How F1s Prize Fund Could Make Sense

There are rumoured to be 3 F1 teams in financial difficulty, Sauber is the one that is in the headlines at present with a figure of €80m to €120m of debt depending on where you get your figure from. Lotus and Marussia are also in financial trouble as well, Marussia is less well known to what extent, it is said that they operate on a budget of €75m, they can operate the team on €73m for the season with €2m for updates. Lotus are known to be anywhere up to €150m in debt, with all but €35m being long term investor debt, and this is a known as it came from Gerard Lopez. It is also believed that Force India is operating a tight ship with finances tight with the team operating just in the black, as a check on the team for 2011 shows they operated with just €200,000 left at the end of the year, however they had €7.5m at the bank and €50m in liabilities, which was later obliterated with investment of €100m to Sahara, €50m to clear debts and €50m over 4 years to improve facilities and equipment like the Simulator that the team now has. The Force India team ate now looking towards further upgrades like a new wind tunnel. This leads to a question, how could F1 become a viable business, and how could F1 support itself better.

I am a firm believer that the present F1 business model is flawed, the present attitude of ill spend two pounds of your one is wrong. Looking to other sports where giants of the game did such a policy has now put Scottish Football in the Intensive Care Unit for many, many years as Rangers went into administration and later liquidation and the NewCo route with the club going down 3 divisions from the Scottish Premier League to the Scottish Football League division 3. Scottish Football was unsustainable in this format, trying to compete in the Champions League with the big European Giants like Barcelona and then within 4 days competing with the likes of Berwick, the only English team in Scotland in a cup competition.

However, if you follow Hadrian’s Wall and end up at Newcastle, you can join up to the multi billion pound English Premier League, where there is a collective bargaining agreement from the very inception of the EPL, where every team gets a equal share of a percentage of the prize money, for 2012/2013 every team got £33m, with QPR getting £800,000 in prize money for 20th place and Manchester United getting £15m for becoming champions. The EPL teams also receive a income for live TV matches as well, for the bottom 4 in the EPL was £5.8m and for Manchester United is £13.8m. It leaves Manchester united with a overall pot of £61.4m and QPR with a pot of £39.6m. With the EPL taking £2.28b from Sky for 116 matches a year and £738m on 38 matches per season for 3 years, which is an massive £6.5m per match for 154 matches per year. The EPL have a 3 year deal for £3.018b without highlights packages added in and overseas rights to the likes of Asia as well.

The prize fund for the EPL will be about £1b every year for the next 3 years, with 40% being given to the teams equally, another 40% in TV money dependant on team finishing position and the other 20% in prize money using a fixed formula. This leads me to the point, if F1 can generate €1b a year from TV revenue and from the race promoters as well, the teams would be in good health and not really need to be dependant on Pay Drivers.

Lets surmise that each race is worth around third of the cost of a EPL match to show, with each broadcaster bidding €45m per season for a full season and €22m for a half of the races live every season and the rest of the races with 60 minute highlights, F1 could get €67m every year from every nation that covers F1. However, the deals could be less if FP1, FP2 and FP3 aren’t covered live as some countries will only want to cover Quali and the Race. If there are 50 countries that want F1, but only 20 want the full experience with practice sessions with two broadcasters as well, it would equate to €1.34b a year and the rest making up €660m for single broadcaster coverage for Quali and Race coverage, it would make F1s annual pot of €2b for TV quite a decent fund. However, include Radio deals and other new e-media rights and such, F1 could get another €200m there as well. And if each race promoter gives €35m on average per race, F1 could get €700m there as well for a 20 race deal, and if F1 even makes €100m in merchandise and other commercial aspects in the likes of the official F1 timing app for instance, it would make a neat €3b pot for F1 as a whole.

Now, here is the difficult part, the split, with F1s rights being owned by CVC, id make the Collective Bargaining Chip like this, simply 48% of the yearly turnover to CVC, 48% to the F1 teams and 1% to the FIA, and another 1% to a fund that goes toward mechanics that have fallen on hard times and such due to injury or whatever.

This leaves €1.44b to CVC and the F1 teams, and €30m to the FIA and €30m to the fund. Ill come to the FIA first, they need €150m a year to operate with all their campaigns like the Action For Road Safety one, which they can ‘tax’ the teams and drivers for their team licence and driver super licence as well to make up the €120m they need as well. Next the Mechanics fund, €30m a year should be enough for this, however the fund should not be there to support mechanics and engineers who have fallen on hard times due to Alcohol, Drugs or Gambling. Im thinking about those guys who cant work due to being diagnosed with a terminal or immobilising illness or have been involved in a accident at home or at work. As for CVC, they take 48% straight off the top, that’s theirs, and their profit, no ifs and buts, give it to them and keep them sweet.

