The perils of F1's business model

Kimi Raikkonen's salary woes were well documented in Abu Dhabi, but that all was not well on the fiscal front between the Finn and Lotus became clear in September when he gave as reason for his departure for Ferrari in 2014 as "the things I haven't got, my salary..."

To most in the paddock it seemed inconceivable that a team that had recently won two grands prix and been Red Bull Racing's closest challenger in the second half of this season failed to pay its star driver, instead putting it down to gross mismanagement by team owner Genii Capital - the Luxembourg-based investment firm run by Gerard Lopez and Eric Lux.

Critics opine that any company racking up £40m in losses is ineptly managed, and, to a certain degree, that brooks little argument - particularly as the team lacks title sponsorship, with acres of prime real estate remaining conspicuously unsold.

What sponsorship Lotus enjoys comes courtesy of blue-chips Unilever (Clear/Rexona) Coca-Cola (Burn) and Microsoft, but, saliently, analysts suggest the total income to be less than Raikkonen's annual stipend.

Yes, a case could be made that the team has been financially irresponsible, but that is to totally ignore the monstrous elephant in the room, namely F1's inequitable financial structure introduced this year after the demise of the previous (2010-12) Concorde Agreement, the covenant that binds governing body FIA, the commercial rights holder and the teams.

That Kimi has not been paid this year - arrears are believed to be over £15m, and mounting - can be traced back to early 2012, when F1 tsar Bernie Ecclestone, CEO of Formula One Management, in turn majority owned by venture equity fund CVC Capital Partners, offered 10 of the 12 teams then contesting the Formula 1 World Championship commercial offers for their continued participation in the series. Excluded, at that stage, were Marussia (now included) and (now-defunct) HRT.

Raikkonen came close to not racing in Abu Dhabi © LAT

However, Ecclestone picked off the Big Three (Red Bull Racing, Ferrari and McLaren, in that order) with substantially better offers secure in the knowledge that 'B-leaguers' would have no choice but to fall into place. Effectively such teams faced The Devil's Alternative: damned if they signed; doomed if they didn't.

After all, what alternatives did such as Lotus, Williams, Sauber and Force India have but to accede to Ecclestone's paltry offers given they exist solely to design, build and race Formula 1 cars? They could not suddenly switch to Le Mans, IndyCar or tin-tops. Simply put: no deal, no race.

Mercedes took a while longer to come on board, but eventually caved in, as Ecclestone knew the Three-Pointed Star would, particularly given the company's massive investments in its race team and high performance engine facilities.

Its reward was a substantial sweetener and promise of a guaranteed place at the main (so-called 'Constructors Championship Bonus') table with the Big Three, despite never having won a constructors' championship - unless you include the 2009 title won by Brawn GP, just before it was bought and converted to Mercedes GP. Williams also has a permanent place on a 'heritage' basis.

By contrast, Lotus had, as Renault, won titles in 2005/6, yet received no preferential offer despite its track record and 'Team Enstone' carrying CCB-type overheads and manning levels. Plus, no one can deny the lure of the brand.

One simple statistic illustrates the disparity in F1's financial structure: were, say, Lotus, to win this year's constructors' championship, the team would receive less 'Bernie Money' than would Red Bull Racing, Ferrari or McLaren, even were they to non-score in every round throughout the season; conversely, winning the title would enrich the CCBs by an estimated £80m over second-tier teams!

Thus Lotus goes into battle with one hand tied behind its figurative back, having been forced to borrow heavily from shareholders to keep pace. Not surprisingly they cried "enough" on the basis that Lotus should stand on its own feet, as it once could.

Gerard Lopez © LAT

The prevailing economic climate means, though, that big-buck sponsors are not exactly two a dozen - but, forget not, under the (expired) Concorde Agreement the team's shortfall would have been amply covered by its rightful share of F1's revenues, certainly on the basis of present performance.

All the while CVC Capital Partners has reported record results as it gears up for an IPO, with 2012 financial statements showing profits of almost £600m - while the non-CCB teams record losses, with drivers, personnel and suppliers in certain instances going unpaid.

The only criticism that can be levelled at Genii was that its owners blindly accepted FOM's offer, but the alternative may well have resulted in 350 personnel members, including Kimi, being put on the street. Possibly the Finn should look to CVC for his missing money...