F1

F1 needs a reality check, strong management and fresh ideas

By: David Bailey @dgbailey
Published: Thursday, November 6, 2014 - 14:25 GMT Jump to Comments

‘Motorsport Valley’ runs for around 80 miles from the south west of Birmingham to Oxford. Around 4,000 businesses generate £9bn in sales and provide a living for around 40,000 people. But F1 is running on empty and the future is uncertain.

Recent work by Dr Nick Henry at Coventry University found that this cluster of high-performance engineering firms in Motorsport Valley enjoyed a period of sustained growth from 2009; by 2012 combined sales had reached £9bn per annum and it employed 41,000 people.

Bigger teams, such as Mercedes and Red Bull, employ some 600-700 people, while teams like Force India and Sauber have around 300, with Marussia some 150 or so.

But more than 35,000 people not directly employed by F1 teams work in related support industries and, critically, in research and development. It is estimated that £3.6 billion of Motorsport Valley’s collective turnover is generated from exports.

What’s increasingly apparent is that the research and development involved on the race track can be applied elsewhere. For example, McLaren’s spin-off, McLaren Applied Technologies (MAT), applies its F1 techniques to other sports and to sectors as diverse as aviation and manufacturing industries. Williams recently spun off its flywheel business to GKN, which is installing the technology in buses to capture energy and reduce emissions.

Contrast the success of Motorsport Valley as a whole with one of its major customers, F1. Two teams have just gone bust. Now we don’t know whether Caterham and Marussia will make it back onto the grid later this season or in 2015, although maybe it’s premature to talk of yet another ‘crisis’ in F1.

But it is clear that the sport is on the edge, and the elite managing F1 need to wake up quickly and recognise what’s going wrong.

What’s more, if Caterham and Marussia can’t make a come back, that leads to problems for teams further up the grid, like Force India, Sauber and Lotus – all of whom threatened a boycott of the recent US Grand Prix – then F1 really would be in big trouble.

The two cases of teams going bust are actually quite different: at Caterham there has been ongoing confusion, ownership scraps and poor management. Marussia is different. It is well run, has performed well and has achieved a great deal. Yet the way the money is distributed in the F1 circus means that it is in this position. And that needs to change.

Both teams entered F1 in 2010 when there was supposed to be a budget cap coming into force. That never happened; rather some pathetic money-saving measures were introduced. So both teams were always going to find it tough going. Actually I’m surprised that they have lasted this long.

Not surprisingly, it’s the smaller teams which have been angry for months that nothing has being done to address their fragile situation in a sport where payments are heavily lopsided in favour of the bigger, more prestigious teams. Sauber and Lotus have posted losses for the last two years, and further up the grid even Williams, which is currently doing well on track, is reported as having run a  six-month loss of £20m for 2014,

Costs are rising and sponsorship has been falling, and TV viewing figures and live audiences are also down. As a result, the smaller teams are struggling to survive. Costs are too high and the way revenue is distributed across teams is grossly unequal - that's where the problem lies. Partly that’s because the prestigious teams can negotiate separate deals with the sport’s promoter, and that widens the gulf between the front and the back of the grid.

Formula One supremo Bernie Ecclestone admitted at the weekend that he had been at fault: “the problem is there is too much money probably being distributed badly – probably my fault. But like lots of agreements people make, they seemed a good idea at the time”. It’s a shame he didn’t listen earlier. Maybe he was distracted with legal cases.

Any sport needs a competitive balance to keep fans watching: F1 as a spectacle needs its teams to genuinely race each other. Fans ultimately drive the business; they consume the events and the money flows if they tune in. As in other sports, they want to see different teams and drivers winning and a ‘real’ race where there is a degree of uncertainty.

Making sure that all teams – and not just the likes of Ferrari - get a decent share of the revenues would go a long way to making sure that the lower teams can cover the costs of racing and offer the spectacle that fans want.

Ultimately there are only three ways to tackle the current problem: costs come down; income goes up; and/or income gets better distributed. Ideally, all three are needed.

On this it’s imperative that the private equity company with a majority shareholding in F1, CVC, plays its part in restoring a competitive balance by fixing the sport’s money problems. It has extracted billions of pounds from the sport; now it’s time to play its role in getting F1 back on track (quite literally).

But don’t hold your breath on costs being capped. This debate has dragged on for years and hasn’t been resolved – partly because F1 likes to showcase cutting edge technology.

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The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of The Information Daily, its parent company or any associated businesses.

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