Now, the F1 teams split. The politically volatile element. Id propose that the teams all get 40% of the €1.44b split between all the 12 teams, as id have a 12 team grid, equally, with a fund of €576m fund with each team getting €48m with no questions asked in effect. Next, the 20%, the 5 teams that have been in F1 the longest due to their history getting a Historical payment, a fund of €288m is now available, this id split in a rather bizarre way with 40% going to Ferrari and the rest being split equally between Williams, McLaren, Lotus and Mercedes. Why these teams, Ferrari as the team with the longest richest history, McLaren and Williams as they have been the next instrumental in the sport, and have comparable history as well. Why include Lotus and Mercedes, Lotus because the team dates back to the Toleman days and is the 4th longest team that way and Mercedes on the fact it dates back to the Tyrell days on the Chassis front and they also date back to 1993 on the Engine front as well. That would give Ferrari, £115.2m and the rest with €172.8m split 4 ways with €43.2m going their way.

Next the prize fund, the12 teams would be balanced in decently fair way for the remaining €576m, 11th and 12th would get €13m each, as they should be penalised to a point for bad performance over the year, and would give them a minimum budget of €61m per year, meaning they would have to take on a pay driver or two in order to make a difference to their budget. Now there is €550m left, with a percentage split, would give the placing as follows:

P01 = €93.5m – 17%

P02 = €82.5m – 15%

P03 = €71.5m – 13%

P04 = €60.5m – 11%

P05 = €55m – 10%

P06 = €49.5m – 9%

P07 = €44m – 8%

P08 = €38.5m – 7%

P09 = €33m – 6%

P10 = €22m – 4%

It would bring team budgets to a really good level, for Ferrari, it would make them the largest in terms or non commercial budget, with around €245m for 2012s performance, but it would give Marussia €61 for 2012s performance. Red Bull would be €141.5m, for non commercial budget. Sauber would have above €100m for non commercial budget as well, which is an increase on their overall budget of €95m for 2012.

It would mean that teams could run on a decent base budget, however, the steps in prize money would be significant enough that competition would be fierce enough for the constructors to do better with their budgets. If F1 teams take €75m to run a team for a year, for a P11 team that is, the prize pot would be enough to get a team 82% of the way there, then you could take a couple of pay drivers at €18m and €12m, to increase their budget to €91, which is enough to allow the team to run a small, decent and well formed development plan for the year, even tailoring their cars to a specific track type in order to be really strong at those tracks in order to gain that P10 place, or even that massive leap to P9.

At the top end, it would mean that teams like Ferrari, Red Bull, McLaren and Mercedes can run their teams really aggressively with a good non commercial budget and with commercial budget, you could operate a top team for anywhere from €220m to €300m. Some teams overall may be able to run at a profit, depending on how well their commercial departments can work the best commercial deal in regards to sponsorship.

However, I will elope to the point that I did come to earlier on, the FIA and how they can get the rest of their money for their campaigns, that would be to have a FIA Team licence that starts at €500,000 for the bottom 8 teams and €1m for the top 4 teams. With €20,000 a point, that leaves the teams being ‘success taxed’ to the tune of €40.4m if you have a 20 race year with 101 points (using present points system) per race available. Red Bull would have to pay €9.2m in points tax and €1m in entry, a fair system for being successful I think. That would bring the FIA €48.4m extra, to add to their €30m, that’s only €78.8m on the way to their target of €150m. Another chunk of the rest would come from the Drivers Super Licence, €500,000 for the top 10 the preceding season and €200,000 for the rest, with the drivers also being ‘Success Taxed’ to €10,000 a point for the top 10 and €5,000 a point for P11 in the drivers championship and below. That would bring the FIA about €100m from F1, the rest of the €150m should come from other formula and other forms of FIA governable motorsport.

I think this would make the FIA stronger, CVC would be happy with their cut and the Teams would be able to concentrate on the good of the sport, whilst competing to the highest and fiercest level they can. However it would leave one person out of a job, and out of power, the man that for some wouldn’t have made F1 the global power it is now out of a job, Bernie Eccelstone. The man who has been the power broker for the past 20 to 25 years in F1. And the reason I think that F1 cant move onto the next level, the man who still wants the prestige. Until a succession plan has been worked out, or something happens that Mr E cannot do his job, F1 I think will remain fractured, splintered and damaged.

Until opinions are changed, and chess pieces moved away from the current stale mate, F1 cannot become a sport based around success to become a viable business model that sponsors will actually want to come and invest in. F1 is the third most Globally attractive sport for sponsors behind the World Cup and the Olympics, and it is these things that F1 needs to compete against as F1 isn’t just competing against its own, but in the global market of all other sports. And then and only then will F1 be judged accordingly and not just a rich boys sport for the chosen few.

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