Wednesday, January 14, 2009

What Goes Around Comes Around...

It was nearly thirty years ago, when then Brabham owner Bernie Ecclestone, in his capacity as president of the Formula One Constructors Association (FOCA) went into battle with Jean-Marie Balestre’s FISA for the rights to run Formula 1. His right-hand man in that fight was an urbane barrister whose real ambitions lay in politics, but whose family history made such a career impossible. He chose instead, to go into the goldfish bowl world of motorsports administration. Step forward current FIA president Max Mosley. It was a tense, and bitterly fought affair which at times appeared to threaten to tear the sport apart. In the end, Ecclestone and Mosley emerged victorious, with FOCA, representing the teams, being granted control over the commercial aspects of the sport. Mosley, meanwhile, dethroned Balestre and became president of the organisation he had spent much of the last decade at war with – the FIA.

Fast forward to the present day, and the state of the sport that the two men have largely controlled for the past two decade. It has been a tumultuous few months for Formula One. At the time of writing, it remains unclear whether the men and women at the old Honda F1 factory team in Brackley will be looking for work, and whether Jenson Button and Rubens Barrichello, race-winners both, will have a ride this year. It is thought that Mexican billionaire and Grand-Am racing boss Carlos Slim has sniffed around. Rumour has it that both PSA (Peugeot-Citroen) and Hyundai took at least a cursory look purchasing the team but both have publicly ruled themselves out, and the clock is ticking if a deal is to be done in time to get the team onto the grid in Australia at the end of March. There are rumours that Prodrive supreme David Richards is still trying to put together a bid with Middle Eastern backers (although he now says he is not interested), but in the current economic climate, nothing can be taken for granted.

Fundamentally, the problem is that the team requires a vast amount to run. Honda, it is said, are happy to be rid of it for a nominal sum, but will want to be indemnified against future redundancy costs for the team’s current employees. Dieter Rencken, in his excellent Autosport column, The Weekly Grapevine (do subscribe, it’s fantastic value – and they don’t pay me to say so...) estimated the cost of providing such guarantees at around £75m. And on top of that sum, any prospective team owner would have to find the cash to run the team itself for the season – which would probably cost at least as much again, cost-cutting measures notwithstanding. The fundamental truth is that the cost of getting started as an F1 team is now so great as to be beyond all but the wealthiest corporations and individuals.

Teams have always come and gone, but in times past, there has always been a plentiful supply of aspirants in F2, or F3000, or sportscar racing prepared to take the leap of jumping up into Formula One. That is no longer the case. The blame must lie, in part, with Bernie Ecclestone, the FIA and FOM, with their insistence that any new team put up a bond of $30m and the ‘closed shop’ franchise system which has existed for the past ten years. That, though, is not the whole of the explanation. Such a system should actually have served to protect the existing weaker teams, but it was not enough to save Prost, Arrows or Minardi. As I have said on numerous occasions before, the cost of competing in F1 will always be a certain fraction of what the richest teams and prepared and able to spend. Over the past decade and a half, that sum has become so large, and so detached from the figures required to compete in other, lesser formulae, that the jump has become to great.

In years past, teams like ART, ISport, or Racing Engineering might have taken the leap into F1, but the start-up costs are simply so much greater than for GP2 as to make this completely unrealistic. Not since Forti Corse, Simtek and Pacific have there been completely new-start F1 teams which haven’t had the backing of either a major corporation with a product to sell (BAR and British American Tobacco) or a car manufacturer (Toyota). None of these, of course, were able to make much of a fist of it. The last completely new teams to come into the sport without the backing of a manufacturer or cigarette company and make a lasting impression were Jordan (in 1991) and Sauber (in 1993). What, you might say, of Super Aguri and Toro Rosso? Well, I can’t help but feel that, given they didn’t design their own cars, they don’t really count.

For a long time, the sport has been able to ignore this, as the existing manufacturer teams have appeared to be on a sound footing. Ford (as Jaguar) might have pulled out, but billionaire soft-drinks magnate Dietrich Mateschitz was able to step into the breach to keep that team going. Now though, with the world in the throes of what might be the most severe economic recession since the 1930s, it’s looking as if the grid for 2009 might well be down to 18 cars, and there are persistent rumours about Williams’ indebtedness, that Renault and Toyota are reconsidering their involvement in the sport, and that Vijay Mallya is becoming disillusioned with the lack of success from Force India. In short, F1 may be facing a crisis which threatens its very existence.

