What if the breakaway happens?

[WhiteBlue]

I am wondering what is happening over at Red Bull these days. They are a very serious promoter of a break away from FOM. Dietrich Mateschitz has publicly said that he thought the teams should own the commercial side of F1.

On the other side he has a contract with FIA/FOM much as Williams and FIF1 have. The difference is, that he has so much money he can disregard any threat to cut his banking support. So he will simply pay the legal and financial bill whatever happens similiarly to Ferrari. It is also worth noticing that the FIA may not unconditionally support FOM.

Another aspect is Red Bulls status as a privat team. They apparently are not party to the infamous manufacturer five who are rumored to have agreed on a punative damage pact over unconditional entries to the 2010 championship.

A break away does not make an awefull lot of sense for 2010 when half the existing teams are contractually bound to the FOM. It makes tremendous sense for 2013. In three years it is possible to lay the ground work for all the challenges that needs adressing. Apart from the legal side financial and cartel issues are possible show stoppers. Right now the financial muscle is with CVC. THey are not far away from their business plan. When the consequences of the credit crunch and the collapsing of revenues starts to hit FOM the leverage aspect will devalue their investment a great deal.

So one clever option could be to wait for FOM to get into trouble and CVC to look for an exit from an investment which isn't usefull any more. In the mean time it could also be helpfull to have the FIA on one's side for such a case to happen.

I would not be very surprised if some scheme like that would turn a break away into a take over scenario in some years time. The Bernie will not live forever.

[CHT]

I kinda like the FOTA proposal for the future.

http://www.teamsassociation.org/press-r ... ss-release

[kilcoo316]

I do see that, obviously. And my statement is based upon his greed.

What I did NOT say is that Bernie should make as much in the breakaway series as he currently does in F1.

If FOTA and Bernie were contracted on a reasonable revenue split, then I think Bernie would quickly jump onboard to supplement his F1 income.

Bernie could then rape and pillage the F1 teams, and then use that to invest and build the FOTA series. As long as FOTA don't get carried away and leave ambiguous parts of the contract open, it would be the best shot at a breakaway actually becoming competitive with F1. And Bernie would make money from both.

So, to answer your question:

I am not nuts at all.

So what value does Bernie add at all?

None.

He is a net leech.


The contracts could quite easily be negotiated at half their current rate (who loses there eh?), and the teams/circuits/TV companies would still gain more.

[kilcoo316]

If FOTA runs a breakaway series WITHOUT bernie, then I am sure the "cost" of running "New F1" will drastically come down because there will more TV revenue to share among members and with that it potentially could also attract other manufacturers into F1.

Exactly.

Also - it should not be dismissed that the teams are not opposed to cost cutting, or even budget caps eventually.


They are opposed to the madness of having to slash their budget tenfold in one season!

[Ciro Pabón]

I'm not sure this is about the teams budget. I think that the budget slash is just one way for FOM to limit their payments to the teams, for one. I loved this (sorry, rather long) interview. Credits to MikaPup at GrandPrix for pointing me to it, but I think it gives a little substance to the thread:

From his office on the 45th floor of the IBM Tower in downtown Montreal, Normand Legault can take in all of Montreal. His work table is surrounded on three sides by immense windows. “From here, I could give traffic reports. I can see all the bridges from the Mercier Bridge to the LaFontaine Tunnel,” he jokes.
From this remarkable glass room perched between earth and sky, one can also see the Circuit Gilles Villeneuve, where the former promoter of the Canadian Grand Prix, also recently retired as NASCAR promoter, was a regular presence during three decades. “During thirty years in the business of sports, you acquire a lot of experience, and, I hope, a little bit of wisdom,” he says. You remain a passionate fan, but at the same time, you view things in a little more detached and clinical fashion. You view the same reality, but instead of being at ground level, you see things from the 10,000 foot level of altitude.”

On the occasion of the opening of the 2009 F1 season in Australia, La Presse talked with Normand Legault about the challenges awaiting the Big Circus – and the turmoil that could disrupt it.

Q: Is there a risk that the ongoing economic crisis could disrupt the world of F1?

