Leaked Letter Shows How Bad Formula One's Finance Problem Really Is

Illustration for article titled Leaked Letter Shows How Bad Formula One's Finance Problem Really Is

A letter to Bernie Ecclestone cosigned by smaller Formula One teams Force India, Sauber and Lotus explains just how lopsided the sport's distribution of commercial revenue is along with other key facts, such as how none of the smaller teams voted to move to the new V6 turbo engine.


The letter calls for an urgent meeting in Abu Dhabi to discuss the situation, which the smaller teams describe as a slippery slope to a grid filled with "Super GP2" and customer cars. Force India deputy team principal Bob Fernley penned the letter to Bernie Ecclestone, chief executive of the Formula One group.

The teams are asking for a more equitable distribution of funding among the teams so that the smaller teams can stay in existence without having to resort to customer cars or a second class of racing.

While the smaller teams typically receive only $52-64 million from Formula One Management per year, those in the F1 Strategy Group—Red Bull, Ferrari, McLaren, Williams and Mercedes—will receive approximately $412 million, as a group. The large teams receive almost half of the $835 million Prize Fund that Formula One Management will allocate to the teams for 2014.

There is a clause in the current team contracts that explains how teams have agreed to supply a third car to a team experiencing financial hardships which has the smallest teams worried. If the smaller teams can no longer afford to participate on their own, they will end up as customers of the larger teams.

Customer cars don't allow for the kind of innovation and technological strategy that people expect out of Formula One, so the smaller teams have every reason to be up in arms about that clause, even if it is one that was meant to help them.


Clearly, Formula One's payout structure is broken. The rich teams keep getting richer, and the smaller teams get the shaft. The richer Strategy Group isn't affected by the cost crisis, so they care less about fixing it. Fernley explains:

Since Austin, Lotus, Sauber and Force India F1 have been in communication with Donald [Mackenzie of CVC Capital Partners, one of the owners of F1] and your good self in order to highlight the critical situation independent constructors in Formula 1 are facing today. From our meetings we noted positively that our concerns were acknowledged and there was a basis for a constructive dialogue. However, after our meeting in Brazil we clearly see the direction of Formula 1 towards customer cars / super GP2. It is equally clear that the Strategy Group has no intention at all to reduce costs.


The letter refers to the group making all of F1's decisions as a "Cartel," further driving home the fact that the small teams feel left out of crucial decision-making processes and are extremely unhappy.

The letter continues:

The shareholder's (sic) focus during the negotiations was on securing the co-operation with big teams in view of the planned IPO; we were effectively given no room for negotiation. Furthermore, the impact of providing various share options to key people and entities may well have clouded their judgement in respect of creating what is effectively a questionable Cartel comprising, the Commercial Rights Holder, Ferrari, Red Bull, Mercedes, McLaren and Williams, controlling both the governance of Formula One and apparently, the distribution of FOM funds.

Whilst the FIA are involved in The Strategy Group, they are impotent to act.

None of the smaller teams on the letter voted for the move to the costly V6 turbo engines, either. While the manufacturers want to use F1 to showcase new technologies, the smaller teams just want a chance to win. Fernley explains in the letter:

70% – 80% of the FOM income has to be allocated to the engine. For us, as engine customers, the engine technology, i.e V6 or V8 turbo-charged or hybrid, is of much less significance, as opposed to engine manufacturers, who are using Formula One as a marketing tool to showcase high-end technology. Unlike manufacturer-owned teams, our core business is Formula One.

Yet, we have no choice but to spend most of our income on the engine, and the remaining 30% is by far not enough to construct, enter and run a team over a twenty race season.


Fernley's letter claims that engine-related costs (such as installation and gearbox design) can total up to $43 million per season. James Allen claims that figure is closer to $20 million for the lowest-priced power unit alone. That is a significant chunk of an already small payout.

The average budget for a Formula One season is estimated to be $219 million.

The smaller teams are desperate to resolve the inequitable distribution of funds each year. Sure, there should be some incentive to win and place well, but it shouldn't come at the cost of less moneyed and established competitors.


Previously, smaller teams have asked for a limit on the number of developments teams can make per season, rather than an outright budget cap. This is something that Formula One could measure at each grand prix. While I'm not sure this fits in the spirit of Formula One being the pinnacle of motorsport, it's at least a feasible work-around.

I'd still rather see FOM funds be distributed more evenly in light of the additional engine costs that the smaller teams have been forced to incur.


Someone tell Bernie that this isn't "going around with begging claims." It's asking for a reasonable long-term solution to F1's finance problem.


We've lost the two backmarkers to out-of-control costs. Let's not lose the mid-pack teams. The back- and mid-field teams always have played an important role in developing in new talent, and it would be a shame to see them disappear from the grid.

Photo credit: Getty Images


Ente Süßsauer

The only ways to really curb costs are to either have a price cap, some complicated resource cap, or turn it into a spec series.