Those involved in the sport are not unaware of this, but they have massively divergent visions of how F1 might dig itself out of the hole it has found itself in. On the one hand, there is FOM’s vision, seemingly shared by FIA President Max Mosley. They look at the current situation and see 10 (perhaps now 9) teams spending astronomical sums on esoteric technology with little or no application in the world beyond, all in search of a few tenths of a second. Then they look at GP2 – the cars are not much slower, the racing is arguably better, and a team can be run for a tiny fraction of the cost of a Formula 1 team. Why? Because the cars are built to a standard design, and the teams are simply not allowed to spend millions

The teams, however, are all but united in opposition to this vision. They realise that, ultimately, it would render them much less powerful than they are at present. Once they are left running more or less standard chassis and engines, the teams would become like so many interchangeable light-bulbs. At present, the teams are real players in themselves. If they unite in opposition to the commercial rights holder or the FIA, then those bodies are forced to listen – the show cannot go on without them. If they were reduced to small engineering firms, doing nothing more than setting up a spec-formula chassis and providing mechanics, in essence, doing what GP2 teams do now, then the governing body would hold the whip hand. If the teams fell out with those running the sport, well, the governing body could go and find others to run the cars – there would be no need to compromise with them.

Being fair, I think the teams fundamentally see F1 as a competition between rival teams of engineers, as well as between rival drivers. They, quite correctly in my view, regard a spec formula as being contrary to the very spirit of the sport. Their preferred solution is a rule book which, while perhaps closing down development in certain areas, nonetheless leaves the door open for the teams to compete to build the most effective racing car. Arguably, at least, central to making this vision work is that the teams should get a larger share of the revenues generated by the sport’s owners from the selling of TV rights, track-side advertising and the rights to host races in the first place.

Inevitably, this sets the teams at loggerheads with the sport’s commercial rights holders. Bernie Ecclestone remains their fixer, though he has only a minority stake in FOM (and that through his estranged wife’s Bambino Trust), which is mostly owned by the hugely indebted private equity firm, CVC. The teams might reasonably ask what additional value the sport’s owners actually bring to the table. When CVC took over Moto GP, they took on a decidedly different proposition. MotoGP had great unrealised potential – the sport had a very low media profile, and yet there was no fundamental reason it could not be every bit as commercially successful as F1. Under CVC’s ownership, MotoGP largely fulfilled this potential. F1 is a different kettle of fish. Bernie Ecclestone et al had been doing a perfectly good job of promoting the sport for the past 30 years, and it has probably reached about as large a global market as it is ever going to. If CVC were to make more money, it would have to be from the sport’s existing base.

The teams' bones of contention with FOM are several. Firstly, the teams are competing with the rights holders for sponsorship money. Not a few teams will feel aggrieved at the fact that FOM have signed LG Electronics as ‘commercial partners’ - in the past, they might instead have sponsored a team. If further deals follow, expect the teams to feel still more frustrated. Secondly, FOM/CVC, in their quest to maximise their own revenues (and pay back the interest on the rather hefty loan CVC took out to purchase the rights from one Mr Ecclestone) are ever more inclined to have Grands Prix wherever there’s a backer (usually a Government) prepared to pay. Hence, Grands Prix next year in Abu Dhabi, Bahrain and China, but none in Canada, France or the USA and Britain and Germany under threat. Which is madness from the teams’ point of view, because they want the races in places which would interest potential sponsors, and Abu Dhabi is not such a place. It is, of course, also a travesty from the fan’s point of view.
Finally, there's the profits themselves. The teams would argue that they shoulder most of the burden of investing in the sport and incur most of the costs - the commercial rights holder, which not being responsible for providing the cars or the circuits, essentially getting something for nothing, and yet they receive only half of the sport's revenues (with Bernie having stated he'd like to cut that figure back, rather tahn increase it). The thought must occur to them that, were they to go it alone and set up a break-away championship, they could keep all those revenues for themselves.

It strikes me that the interests of the teams, and probably ultimately the sport itself, is diametrically opposed to that of the sport’s commercial rights holders, still operating through Mr Ecclestone, and the FIA, which, through Max Mosley, seems squarely lined up behind them. Through FOTA (are the echoes of the old FOCA in their name deliberate), the teams would appear to have put many of their differences aside to come together to make common cause. Will they succeed? Not many have gone up against Mr Ecclestone and won, but on the other hand, Bernie is only human, and he’s 78 now. Without any longer having a large personal financial stake in the sport, essentially the pawn of a group of investment bankers, will he really have the stomach for the fight, or might Mr Ecclestone and Mr Mosley’s long reign over the sport come to an end, just as Jean Marie Balestre’s did nearly two decades ago?

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