Good News, Good Article

[Ctrl300 0]

Good news

It is great news that the FIA has issued what amounts to a sensible entry list for the 2008 Formula 1 World Championship and has not tried to force matters along by excluding any of the existing teams. There will, no doubt, be sighs of relief across the F1 world that this has happened. It now leaves the field clear for sensible negotiations over the commercial settlement and the rule and regulations for 2008 and beyond.

There is still much to be done. The commercial settlement remains open at the moment with the Formula One group currently offering teams 50% of the revenues generated by the sport, based on the EBITDA (earnings before interest, taxes, depreciation and amortization) figure of the group. The teams are pushing for a deal that will give them 60%. The Formula One group might counter with an offer for 60% but with the condition that the team's commit themselves for longer than five years. One way or another, however, the financial problems will be solved with a suitable compromise between the parties involved. The only alternative is a split that would be a disaster - and everyone knows it. There is too much money stake to allow that to happen.

The question that remains more difficult to solve is that of the rules and regulations for 2008 and beyond. The FIA says, quite rightly, that it owns the World Championship and can do as it pleases. This is fine but, at the same time, the federation must accept that if it fails to deliver the right rules, it could cause the World Championship - its best asset - serious damage. The World Championship has taken 56 years to build up and it would be unwise for the federation to be too radical, lest the major players walk away and do their own thing, leaving Ferrari fighting with a bunch of tiddlers. It is very clear from the recent exercise over entries that there could be two competing championships with full grids, but neither would be as good as the existing World Championship and both could not, in the longer term, survive at the same level. F1 team bosses are not idiots (although there have been one or two exceptions over the years) and they will understand the danger of going down the route that has demolished open-wheeler racing in the United States in the last 10 years. The problem in that case was one of rampant ego and that is the true danger for F1 in the months ahead.

It is not about whether one man is cleverer than another but rather about what is best for the sport.

The FIA says that it is fully aware of what the car manufacturers want and that cost-cutting is the most important thing. This is perhaps true when the top men in the car companies are talking with the FIA but to paraphrase Mandy Rice-Davies's famous remark in court in the 1960s when told that a leading member of London society had denied having an affair with her: "Well, they would say that, wouldn't they?"

The fact is that when it comes down to competing against the other manufacturers, the big car companies show no sign of backing off in their spending. As long as F1 delivers what they want, in a manner that they deem to be cost-effective, they are going to go on spending. Renault may be a little wobbly about its future in F1 at the moment but one can argue that it is competing with the wrong brand because success in F1 has never done much for mass-market cars. The sport works best for companies that are selling expensive luxury cars, which produce very large profits. Ferrari road cars cost absurd amounts of money but people pay the price because of the associations that the car brings for them. It is not quite the same when one is selling Renault Logans.

If the sport stops delivering what they want, the car manufacturers will sell up their teams and leave but that does not mean disaster for the sport. The manufacturers are unlikely to leave at the same moment and others might easily come in if a gap develops. Eighteen months ago the Ford Motor Company decided it had had enough of the sport and withdrew. Red Bull came in and took over the Jaguar team and is now investing huge sums of money is people and infrastructure to get what it wants.

When all is said and done the sport has always been for big spenders, right back to the days when French barons battled Belgian barons. As the sport developed the gentlemen were replaced by the speedy, with the best drivers employed by wealthy men or car manufacturers. Ultimately dictators Adolf Hitler and Benito Mussolini funded major Grand Prix programmes of the 1930s in order to show the world that their countries were the best.

In the modern era the fast drivers found their support from wealthy industrial magnates such as BRM's Sir Alfred Owen or whisky heir Rob Walker and it was not until the arrival of sponsors that the sport began to democratise a little. That opened the way for bright young engineers to start their own teams but since then things have evolved. In the 1980s we saw the car manufacturers becoming more and more involved and with them came bigger and bigger budgets. Cost-cutting measures never cut costs. The teams that invested most and used the investment correctly enjoyed the most success. Some invested hugely and failed embarrassingly. That is the name of the game.

Lowering the costs for teams wishing to enter the sport is a nice concept but it is largely unrealistic. A small team that has only the budget to buy cars and engines and service them with a small team of engineers and mechanics is not going to survive long unless it has a long-term source of finance to allow the structure to build up and thus challenge for success. It is fine if one has the kind of money and the promotional needs of a company like Red Bull but for a team like Midland the future is far less certain.

But there is no reason to be pessimistic. According to Forbes Magazines there are now 793 dollar billionaires in the world, worth an average of $3.3bn. There are a large number of companies that have the annual marketing budgets that could be used in the sport. There is no shortage of people for whom the sport is a logical place to invest. It is simply therefore a matter of the sport finding the right people - and that is more to do with the global reach of the business and whether the sport delivers what investors need.

Part of this process is improving the credibility of the F1 business in financial circles, an area where much work is still needed. The sport's reputation for buccaneering capitalism and its long association with tobacco is holding it back.

