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Story highlights
World's richest sport at a financial crossroads as teams struggle with running costs
Marussia and Caterham teams recently went into administration
Capping expenditure or even three-car teams being floated as solutions
F1 supremo Bernie Ecclestone says his hands are tied until 2020 due to F1 regulations
The elite level of motorsport is one of the richest sports in the world, generating an estimated $1.7 billion in 2013.
But the 11 race teams only saw half of that cash and, for two of them, greasing the wheels of F1 has proved very costly indeed.
Caterham, who joined the ranks of F1 in 2010, slid into administration before last Sunday’s U.S. Grand Prix, while Marussia folded Friday with the loss of 200 jobs.
F1 supremo Bernie Ecclestone warned if the sport’s cash crisis is not resolved as few as 14 cars could race in 2015.
The sport’s precarious finances were the hot topic in Austin, Texas and remain high on the agenda ahead of the penultimate race of 2014 in Brazil on Sunday.
The happy hum at the Circuit of the Americas was distinctly subdued as two garages and motorhomes stood empty while 18 cars lined up for the race instead of the full complement of 22.
Dressed down in their civilian clothes, drivers who had expected to be in the cockpit were stranded in the paddock and the center of attention for the swarming press pack.
“It’s a strange feeling,” Caterham rookie Marcus Ericsson told CNN. “I was out racing with these guys a couple of weeks ago in Russia and now I’m here. It’s a very difficult situation.
“The same day as the team went into administration we got the information. It was all very sudden.
“I was speaking to my engineers the day before and we were planning for Friday practice in Austin, what parts to test, and then the news came. I didn’t see it coming.”
Deals on wheels
Ericsson spent his weekend in Austin working for Swedish television and, more importantly, striking a deal to drive for Sauber in 2015.
Despite doing excellent business off track, the Swede would have preferred less schmoozing and more racing.
“That’s the problem,” he smiled. “There is still a chance Caterham will be in [the final race in] Abu Dhabi but I don’t know how big that chance is.”
Ericsson is one of many F1 drivers who are understood to bring a significant sum – in his case reportedly in excess of $10 million – from personal backers to help fill team coffers.
In contrast, a star driver like double world champion Fernando Alonso, who is still to decide who will pay his wages in 2015, commands a fee of $40 million a year.
Regardless of what a driver provides or costs, running an F1 team is not for the faint-hearted, and if you’re a bean counter look away now.
The cost of maintaining a factory with hundreds of staff, traveling to 19 races around the world and building cars with bespoke carbon fiber chassis and advanced hybrid turbo engines runs into millions of dollars.
“If you look at the budgets of Marussia and compare the highest spender, whoever it is, Ferrari or Red Bull, you are talking about a gap from $70 million to $250 million,” Mercedes motorsport director Toto Wolff explained.
The reality is that the big teams, including world champions Mercedes, are probably spending more.
This dichotomy between the haves and the have-nots makes securing the financial future of the sport a complex power struggle.
“Frustrated” seemed to be the adjective of choice among the nine teams now grappling with how to prevent more peers falling into financial oblivion.
Capping costs
One much-talked-about solution is a cost cap to limit how much a team can spend per season.
The sport’s governing body, the FIA, suggested the teams that joined the grid in 2010 operate within a budget of $50 million in exchange for great technical freedom, but the cap was never enforced across all the competitors.
“We’ve talked about cost caps a number of times and the large teams or manufacturer teams were opposed to it,” explained Vijay Mallya, the principal of independent race team Force India.
It would be difficult to imagine introducing a mandatory cost cap now when big spenders like Ferrari, McLaren, Red Bull and Mercedes have nothing to gain by slashing their budgets.
“If you want to start with a cost cap, how do you do that? Where do you cap it? And if you cap it on the lower end, well, do you make two thirds of the people redundant in the big teams,” argued Wolff.
“The other point is: how do you control it? The cost cap was never implemented because there was no way of policing and controlling it.”
If the teams are skittish about reining in their spending then the next solution offered in Austin was to wangle a bigger share of the profits.
It is estimated that just $900 million of last season’s total $1.7 billion revenue was distributed among the 11 teams, while the rest was shared among the sport’s various commercial rights holders through the Delta Topco umbrella group – the owners of F1.
But that division of the profits is not the only thorny problem.
The money that is shared out among the teams is done so according to where they finished in previous championships.
And the gap gets bigger between the haves and have-nots of the sport as additional bonuses are paid out to Ferrari – the sport’s longest-standing team – and other historically successful marques such as McLaren, Williams and Red Bull.
Flawed financial model?