A: Yes. F1 depends more on the automobile manufacturers than 10 or 20 years ago. Six out of 10 teams last year (now five with the withdrawal of Honda) were financed by car companies. These companies are not in trouble like GM or Chrysler, but they are facing significant financial constraints. In the world of luxury cars, sales have dropped about 25%. The BMWs and Mercedes of the world have been seriously affected.

Q: More so since new sponsors are not lining up at the door.

A: The F1 teams have been hit from two sides. During the last five years, they have all replaced tobacco sponsors with financial institutions, some of which are in serious difficulty. RBS, which was a Williams sponsor and had an important presence at the circuits, now more or less belongs to the British government. ING, a Renault sponsor, received $10 billion from the Dutch government. Crédit Suisse withdrew as a BMW sponsor. Banco Santander is not in trouble, but still it lost $4 billion in the Madoff affair. And so on. Now, when you ask the state to save you, it’s normal that you will be asked to be fiscally prudent. You don’t want to be seen drinking champagne in the Paddock Club and blowing 100 million on an F1 team!

Q: What do you think about the movement that has been taking shape in favor of cost reductions in F1?

A: Cost control measures are necessary. Extreme performance doesn’t mean anything. You have to remember that we do this for the fan. And the fan doesn’t care whether the engine revs to 18 or 19,000 RPMs. He would rather see two guys cross the finish line one meter apart at 17,000 RPMs than to see Michael Schumacher finish one and a half laps in front of everyone at 19,000 RPMS. Who gives a damn if it’s 19,000! Is it really important that they lap the Circuit Gille-Villeneuve in 1:21.430 instead of 1:21.628? I don’t think so. What fans want is a close race, some passing and that the result of a 70-lap race not be decided by the 43rd lap. Are economic circumstances forcing us to review the rules of the game? Let’s take advantage of that to make the spectacle more interesting – not for the engineers, but for the fans.

Q: What do you think about the FOTA (Formula One Teams Association), that the teams formed last year to defend their interests against the Fédération Internationale de l’Automobile (FIA) and against Formula One Management (FOM), the holder of the commercial rights?

A: It’s an interesting initiative. A few weeks before the meeting in Maranello where the FOTA was created, I made a presentation to the team bosses at the Montreal Grand Prix. I said to them, why don’t you reorganize yourselves like a North American sports league? When the [Montreal] Canadiens play the Boston Bruins, they don’t ask the International Hockey Federation to referee the match. In the world of North American pro sports, each league has a board of governors, a commissioner and vice presidents who manage the business. The owners of the sport manage themselves. The National Hockey League doesn’t have to ask anyone if it wants to increase the size of the net by six inches!

Q: Can the FOTA really become a vehicle for change?

A: I believe so. They seem to want to. A test of strength is taking place between the FOTA and Max (Mosley, president of the FIA) and Bernie. You can see that with the disagreements about awarding medals and the awarding of points. (Note to readers: Due to the objections of the FOTA, the FIA put aside the idea of crowning as world champion the driver who won the most races, rather than the one who had amassed the most points.) But I hope that the FOTA will go further than just worrying about the technical or sporting regulations. I would hope that they will concern themselves with the business model of F1. You must rise above the level of minor disputes to see what you would like F1 to become. It’s fine to think about whether the tire size should be 17 or 18 inches, but if you look up and the stands are empty, then the question of tire size becomes academic.

Q: Do the teams have the will to do it?

A: I don’t know if there is a will, but there is an inevitability.

Q: Why?

A: Because the financial structure of F1 is problematic and raises certain questions. Does the sport need an intermediary like FOM? What the teams object to is the 50-50 split of revenues between them and FOM. To go back to the model of the NHL, if the league administrative costs are $50 million, and overall revenues are $1.8 billion, then that amounts to 3%. In F1, the guy who manages the business costs you 50% of your revenues. You have to ask this kind of question.

Q: Is it possible to imagine F1 without Bernie Ecclestone?

A: As of December 31, 2007, there is no more Concorde Agreement. The teams could leave tomorrow morning. (…) They could call it the Grand Prix Championship of the World. If you have Ferrari, BMW, Williams, if you have Lewis Hamilton, that seems pretty much like the real thing. They would undoubtedly be free to do that.