The sport must also learn to invest in its own promotion and not squeeze every penny from everyone else involved. It must accept that there is a need to invest in better technology to show in a better way just how exciting F1 is when you go to a race. The TV coverage at the moment does not do that.

It is a time for compromise and a time for new ideas but it is also a time for hope that the people making decisions will not mess things up.

www.grandprix.com

Ok, so here is my problem. From what I can recall Ferrari got a US$200 M signing fee when they signed the 2008 concord. If the other teams where to sign up they would:

1: Not get that 200M

2: Share the revenues with Ferrari (whom already has had a 200M windfall)

3: The revenues they will share will be the revenues that are left after Ferrari have had their $200 m settlememt.

This is the biggest corruption scandal in sport history, and Ferrari should hev to be excluded from recieving revenues until the other teams have recived 200 M each.

BTW, I know FIA gambeled with getting Ferrari is like getting one of the big three, hence securing that the GPMA would not be as big of a treat as they could have been with Ferrari on board, but hey, $200 M!!!!! Thats way, way overboard.

[cavallino 2]

That 200M was never proven, and Williams probably got a bonus too. With your usual blinkered perspective, you can't see beyond the surface. All I know is that agreements with the individual teams are confidential and

we are still to hear how exactly the last concorde agreement favoured Ferrari despite the fact that its been made public.

[goferrarigo 0]

good find ctrl300 thanks

[F1 FANatic 1]

your arguments dont even have anything to do with the article

on a note related to the article though, i ahve to say i find it funy when people say they want the manufacturers out. and that costs need to be cut and so on. The truth is that the big car companies are here to stay and were they to leave, i douth bany people would want to watch 24 SA comprable cars go around some track in india because that bernie's newest way to make money and keep it all himself.

Formula One cost cutting is an auxiemoron(no clue who to spell that one). you might make it easier for a team to race a car but when it only costs you 80 mill a year to compete, those teams who now spend 3 or 400 mill will just spend the rest on R&D and then they will be even further ahead then they are now.

[funkejay 0]

Ok, so here is my problem. From what I can recall Ferrari got a US$200 M signing fee when they signed the 2008 concord. If the other teams where to sign up they would:

1: Not get that 200M

2: Share the revenues with Ferrari (whom already has had a 200M windfall)

3: The revenues they will share will be the revenues that are left after Ferrari have had their $200 m settlememt.

This is the biggest corruption scandal in sport history, and Ferrari should hev to be excluded from recieving revenues until the other teams have recived 200 M each.

BTW, I know FIA gambeled with getting Ferrari is like getting one of the big three, hence securing that the GPMA would not be as big of a treat as they could have been with Ferrari on board, but hey, $200 M!!!!! Thats way, way overboard.

First of all, Ctrl300, you're confusing the FIA with FOM.

The FIA are not a party to the Concorde agreement, so it has nothing to do with (and therefore no control over) the revenue sharing discussed in the article. They are however instrumental in introducing any cost cutting measures to F1. Formula One Management (or FOM for short) is Bernie Ecclestone's management company that controls the financial and commercial rights of F1, and is the party with whom the teams negotiate the Concorde agreement. It was FOM, and not the FIA, who paid the $200 million to Ferrari in order to persuade them to sign the new Concorde Agreement before the rest of the teams, because BE knew it was absolutely essential to secure Ferrari's commitment to the sport (and therefore FOM's bargaining power) before beginning negotiations with the GPMA teams.

Furthermore, that payment did not come out of the profits that will be split with the balance of the teams out of what are as yet future revenues. It was paid directly by BE (through and from the revenues already received by FOM) to Ferrari for the reasons above, and will have absolutely no affect on how much money the rest of the teams will receive. Unfortunately for them, Ferrari has a stock in trade that they do not, and was therefore able (as they have always been able) to demand more money just to sign up. Consider it a signing bonus - and nothing more.

As far as the FIA is concerned, the article is somewhat disingenuous by suggesting that cost-cutting measures as introduced by the FIA cannot reduce operating costs in F1. While R&D budgets would certainly increase if testing was significantly curtailed, wind tunnel testing, CFD modeling, and rig simulations are a poor substitute for actual track testing, and the return on significantly increased budgets in those areas will not result in correlative increases in performance (unlike track testing).

Hell, it's already much much cheaper to invest in these areas than it is to go track testing, but ALL the teams still learn a lot more from just a few days of track testing than they do from an entire year of rig, computer, or wind tunnel testing. That is why the zero testing proposal (i.e. absolutely no testing from the start until the end of the season other than Fridays on race weekends) has not received the support of any of the major teams, even though it would make a huge difference in reducing testing costs, and therefore the overall operating costs of every team on the grid as well.

The problem is not that such proposals would not reduce costs - they certainly would - the problem is that each team boss is afraid that they will suffer from not being able to go track testing, and will lose competitiveness as a result.