F1 Governance and money

[PlatinumZealot]

I was just reading about how Catarham will lose out big time if they finish behind Marussia. I mean how much money are we talking about? What are the prize rewards for the different positions? (exclude the Ferrari prize money)

[raymondu999]

http://forums.f1weekly.com/showthread.php?tid=6074

[PlatinumZealot]

Thanks. So is that saying that HRT get no money? I find that hard to believe... they must get something for participating.

[Absolutelee]

I thought I remembered hearing that the top 10 also get subsidized travel cost, which could also account for a lot.

[WhiteBlue]

Under the terms of the 2009 Concorde Agreement, the big Formula 1 teams make a lot of money from the prize fund. This is made up of 50 per cent of the revenues of the sport, which means around $500 million at the moment. Ferrari has a special deal and gets 2.5 percent of the overall figure ($12.5 million) and the rest is then split into two different prize funds: the first is divided equally between the top 10 teams; this means that they get around $25 million apiece. The second is based on the performance of the previous season and is divided up on a scale that is detailed in the Concorde Agreement.

"The World Champions get around $47 million, with runners-up getting $40 million, third-placed getting $32.5 million, fourth place $27.5 millon, fifth place $25 million and so on down to 10th, which gets $10 million. Thus Red Bull Racing will be picking up around $72 million this year, based on its performances in 2011, while Ferrari will pick up $70 million despite having been beaten to second place by McLaren, which will get around $65 million.

"There is believed to be side deals for McLaren and Williams, but it is not clear how much that is worth, although it is unlikely to be more than $5 million apiece. If that.

"At the bottom end of the scale, the numbers are less impressive. By finishing 10th for the second consecutive season, Caterham F1 Team has jumped from earning $10 million as a new team to earning $35 million in 2012. This is why the battle at the back of the grid is so intense. HRT and Marussia, which finished 11th and 12th, remain with $10 million apiece. All the teams also get some of their freight and travel bills paid for as part of the deal.

"If the teams were better organised and could gain control of the commercial rights, they would make considerable gains in the longer term, based on the current system, although loans to acquire those rights would take a few years to pay off.

"If, after that, the teams were to share 85 per cent of the revenues, rather than the current 50 per cent, the World Champions would make more than $120 million a year and the 10th placed team would get nearly $60 million. With sensible cost restrictions in the future this would mean that with other incomes from sponsorship, merchandising and so on, even the smaller teams could always be profitable.

"Given that the absolute minimum that a team can be run on at the moment is in the region of $40 million, there is still a good amount of money that is required to allow the little teams to survive.

[bhall]

So, if Saward's numbers are correct - and that's not exactly a small "if" - Ecclestone/FOM makes as much money from F1 as all of the teams combined? That's like a store's cashier earning as much as the store's owner. It hardly seems just.

[Intego]

Unfortunately, there will be changes that we don't know exactly. In the run-up to the new Concorde Agreement the teams wanted to increase the height of the "jackpot" up to 70 % which Bernie never accepted. Bernie started to make special commercial deals with the majority of teams such as Ferrari, McLaren, and Red Bull, but it's believed that also Toro Rosso, Sauber, Lotus and Force India signed a separate contract.

The granted $10m for the new teams of 2010 end after this season so it will be zero after 2013 as things are now.

[WhiteBlue]

That's like a store's cashier earning as much as the store's owner.

The company that is controlled by Ecclestone as a CEO (whatever its current name is) is the owner of the commercial rights. The comparison is a bit misleading in that regard. On the other hand the question is interesting how Ecclestone managed to divert the income from the FIA and the FOCA teams into mostly his own coffers while cutting out the FiA almost entirely. It was a process that took place over many years.

Our investigation into F1 shows that an estimated $120m was forgone in unusual circumstances by the FIA between 1987 and 1996 in favour of two companies to which Mr Ecclestone is closely linked. Moreover, Mr Ecclestone's combined roles from 1987 as president of the Formula One Constructors' Association (FOCA, the F1 teams' collective voice), as a vice-president of the FIA and as owner of several F1 companies involved him in conflicts of interest. Our investigation also shows that the FIA's senate in 1995 approved a deal to grant FOM an exclusive 14-year lease on the FIA's commercial rights to F1. The then vice-president of FOCA, Ken Tyrrell, says he was unaware of the deal until after it had been concluded. Its effect was to substitute Mr Ecclestone's company for FOCA, which had been granted a series of leases on the commercial rights since 1981. It was this deal that the FIA members voted to extend by 100 years on June 28th.

It makes fascinating reading how he screwed Ron Dennis, Ken Tyrell and Frank Williams in 1995 to lay the foundation for his piracy campaign. Since 1978 he had been the head of FOCA and was supposed to organize the commercial deals for its founding members (Bernie Ecclestone, Frank Williams, Colin Chapman, Teddy Mayer, Ken Tyrrell and Max Mosley) and share the revenues. Tyrell, Dennis and Williams were expecting everything to continue in 1995 when they discovered that Ecclestone had written his own company FOA into the next CA contract as the holder of the commercial rights and had cut his FOCA pals out of the business. That was basically a consequence of a deal called the Formula1 agreement which Mosley and Ecclestone had agreed on for the duration of 14 years. The FOCA teams were not even consulted or informed at that time. From that day the teams were supposed to give up their share of the commercial rights ownership for ever increasing cash amounts. For those times Ecclestone was offering staggering sums of cash but his old buddies were very unhappy for a long time and understandably so. They fought a retreating battle until 1998 when they finally signed the CA.