Q: And what does your crystal ball say?

A: It’s an eventuality, but I don’t know if they’re there yet.

Q: Could you see yourself as commissioner?

A: I don’t know if they would see me as commissioner. Up to now, they’ve talked with me a lot about the concept, but I don’t know.

Q: But you’re not closing the door?

A: There is no door yet! (laughs)

Q: Does the uncertain future of F1 explain in part why the government refused to agree to the demands of Bernie Ecclestone in the bid to save the Canadian Grand Prix?

A: Yes. It’s fine to have a five-year agreement, but do you really know what product you will have to sell? What happens if the next Hamilton, Massa and Kubica are taking part in another championship? What are you buying for $30 million a year? What does that guarantee? It’s a little like if you signed a contract with Vincent Lecavalier [famous French-Canadian hockey player]. In the second year of the contract, you wouldn’t like it if he decided to send his brother-in-law to play in his place!

Q: What are the chances of seeing F1 return to Montreal?

A: I remain pretty optimistic. Over the 30 years during which Montreal hosted the Grand Prix, the United States GP took place in seven different locations without ever really succeeding. I feel that by 2001 (NOTE BY CIRO: ? It must be 2010 or 2011) at the latest, the Canadian Grand Prix can return to the calendar. Montreal remains an excellent place for F1. It would cost 50 million to construct even a temporary circuit in cities like Philadelphia, Washington or New York. In Montreal, the investment is already there. It’s an easy destination for the teams. The time difference means that the race is on during prime time in Europe. And there is a fan base that really knows auto racing.

Q: Except that right now it seems that having fans in the stands is not a priority in F1.

A: F1 has gone to Asia and the Gulf, it’s a little like the National Hockey League trying to put a team in Nashville. I read somewhere that the Bahrain Grand Prix generated revenue of $354 million. The Super Bowl generates $250 million and Bahrain, where the stands are empty, makes more than that? In Montreal, there were more people on Friday than some GP have on Sunday. And the spectators were not soldiers dressed in civilian clothes like in several countries that I won’t mention!

Q: Why this shift towards new markets like China, Singapore and Abu Dhabi?

A: When CVC Capital Partners bought Bernie Ecclestone’s company two years ago it took on debt of almost $3 billion. It still owes about $2 billion. That means interest payments of $240 million per year, plus principal payments of $300 million. That’s more than $500 million annually. To reach that, you need $50 million races. At that price, it can’t be profitable (for an organizer), no matter how the profitability is calculated. Australia has accumulated losses of $100 million during the last three years. The Australians know sport, they like to have a good time, but the organizers, who know what they’re doing, are losing $40 million per year. How long can that go on? Someone from the opposition or the population is finally going to ask if it’s all worth it. You have to wonder about the business model. If it costs too much, then you kill the goose that lays the golden eggs.

Q: Is that what’s happening?

A: You can already see the house of cards falling down. The French automobile federation dropped the 2009 GP. Hockenheim won’t have a race in 2010, Nuerburgring is in trouble. The Chinese have put in doubt their participation after 2010. If the economic crisis continues in Europe, that’s going to affect a lot of people.

[donskar]

Ciro, thanks for posting that. Saw it elswhere, but forgot to share it.

Setting up a new series would be an enormous task. Until recently there was no indication that FOTA was actively working in that direction. Now we learn that FOTA is either:
1) actively working on the foundation of a new series
OR
2) doing a good job in the PR war with Max

One concern, voiced by others in this forum: Max appears to have the numbers -- probably 18 -20 cars or so. FOTA has fewer cars and the posibility that Renault and Toyota might not be in F1 for the long haul. Yet they claim to be willing to commit until 2012 . . .

I have no positive feelings about what will happen over the next few days.

[Ciro Pabón]

I'm not sure it's about the cars, 18, 20, whatever.

It seems to me a row about the money.

What FOM gets if they have the cars but not the income? How are they going to pay their debts?

Will, for example, the government of Australia (who is the one paying for F1, in the end) shell out 30 million for Force India and Williams?

