Long time lurker, first time poster. This is a topic which goes to the heart of the survival of F1, which is what provoked me into posting.
In 2003,
F1 Magazine reported that Scuderia Ferrari's annual budget was $443,800,000. Factored for inflation and variation in the exchange rate, that comes to near as makes no difference 550 million 2014 Euros. And it bears noting that the 2013 gross incomes of F1 as a whole from all sources were far greater owing to the rise of satellite television and the unrelenting expansion of the Internet (which go to market penetration and merchandising). And at least one other team -- Toyota -- reputedly spent more money contesting the 2003 WDC than did Ferrari.
In 2013,
according to Auto-Motor-und-Sport, Red Bull Racing outspent the rest of the grid with a budget of €278.4M. So how is it possible that this crisis is the result of the teams' excessive spending when they're spending only half as much as they did 10 years ago but the sport is far more profitable?
Enter 2005 and the CVC Capital Partners.
I see Dieter Rencken's name already has been taken in vain. Last October, he wrote a piece in Autosport Plus titled,
Formula 1's biggest scandal detailing the systemic financial abuses committed by the Formula One Group and CVC against the F1 teams. In short, the FOG control access to virtually every resource the teams require to compete in F1, and they gouge the teams at every possible turn.
Bernie has used his years at the helm of F1 to leverage his position to gain control over everything to do with the sport, from transportation and shipping to lodgings to rental of circuits for track tests, and even individual team's revenue sharing deals with promoters. FOG gets their pound of flesh from every ducat that changes hands.
Every race and every test session, for instance, Formula One World Travel, a subsidiary of the FOG, receive advance notice of the schedule dates. They block-book all suitable lodgings near the circuit, which leaves the teams no recourse but to book through FOWT, who charge them double what they otherwise would have had to pay. Either that or sleep in a tent. Nor are the fans immune from this increase, so if you have marveled at the jump in hotel rates on an F1 weekend, now you that it isn't entirely predicated on the law of supply and demand.
The teams are obligated to use DHL, the FOG's official logistics partner, for shipping all freight in excess of a 10,000 kilos to the fly-away races. Even in the post-refuelling era, teams all still need to ship well in excess of 10,000 kilos, and are charged a king's ransom for the overage. Rencken cites as a source "one team boss," who stated that the excess surcharge was well more than what a non-FOG-encumbered shipper might have charged for the entire shipment. When asked why he didn't use the less expensive option, the team boss stated that their non-DHL shipments wouldn't clear customs in time (implying that the speed of the customs officials was influenced by the name of the shipper).
FOG's standard fee for hosting a race weekend is $30 million. But it doesn't end there. Bernie can and will unilaterally demand facilities improvements and circuit "modernization," on a whim, the cost of which commonly runs into the millions, and which must come entirely out of the promoter's end, else the deal is off. But the promoter is just the middle man, so he passes the additional charges on to the teams (and to the fans, too), in every way possible. One circuit charged teams ￡60 for the weekend's use of two coat hangers. Two (2). Another charged a full year's rental for one weekend's use of a small storage shack. Still another charged the equivalent of the full cost of a pit scooter for five days of its use. Some venues have enlisted the aid of local politicians, who cooperated by imposing a surcharge on taxi fares and hotel room rates on F1 race weekend (as much as 30% in Singapore), proceeds from which go to funding the race.
When asked why they resorted to such extreme measures, the promoters universally claimed they only were attempting to staunch the bleeding from the CVC's overcharges.
One promoter even attempted to charge credentialed press ￡100 for a weekend of high speed Internet access, but the journos revolted and demanded to know why. When he answered that it was because he was losing money due to exorbitant hosting fees, they queried why they should be made to suffer for his poor negotiating skills. So he relented.
The teams are partial to traveling via Emirates air. But ever since they signed a partnership deal with F1, their rates on routes serving F1 cities on race weekend dates have risen out of proportion to their competitors over the same routes and dates. So Emirates apparently are seeking to pass the signing fee along to the sport's cadre, media, and fans.
When teams hold a test session, they routinely hire a publicity firm to record the event, the goal being a bit of self-promotion and possibly defraying some of the expense. But none other than the FOG have an exclusive deal with every PR firm known to be suitably equipped and capable of performing test day publicity filming and photography. As well as all customary publicity distribution sources. So the FOG gets a slice of that pie, too. But perhaps most revealingly, if two or more teams elect to team up and share the test session's fixed costs (circuit, staff, etc), exclusive ownership of all publicity materials defaults to the FOG. Meaning the teams would have to pay for them a second time, directly to the FOG.
Perhaps most bizarrely, once having won funds from the FOG in the guise of World Constructors Championship prize money, they still aren't exempt from Bernie's pocket-picking. The following season's entry fee is graduated, according to how much WDC money a team was paid on the preceding.
