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JULY 13, 2005

A blue print for the future?

The current to-ing and fro-ing in Formula 1 politics is a necessary evil before a new commercial structure is established for the future. The situation is not dissimilar to the challenge that faced British soccer in the early 1990s, after the disaster at Hillsborough in 1989 when 96 fans were crushed to death at a soccer game.

The inquiry that followed resulted in a report by Lord Justice Taylor, which was published in January 1990. This made 76 recommendations about how to improve the state of British soccer, including the proposal that all soccer grounds be refurbished in a safe manner. As a result of the report the major British soccer clubs found themselves in a difficult situation, being forced to invest heavily and at the same time being unable to compete with richer European clubs to keep the best players.

It became clear that a radical restructuring of the commercial structure of the game was necessary. The old structure, run by the Football Association, was no longer workable but, in order to maintain its control of the sport, the FA came up with an opportunistic plan to establish a new professional super-league. The plan was revealed in the FA's Blueprint for Football, which was published in 1991, based on work carried out by a private leisure consultancy company called the Henley Centre for Forecasting.

The top soccer clubs were quick to support the initiative and in the summer of 1991 a total of 22 of them signed an agreement with the FA for the establishment of the Premier League, which would be financially independent but sanctioned by the FA. In February 1992 the 22 clubs quit the football league and formed the Premier League. This replaced the old First Division but remained linked to the other leagues so that successful teams could be promoted to the Premier League and unsuccessful clubs were relegated. The TV deals negotiated provided clubs with the investment money to transform their facilities and grow and Britain was soon able to attract not only the best foreign stars but also managers and trainers. This in turn attracted more international popularity and increased international TV coverage. In recent years this success has enabled the Premier League to make a $35m investment in the Football Foundation to ensure that the grassroots of the British game receive the necessary funding to provide for new players and new facilities.

In reality, the big players remained the same. The switch from the First Division to the Premier League was simply a commercial restructuring and an exercise in rebranding.

This may end up being the best solution for motor racing with the teams simply setting up shop and going it alone under the FIA banner. The federation can talk all it likes about how it will not bend to the will of the teams but the wisest route inevitably is to follow the FA's lead and sanction the new series.

The commercial structure is still a mess at the moment because of the existing commercial deal between the FIA and SLEC but the banks which control SLEC are increasingly weak as the end of the Concorde Agreement approaches. They could go on running a championship in 2008 but with all the teams jumping ship that will not be easy to market. The idea that the F1 teams should buy the commercial rights from the banks is not one that is attractive. The teams argue that as they are the show they should get the benefits. For the good of the sport, however, it is probably wise for them to agree a settlement deal with the banks to pay them off and then the FIA-SLEC deal can be quietly cancelled. The banks have been receiving their share of the profits from F1 in recent years and these will by now have amounted to around $300m. There is still a long way to go before they make back the $1.6bn they invested in Kirch.

The key issue is whether the sport wants to deal with the banks in a way that leaves the sport unsullied in the financial world. The teams may not like having to take less in the short-term but such a move would be much more intelligent in the longer term as the sport needs a better image.

The FIA drive towards creating a cheaper Formula 1 is obviously designed to try to close the gap between Formula 1 and the other formulae in order to create a situation which is similar to the promotion and relegation from the Premier League to Football League Division One. Relegation costs a club around $40m a year in income but there are provisions for payments from the common fund to help clubs when they drop out of the Premier League and payments to assist successful teams when they are promoted.

The money raised by the Premier League is divided up between the clubs with 50% being divided into equal shares; 25% allocated relative to TV coverage received and the remaining 25% paid out on the performance of the team.

This is a much more equitable arrangement than currently exists in F1.