cost of the more expensive V6 ­engines.

There is also massive disparity in the drivers’ salaries, with the likes of Fernando Alonso and Sebastian Vettel earning over R300 million in 2014, while Kamui Kobayashi and Marcus Ericsson took home just R2 million, despite paying ­towards their race seats.

Drivers also net bonuses for wins and world titles, proving that in F1, you need money to make money.

To establish some sense of equality, the smaller outfits need the big boys to agree. But with the top teams not willing to hand over their advantage, there is more chance of Caterham winning the championship than there is of all the teams reading from the same page. – TEAMtalk Media

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