I fail to see what's complicated about organizing a new series. I wonder what's so "enormous" in the task of opening an office in London, finding 17 tracks, (maybe even creating a track owner association) and doing a deal with a TV network.

I think I, alone, could do it, specially without the interference of bureaucracy (that is, FIA) and thinking of a steady revenue, if not a double income, because I get rid of 50% FOM "royalties".

Don't forget FOTA has already bagged Monaco. Silverstone owners would be delighted. Nürburgring is yelling for a new deal. Australia is fed up. France is drifting. Valencia owner is under a judicial indictment. Italy will line up behind Ferrari, I think. Etc., etc., etc.

China, Singapore, Bahrain, even Turkey: what are they in F1? Nothing but a track in the middle of nothing, where the fans have to fly thousands of miles. Local fans cannot pay for the tickets or they are a minory.

The problem with F1, as I see it, is that the bussiness is broken. The interest payments and the capital payed to Ecclestone broke it long time ago.

FOTA simply needs the balls to break FIA and I think they found them. Ballestre found himself in a very similar position decades ago: he who owns the TV deal, owns F1.

[timbo]

Am I correct that ADAC is both in conflict with Max and organizes DTM?
Maybe that is a way to go?
DTM is a big event and had races in Britain, Italy and Spain. So I think organizers has all the right contacts. Imagine having weekends with Grand Prix races and DTM at once!

[Conceptual]

I do see that, obviously. And my statement is based upon his greed.

What I did NOT say is that Bernie should make as much in the breakaway series as he currently does in F1.

If FOTA and Bernie were contracted on a reasonable revenue split, then I think Bernie would quickly jump onboard to supplement his F1 income.

Bernie could then rape and pillage the F1 teams, and then use that to invest and build the FOTA series. As long as FOTA don't get carried away and leave ambiguous parts of the contract open, it would be the best shot at a breakaway actually becoming competitive with F1. And Bernie would make money from both.

So, to answer your question:

I am not nuts at all.

So what value does Bernie add at all?

None.

He is a net leech.


The contracts could quite easily be negotiated at half their current rate (who loses there eh?), and the teams/circuits/TV companies would still gain more.

What value does Bernie add to a breakaway series? You say none?

Well,

Since he has made so much money from his years in F1, I would say that to start with, his financial contribution would be immense.

Then there is the fact that he knows personally most of the track owners, title sponsors, every FOTA team and members as well as every single other commercial aspect that is necessary to put together a first class world motorsport championship.

Why would he voluntarily renegotiate contracts that were agreed upon by all members involved? Why would he do that? Doing so would legitimize the screams of senility from every corner of the globe.

Now, faced with the possibility of a FOTA breakaway, Bernie is in a position that there are enough new members trying to join (under the budget cap), there are 2 former FOTA teams that have joined (also under the budget cap) and the revenue shares and profit margins will make Bernie even more wealthy and also lead us to the most technologically unrestricted F1 cars of the modern era.

Now, Bernie also sees that the "Big Spenders" still want to spend big, and compete under their own rules and be self policed. So the choice is to either let them go their own way, and make ZERO profit from these established teams that will guarantee an audience in and of themselves. Or he can actually partner with them (at a more reasonable rate than these same teams are currently tied to in F1), make a few phone calls, hold a few meetings and organize the series under a very influential person.

This leads us to the breakaway becoming an instantly "World Class" series instead of a cobbled together start-up that may lead to the immediate loss of fans as well as the instability inherent of any "game" that does not include an impartial party to settle disputes as they arise.

From a business perspective, it would be in FOTA's best interest if they break away as well as Bernies best interest for his bank account.

Any argument against this is based solely upon opinion and subjective belief, neither of which would be in line with the objective reality that governs existance.

Now, if someone were to produce legal proof that FOTA and Bernie were not "allowed" to form such an alliance, or if there is any objective facts that show that these entities are unable to fulfill the obligations necessary to make this a success, that would change the argument.

However, until such objective information is presented, we will continue to wallow in the opinions of emotionally charged individuals, and that is something that I would prefer to avoid entirely.

[gcdugas]

What value does Bernie add to a breakaway series? You say none?