“The distribution model of revenues is completely wrong,” argued Gerard Lopez, team principal of Lotus, which struggled to find the cash to pay its former star driver Kimi Raikkonen last season.
“The ones that have more, get more and as a result want more and want to spend more and so on, and the ones that have less, get less. It’s a self-fulfilling prophecy.
“When you’ve got teams that get $160-170 million just for showing up something is entirely wrong.”
Mallya, a successful businessman in India, added ruefully: “It’s a unique sport where the participating teams get the least amount of revenue compared to the income.”
Ecclestone – the figurehead of the sport’s commercial rights holders and a personal stakeholder in the sport – took the unusual step of holding a media conference in Austin to address F1’s financial conundrum.
“The problem is there is too much money probably being distributed badly - probably my fault,” he said.
“But like lots of agreements people make, they seemed a good idea at the time.
“If the teams give up money, I will give up money. But they would probably think it’s a little unfair.
“No one is prepared to do anything about it because they can’t. The regulations have tied us up.”
The commercial agreement between the teams and the sport’s rights holders, which Ecclestone is referring to, runs until 2020.
Even if the teams were in favor of re-slicing the prize money pie to help smaller teams survive it cannot happen any time soon.
Another ruling from the FIA has put even more pressure on the purse strings of the independent race teams this season – the introduction of new engine technology.
While Mercedes and Ferrari produce their own engines and Red Bull has a long-term relationship with Renault, the smaller teams had to pay the trio of engine manufacturers to supply the new, hybrid turbo technology.
Lotus boss Lopez estimated the cost of the new engine package at $50-60 million before adding: “That minimum budget killed two teams.
“Certain decisions on budget are forced on you,” he added. “If you want to stay competitive at a minimum level you are forced to spend at a certain level.
“I guess what Marussia and Caterham paid for the engine this year, I guarantee that in the budgets that they have, there was not a whole lot left – it’s not like they had a choice.”
Three’s a crowd
A proposal for three-car teams has also clouded conversation over whether F1 can be sustained in its current form.
Ferrari is understood to be in favor of running three cars and, if F1’s other major protagonists agreed, the smaller teams may no longer be integral to the long-term survival of the sport.
There is skepticism, however, that this less competitive model of racing would attract the cash-splashing sponsors that are vital to the budgets of all the teams.
“Eventually you’ll have four participants with endless amounts of cars,” Sauber team principal Monisha Kaltenborn said with a dash of frustration.
“Let’s see where that show gets you. How much income you have from that.”
Perhaps even the sport’s big players know it would not be wise for the power base to become concentrated among just a handful of teams.
If the parent companies of Mercedes, Ferrari or Red Bull, for example, suddenly decided F1 no longer matched their brand or their marketing model, the whole future of the sport could be in jeopardy.
While the U.S. Grand Prix remains popular – the Texas track reported a total attendance of 237,406 over the three days – packed grandstands cannot be taken for granted, especially if fans feel they are no longer getting value for money.
“I’m peed off about not having Caterham here,” Haile Al-Hamd from Los Angeles told CNN. “Marussia, I would have loved to see.
“We’re really upset. It’s not right for the American fans not to be able to see all the teams – good or bad.
“We want to see all the teams make it. The costs need to come down for the teams and the fans.”
New Yorker Jim O’Malley, who has been following F1 for more than 20 years, agreed the financial state of F1 was troubling.
“The fans’ feeling about the 18-car field has been a little bit overblown in the press,” he said.
“The real concern is the fragile financial stability of some of the other teams like Lotus and Force India.
“There’s a concern about whether there’s going to be a further winnowing down of the sport to where it’s in a crisis.”
Juloiana Sanchez, also from New York, added: “Formula One is the number one sport in the world but you need to be considerate.
“Looking in the past you saw so many cars but 14 cars on the grid – you’re just not going to see overtaking and that will take away the fun.
“We also don’t want just one team dominating the sport, we want to mix the pack.”
‘Wake-up call’
There is a sense that if something is not done to rein in F1’s rocketing costs the sport is in danger of devaluing its brand and alienating its fan base.
“This is a wake-up call for everybody to make sure we can act all together,” said Eric Boullier, who jumped ship from smaller team Lotus to join McLaren in 2014.
Whether F1’s big fish will help its minnows stay afloat in turbulent financial waters remains to be seen.
“Teams are here to compete, not sponsor each other,” said Red Bull team principal Christian Horner. “I can’t write them a cheque.
“There are still healthy margins in F1, but the sport will be devalued if there are less players are involved.
“F1 needs to safeguard its teams but rather than looking at income we need to look at costs.”
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