Once again, Dieter Rencken hits the nail on the head...
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An icy wake-up call for the F1 rebels
If F1's midfield alliance thought there would be swift progress in the cost row, events in Brazil dashed their hopes. Does F1 now have to consider previously-unthinkable ideas, asks DIETER RENCKEN
It was an astonishing about-turn, but if Formula 1's three battling teams honestly believed Bernie Ecclestone's admission at Austin that the sport's funding crisis was "probably my fault" and that remedial action would be taken despite the 84-year-old admitting he had "no idea how to fix it", team bosses at Lotus, Force India and Sauber unsurprisingly received icy wake-up calls in Sao Paulo.
There, Ecclestone suggested the answer to their combined dilemmas lay in "spending less" - despite governance procedures and regulations for the costliest sport on Earth being totally skewed against independent operations, with three majors receiving the bulk of F1's billion pound annual revenues simply for fortnightly presenting themselves cars for scrutineering.
This was a far cry from Ecclestone's comments at Austin, where, in the wake of the administrations of Marussia and Caterham, he called on the privileged teams to make sacrifices by forfeiting portions of their earnings, with a doubling of the amount coming from 'his' side. Precisely who was onside went unmentioned...
What was, though, telling, was that the 84-year-old regularly alluded to meetings "with Donald [MacKenzie, founding- and co-chairman of venture fund CVC Capital Partners, majority holder of F1's commercial rights], which was telling in itself: it proved precisely where the buck stops, and suggested that Ecclestone, for all his power in the paddock, no longer had absolute control over F1's 'pot'...
Having been requested (by Ecclestone) to present a proposal prior to reach Sao Paulo, the stricken trio (optimistically) did just that, with the gist being that they each required an additional £30million per annum - actually less than half the premiums annually received by the top trio - being fundamentally made up of the past earnings of the two collapsed teams, with CVC matching the sum.
However, this bailout would be one-time and certainly unsustainable, particularly given F1's ever-increasing costs of remaining competitive amid expanding calendars and dropping live and broadcast audience ratings. Still, it was a start, one that provided immediate breathing space while the bigger picture was examined.
It came to naught, and no real surprise: in terms of F1's covenants - more particularly clauses carried over from Schedule 10 of the 2010-12 Concorde Agreement - liquidated teams forfeit their earnings to the 'pot'. Thus unanimous agreement from all surviving teams would be required, while, simply put, CVC is in no position to fund hand-outs, having taken out massive loans to disburse upfront dividends.
In the process CVC's Fund IV saddled F1 with debts of well over £1billion, currently being settled at the rate of approximately £250million per annum. This leaves the venture fund with little change after creaming its annual £350million share of F1's underlying revenues, so exactly where CVC's top-up of £50million was to come from is open to conjecture. Venture funds don't reach billionaire status through charitable acts...
Then, Mercedes and Williams - on modest premiums - plus Toro Rosso (zero) would hardly take to news that the competition received extra funding lying down, would they? Understandably they, too, would make approaches for equal treatment - particularly as red ink currently flows down Williams Way despite the team's superb performances. Any such demands would further dent CVC's revenues.
Williams, in typical British stiff-upper-lip fashion, explained to his column that it was not about to share any possible cash calls made to the commerical rights holder with the media, but that in itself was no denial that approaches would be made to Ecclestone. Being a listed company Williams owes that to its shareholders, while Toro Rosso is also under pressure, what with rumours that sponsor CEPSA is departing at season's end.
Mercedes, too, is listed, and one cannot imagine members of the main board foregoing the opportunity of reducing its annual F1 contributions regardless of the comments of motorsport director Toto Wolff about the Strategy Group during the Austin FIA press conference. Plus the Austrian remains a Williams shareholder.
Equally, chances of Ferrari (headed for an NYSE IPO), Red Bull Racing (headed by hard-nosed businessmen who plan to make their team revenue-neutral while milking F1's global exposure) and McLaren (in the midst of a commercial restructure) collectively forfeiting £100million annually to their opposition through to 2020 to make the redistribution of revenues sustainable is simply unthinkable. After all, why should they?
Frankly, it is open to question whether Ecclestone was serious when he made such suggestions in Texas, or expressed kneejerk reactions to the utter outrage prevailing in the paddock as folk received woeful text messages from peers and friends at the failed outfits as they surveyed a string of garages and hospitality left gapingly empty.
Simply put, Ecclestone's plan was never going to fly, even if he (unthinkably) topped up the revenues from his own (or family?) funds. And, that is another no-no.
Thus the mood at the farther reaches of the Interlagos paddock was one of dark outrage after all the positive noises made at Austin, with the atmosphere deteriorating further after some astonishing comments made by Ecclestone, first when he (and RBR team boss Christian Horner) severely criticised Caterham's desperate attempts at staying afloat through launching a crowdsourcing initiative.