Well,

Since he has made so much money from his years in F1, I would say that to start with, his financial contribution would be immense.

Then there is the fact that he knows personally most of the track owners, title sponsors, every FOTA team and members as well as every single other commercial aspect that is necessary to put together a first class world motorsport championship.....

.....Any argument against this is based solely upon opinion and subjective belief, neither of which would be in line with the objective reality that governs existance...

However, until such objective information is presented, we will continue to wallow in the opinions of emotionally charged individuals, and that is something that I would prefer to avoid entirely.

Well I guess we all know what your opinion is. Try this opinion on for size...

You are a track promoter that has lost $100M over the last few years and in the door comes the same man who robbed you blind at the negotiating table the last time. How eager would you be to do business with him again? Please avoid an "emotionally charged" response when replying with your "objective reality based facts" to my mere "opinion".

[gcdugas]

The divorce papers are being driven to the registrar at the courthouse right now. They should arrive by early Friday.

Clicky

Same article

[Conceptual]

What value does Bernie add to a breakaway series? You say none?

Well,

Since he has made so much money from his years in F1, I would say that to start with, his financial contribution would be immense.

Then there is the fact that he knows personally most of the track owners, title sponsors, every FOTA team and members as well as every single other commercial aspect that is necessary to put together a first class world motorsport championship.....

.....Any argument against this is based solely upon opinion and subjective belief, neither of which would be in line with the objective reality that governs existance...

However, until such objective information is presented, we will continue to wallow in the opinions of emotionally charged individuals, and that is something that I would prefer to avoid entirely.

Well I guess we all know what your opinion is. Try this opinion on for size...

You are a track promoter that has lost $100M over the last few years and in the door comes the same man who robbed you blind at the negotiating table the last time. How eager would you be to do business with him again? Please avoid an "emotionally charged" response when replying with your "objective reality based facts" to my mere "opinion".

Sure,

Track owner:

So I get the same big names (Ferrari, McLaren, Red Bull, Brawn) for less than half of what we paid last year? Oh, and you have Title sponsorship lined up as well?

Bernie:

Absolutely! We have no need to fund the CVC's bank payments, nor the FIA's entry/license fees. Also, with the big names, we are sure to draw record crowds with half-priced tickets.

Chap, you seem to believe that I post without prior thought. I would have never even mentioned this Bernie/FOTA alliance if I hadn't run the scenario and not found any single point failures. And when the only failures that are supplied by yourself are purely fictional and based upon opinion, I am right to dismiss them as worthless.

[kilcoo316]

Setting up a new series would be an enormous task.

I actually don't think it would be.



Perhaps less than 5 people could organise it.


1. Track and track advertising contracts
2. Logistics (i.e booking the long haul flights)
3. TV and media contracts
4. Rules & Regulations (which come from the TWG)


Let the circuits "run" the events, while the series is just managed centrally.

If you want to have a dedicated TV operation (rather than local host broadcaster), then things become more complex - but not overly so.

[kilcoo316]

Any argument against this is based solely upon opinion and subjective belief, neither of which would be in line with the objective reality that governs existance.

Ach, your post is clueless.

I know maths isn't the strong point of a conceptualist, but at least try!


If someone is ripping you for 50% of the profits from your hard work (on the back of them doing f**k all) - why on earth would you want to jump in with them again?


Why do FOTA need money?!?! Why on earth would anyone need Bernies money when they have 90+% of the profits generated heading their way?!?!

Why do some of the biggest car manufacturers in the world need someone to negotiate on their behalf?

Do you actually think any track owner is happy to see the poison dwarf at their door demanding more money?



Clueless post... absolutely clueless.... for those living in a dream world!

[kilcoo316]

Chap, you seem to believe that I post without prior thought. I would have never even mentioned this Bernie/FOTA alliance if I hadn't run the scenario and not found any single point failures. And when the only failures that are supplied by yourself are purely fictional and based upon opinion, I am right to dismiss them as worthless.

Only further reinforces my final line in the last post...


Completely clueless post.


The circuit owner would rightly ask, "so what are you getting out of this Bernie? Why should I not talk to the teams direct? After all, it is them that supplies the cars, not you".