According to Marrusia's sporting director, the base entry fee presently is $508,000, plus
an additional $5,080
per WDC point awarded. So pointless Marussia and Caterham each get by with the half million base fee, while the cost to WDC-winning Red Bull is something over $3.5m.
The teams are not even allowed to use the walls surrounding their pit road garage for their own advertisements because the FOG have claimed dibbs. Which both increases the bottom line to the FOG (because sponsors' money is being paid directly to them) and minimises the team's abilities to recruit sponsorships.
The net effect is akin to that of the infamous "company towns" of the American coal fields. What the mining company pays to its miners is of little consequence, because they own the entire town, every house and every store. Their absolute control over the availability of work tools and the basic essentials for life guarantees that they can recoup as much of what they pay to the miners as they wish. Even the hardest working of miners, living in the most austere of conditions, still can find himself owing the company store more than he is being paid.
The outcome of all this price-gouging is eminently predictable. Marussia, who have shown a considerable financial acumen outside of F1, and who were lured to the sport by Mad Max Mosely's promise of a ￡32m/$40m budget cap, after three seasons find themselves ￡140m in the hole. Williams recently posted a ￡5m loss. Sauber had to sell part-ownership to the Russians to remain afloat. Lotus famously could not afford to pay its drivers (not even its reserve and test drivers, just come to light).
In 2012, McLaren won six races and came third in the WDC, yet profited a mere ￡3.1m in the doing (almost ￡19m less than in 2011). The 2014 entry fee alone for the team coming third in the 2013 WDC (Ferrari) is ￡1.4m. And surely the financial acumen of any F1 team which has managed amass more than ￡1 billion in on-track revenues must be beyond reproach, so accusations of mismanagement on McLaren's part should be greeted with a healthy portion of skepticism. And both Force India and Caterham remain on the F1 grid entirely due to the largesse of their billionaire benefactors.
On the other hand, in its most recent financial statement, the outcome of all its penny-pinching, usurping and --- is that the Formula 1 division of the CVC Capital Partners posted a combined total profit from the sport of a bit more than ￡2 billion.
Bernie is wont to point out that the FOG's payout to the teams now is 62% of profits (increasing to 68.7% in 2014), as opposed to the 47.5% previously stipulated under the most recent (now expired) Concorde Agreement, conveniently omitting the fact that the teams occupying the more destitute half of the grid will never see so much as a single farthing of the additional 14.5%. He simply distributes it among the top five, thereby quelling all incentive to form a break-away series, and leaving the lesser teams without a rebellious leg to stand on.
In fact, this long has been Bernie's
Modus Operandi. Distribute the money equitably? Perish the thought. Give only as much as is absolutely necessary to the most influential of recipients, and the rest goes to defraying Tamara's and Petra's bills for Cristal and Beluga caviar. For 2013,
Ferrari receive a total of $171m in "Bernie money;" $72m for their WCC result, and the other $99m as a 'Constructors Championship bonus.' Which more correctly should be called
"the team with the yellow emblem featuring an equine animal standing erect only on exactly one-half of its legs" award, because Bernie, like much of the rest of the world, believes that F1
is Ferrari, and Ferrari
is F1.
Which, ironically, is precisely why Marussia (of all people) received a $20 million bonus this season. They were sabre-rattling that they might take the FOG to EU court on complaints of unfair business practices. Bernie calculated (with his usual aplomb) that $20m would shut them up, and shut them up it did. And it probably cost him considerably less than the EUC ruling almost certainly would have. But you can rest assured this money came with no fewer than 20 million strings attached.
Rencken speculates that it is Bernie's undeclared objective to strangle one of the remaining teams to financial death, then to divide the 10 that remain into an 'A' (constructors) tier and a 'B' (customers) tier, a structural change which will afford opportunity to further reduce the pay-outs to the B-tier teams. And in the doing, leave more profit for him to buy extra
foie gras for the girls.
CVC already have recouped their initial investment in F1 five times over, so as far as they are concerned, this deal already is past its prime and beginning to smell of last week's halibut.
I don't hold the teams entirely blameless. They are at least complicit in such stupidity as 2014's €21m engine leases, which aids their cause not in the least. But stupidity is so commonplace in the sport's management today, that decision well could strike them as brilliant in comparison.
To cut to the chase, the F1 teams are starving while CVC Capital Partners and the Formula One Group grow fat(er) off of the sweat of their collective brows. Rencken makes no bones about calling CVC's and FOG's practices exploitative. But he stops just short of calling them criminal. And sadly, Bernie's $20m STFU payment to Marussia might keep us ever in the dark on that count. He closes saying, "Will the EU ride to the fans' rescue? That will be about the only thing that will save F1 in the long term."
Indeed.
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