True, such funding is hardly elegant, but with upwards of 200 families (and myriad suppliers such as contract caterers) staring bleak festive seasons in the face, one cannot blame the administrators for considering all options. At the midpoint of its campaign, Caterham has reached 50 per cent of its targeted £2.35million - proving not only that there is merit in this model, but that passion still runs deep in F1.
F1 teams operate in the most capitalistic of all sporting environments, yet, when a restructured Caterham displays a modicum of commercial initiative, the team finds itself publicly (and heavily) criticised by the very folk whose machinations contributed in no small part to its downfall!
Yes, Caterham's Leafield management was largely conspicuous by absence, but Horner's crusading against cost controls at Strategy Group level struck a mortal blow to Caterham's chances of survival, and that is where the real issues lies.
Talking of which, at Austin a Strategy Group member denied that the controversial rule-making cluster of six teams had executive authority, adding "In order to satisfy [European Commission] rules it is an advisory body only to the Formula 1 Commission."
If so, that comment potentially has far-reaching consequences, for in March the Strategy Group did not "advise" against budget caps, but voted against the concept, thus preventing it from reaching the F1 Commission and the FIA's World Motorsport Council...
However, back to Sao Paulo: On Sunday Ecclestone (allegedly) told the battling team bosses that 2015 grid sizes would be bolstered to 20 by third cars run by (two) major teams. According to sources, full-blown customer cars would follow in 2016, with the first team to avail itself of the facility being newcomer Haas, which is machine tool supplier/sponsor to Ferrari, and has already struck a deal for Ferrari engines.
"Basically we've been told to join the customer car movement, or construct ourselves into bankruptcy - either way we would go out of business because our business model, built up successfully over many years, cannot be sustained by customer cars," said one independent team boss, bristling visibly.
As though that were enough, a form of Super GP2 was also discussed - possibly sparked by comments made in Austin by Lotus owner Gerard Lopez, who criticised F1's (in)efficiency by pointing out that GP2 laptimes were within a handful of seconds of those of F1 cars at a mere fraction of the budgets available to Red Bull, Ferrari and McLaren.
All this followed a two-hour engine 'unfreeze' meeting at which no consensus was reached about the way forward despite all parties agreeing a roadmap in Singapore and again in Russia. The ante was further upped in Brazil when Horner (and allegedly Ecclestone) made the (ludicrous) suggestion that F1 should drop its hybrid units and revert to the old V8s that have their roots in V10 units first heard last millennium.
This despite collective development costs of an estimated £500million on the part of the three (soon to be four) engine suppliers, who toiled for three or more years to produce engines to specifications agreed by the F1 Commission chaired by Ecclestone and of which Horner were leading members...
Failing that, the engine delegation proposed totally opening engine regulations from 2016, thereby lobbing the first grenade towards a costly all-out engine war at a time when customer teams cannot afford the existing technology. As the engine pendulum swung from 20-year-old technologies to all-out hybrids in one two-hour meeting no one questioned whether fans are expected to take F1's masters seriously.
Overlooked in all the excitement is these changes would require F1 Commission (meeting on November 25) approval before being ratified by the FIA's World Motorsport Council, due to sit during the governing body's Annual General Assembly meeting in Doha in early December. Thus it is far from over, for the FIA could refuse to ratify any changes, as it did recent World Rally Commission proposals.
At the Doha meeting the 2015 F1 calendar is due to be finally rubber-stamped ahead of the incoming season, and one wonders what sort of leverage that formality provides for the FIA. After all, "If we are dissatisfied with the regulations proposed for what is, after all, our world championship, then why should we approve the calendar?" asked a senior FIA source rhetorically in Sao Paulo.
All these extreme polemics in a single week point to a sport without direction or strategy; thus for Ecclestone to tell the BBC that "People say F1 is in crisis. Absolute nonsense..." is downright myopic at best and utterly disingenuous at worst.
Formula 1 IS in crisis, a crisis CVC itself has wrought by forcing traditional venture fund restructuring models on a business primarily driven by passion; a business it patently does not grasp, yet is milking for all it is worth. For that, look no further than revenue structures and revenue procedures imposed by CVC in the lead up to its aborted IPO plans - which have created major issues for at least half the grid.
Sadly the folk at Marussia and Caterham have been the first to pay the price - a few weeks before what will prove a bleak Christmas - but they are unfortunately likely to be the last such sufferers unless the sport's masters take responsible and institute action PDQ.
In the final analysis any sustainable and equitable redistribution of F1's wealth that does not totally cripple CVC's Fund IV (the investment vehicle) would require an immediate injection of at least £200million, with commitments of at last equal that through to the end of current agreements in 2020.
There is one entity that COULD justify that sort of commitment if an increasingly desperate CVC sells off the one asset it has so far not exploited: F1's title naming rights.
Red Bull Formula 1 World Championship, anyone? Don't laugh: that suggestion came from a team boss in the loop...
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