APRIL 30, 2009
Understanding the power plays in Formula 1
Bernie Ecclestone has said that he will cut the payments being made to the Formula 1 teams, in order to help the Grand Prix circuits survive. For years Ecclestone hs been pushing up the fees paid by circuits in order to fund himself, his business partners and to provide money to keep the teams happy. In recent times the teams have insisted on getting a bigger share of the income but they still get just 50% of the overall revenue, while Ecclestone and his partners take the remaining money out of the sport. To suggest that the teams should now subsidize the circuits, while he and his financiers remain with the same share of the cash, is bound to cause controversy.
Although it was impossible for the parties involved to agree a new Concorde Agreement when the old one ran out in 2007, the teams did agree to a memorandum of understanding that they would stay in the sport until 2012 if Ecclestone paid them 50% of the revenue. Ecclestone now seems to be saying that this deal is not good enough and that they are free to leave F1 whenever they wish. He says he will only pay teams if they commit for the next five years and even then he is only willing to pay on the basis of the original deal, which was 47% of the TV rights only. This sounds like Ecclestone trying to worry the teams into accepting whatever they can get. In the old days that might have worked, but the emergence of the Formula One Teams' Association (FOTA) is a clear indication that the teams are becoming less and less willing to go on with Ecclestone's business model, and understand that if they work together they will gain more.
At the moment there are three players in the F1 political game: the Formula One group, the F1 teams and the FIA. The alliance between Formula One and the FIA means that the teams have traditionally been in a weak position and it has not helped that they have often been divided. There is a fourth group that should have a voice, but the race promoters have always been hopelessly divided and have followed Ecclestone slavishly for fear of losing their events. In most sports it is the owner of the venue who has ultimate control over the broadcasting activities. They may license people to do that on his behalf. Thus to avoid troubles Bernie Ecclestone might start to buy poverty-stricken venues. However, if the promoters had a strong leader and could club together to establish their own organisation, they would become a political force in the sport. It would be a political challenge to get so many competing bodies to work together but the teams have achieved that (for the moment) and the promoters could as well. If they were then to ally with the F1 teams the power of Ecclestone and the FIA would be seriously undermined. Ecclestone seems to be confident that this will not happen and that the teams will not walk away and start their own championship. This belief is presumably based on the fact that starting a new series in a complex business and would be too much hassle and too much cost for those involved, most of whom have more important things to worry about, either running a team or trying to sell cars in a credit-less world.
If the teams did bite the bullet and go down that route then the FIA would be faced with a choice. The federation owns the rights to the "FIA Formula One World Championship", but under European competition law cannot stop a rival championship unless the cars and the circuits were deemed to be unsafe. The FIA would have difficulty putting together a credible Formula 1 World Championship without the likes of Ferrari and McLaren, particularly if the traditional circuits of Monaco, Spa, Silverstone and so on also decided to jump ship. The drivers would follow the money, as they always do. The media, the fans and the sponsors would go to whichever series had the most credibility - or they would walk away. The credibility would be based on the entry and the circuits involved. It would be a similar situation that that which British soccer went through in 1991 when the top teams broke away from the Football League to establish their own Premier League, which the Football Association then supported.
The advantage of a new championship would be that circuits, TV companies and trackside sponsors could all be charged considerably less than is currently the case because all the money would be flowing into the sport, rather than going to anonymous bankers. Thus a new series could ask for 50% of the current prices and the teams would be in the same position as they are now. If they knocked 25% off the fees for all concerned, everyone would be happy. There would, no doubt, be years of legal actions over details but once a new championship was established the financial power would shift away from Ecclestone and his allies (who would be weakened by not being able to pay their debts).
For the most part people in F1 believe that any new series would need to deliver a knock-out blow to Ecclestone and the FIA as the concept of having competing series would be a disaster. They point to the CART-IRL split in the United States, which did massive damage to open-wheeler racing in the US and took more than 10 years to solve. No-one gained apart from the rival NASCAR. Thus it is in the interest of all concerned to find a solution within the current structures. Unfortunately, with the global economic troubles, the pressure is on.