The special payments to Williams and McLaren which are mentioned by Saward were the eventual compensation for giving up the resistance against what was basically a very brazen expropriation scheme by Ecclestone. The story of the 100 years deal which followed the 14 year deal is much better known but it was only the icing on the cake. The old bugger has always had a clever way to get the best for himself or the respective company that he ran on the day.
Source1
The Economist story
A Bernie biography in PDF
Another source in PDF
EU notice document
A report about the 2001 situation

[WhiteBlue]

The granted $10m for the new teams of 2010 end after this season so it will be zero after 2013 as things are now.

Do you conclude that from prior business practise or do you have a source for that?
The way I read Saward he expects the $10m payment to continue next year. That seems to be the expectation of HRT and Marussia as well. Interestingly as the OP said it looks now that Caterham may loose the 10th team position to Marussia and become the 11th team next year. That would swap a huge amount of money between those two teams. HRT is likely to simply fold.

[bhall]

That's like a store's cashier earning as much as the store's owner.

The company that is controlled by Ecclestone as a CEO (whatever its current name is) is the owner of the commercial rights. The comparison is a bit misleading in that regard. On the other hand the question is interesting how Ecclestone managed to divert the income from the FIA and the FOCA teams into mostly his own coffers while cutting out the FiA almost entirely. It was a process that took place over many years.

Think for a moment about what that means, though. What does one own when one owns the "commercial rights" to anything? It's little more than having the "right" to collect money.

Ecclestone/FOM doesn't make capital investments in the sport. That comes from circuits and teams. Ecclestone/FOM doesn't promote the sport. That comes from circuits, teams and sponsors. (The F1 website is a testament to FOM's half-assed promotion efforts.) And lastly, Ecclestone/FOM doesn't administer the sport. The FIA and thousands of (volunteer) marshals handle that.

Ecclestone is nominally F1's cashier; at most, he's a salesman. Should either role entitle him to 50% of all revenue when the sport sells itself?

Let's look at it from a different angle: Would you notice more if Ecclestone for any reason stopped doing his job or if the teams and circuits stopped doing their jobs? Ecclestone could be completely written out of the story, and no one would notice until the teams suddenly found their work doubly rewarded, or, if by some miracle, fans found ticket prices slashed by half.

(Despite our myriad differences, I think we're probably at least somewhat on the same page here. If so, just consider this my quarterly "F#ck Bernie" tirade.)

[WhiteBlue]

Ecclestone is nominally F1's cashier; at most, he's a salesman. Should either role entitle him to 50% of all revenue when the sport sells itself?

Of course your question is entirely rhetorical. Ecclestone undeniably invented the F1 money making machine and was always one step ahead of anybody else in the appreciation of F1 as a business. His estimates of future earnings were never believed by the other players but always exceeded by reality.
In that role he is certainly rewarded like a king by the personal fortune he generated for himself and his family. He continues to exercise his powers simply because nobody is as good and as ruthless at deal making than he is.
Is this justification for the continuing distribution of the profits his scheme has generated? Another interesting question. You can just as easily question Microsoft or Vodafone's profits in the 90ties and the last decade. Bernie simply got away with it. Hopefully he will not for so much longer.
The fall of FOTA was something that came as a big disappointment to me. In 2009 I was almost certain that the teams would unite against Ecclestone and would have the upper hand in the 2013-2020 concord negotiations. We know that they didn't as none of the prior incarnations of team representations ever did. But in the end the important thing is that the championship keeps growing in terms of global reach and attraction. Perhaps that can be seen as a bit of consolation when we think of all the money the greedy little bugger has sucked out of the sport.

[bhall]

I think Ecclestone's negotiating acumen is the result of the monopoly FOM has on F1. When you're the only game in town, it's real easy to name your own price, especially given that there will always be an emerging economy somewhere that's willing to pay dearly for the prestige of hosting a grand prix. That's how he runs the price up for existing circuits, even if they're barely hanging onto their last threads of financial viability. This business model is not sustainable, and a good businessman should know that.

If the circuits formed a "Formula One Circuits Association," that would change in hurry, and Ecclestone would quickly find himself within the same cross hairs he's pointed at them for years and years. He'd have no choice but to either negotiate in good faith or build his own damn circuits.

[WhiteBlue]

Bernies negotiating skills have recently been witnessed when he manipulated Red Bull and Ferrari into blowing the FOTA apart. As a result the teams will not increase their share of the F1 revenues as they fully intended in 2009.
The circuits have formed an association already but only in support of Ecclestone's quest to derail the 2014 formula. They have no chance whatsoever to get back into power. The Economist wrote in 2000:

Mr Ecclestone's position in F1 is now unassailable. Promoters cede any media rights they have to him. Similarly, under the Concorde Agreement, the teams surrender the right to their images. So the circuits are disenfranchised from the broadcasters who, in turn, are disenfranchised from the teams. The teams are beholden to Mr Ecclestone.

That situation has not changed in the last twelve years. It has only become worse. F1 has come out of Europe and can now credibly claim that it is a true global world championship in every relevant market. There are endless countries trying to get a GP and they will never stop to lap up everything Bernie exudes with the greatest diligence.

[bhall]

I know. That's been my point for ages now.

[Absolutelee]

There can't be a Formula One Circuits Association...FOCA has already been used as an acronym.