Formula 1's unfair revenue sharing

The subject of cost cutting is Formula 1's equivalent of a bad penny: despite every attempt to eradicate the topic, it remains in circulation, ready to spoil every F1 gathering, whether team boss meeting, Strategy Group session, Formula 1 Commission summit or World Motor Sport Council assembly.

Back in the days when team owners were true gentlemen, the question of money was seldom, if ever, discussed - those in trouble would rather stiffly fade away than cheerfully admit to a distinct shortage of the folding stuff - but then came a new breed of owner, some of whom happily washed their torn linen in public and wheeled out begging bowls without shame.

Admittedly, the entire financial structure of F1 had by then changed for the worse after the FIA, then presided over by Max Mosley, sold the sport's 113-year commercial rights to a trust operated by Bernie Ecclestone, the former barrister's friend of 30 years.

Subsequently Ferrari received annual premiums as reward for spending billions in the unsuccessful pursuit of both titles for 17 straight years, while the rest shared just 23 per cent of F1's annual revenues...

The imbalance was largely corrected when the 1998-2007 Concorde Agreement was superseded by the 2010-12 version, albeit amid much acrimony - such as the departure from office of Mosley and threats of a breakaway series. Former Ferrari sporting boss Jean Todt, who led the team to great heights during the early noughties, replaced Mosley.

However, the (as yet unsigned) 2013-2020 edition of the agreement, which details the sporting, fiscal and administrative obligations of F1's three player groups (the FIA, the commercial rights holder [CRH] Formula One Management and the team collective) provides for an inequitable governance structure, coupled to premium payments for five teams - while the rest of the grid races for relative crumbs.

As a result, six of 11 teams find themselves severely hamstrung, while the Chosen Five - Red Bull Racing, Ferrari, McLaren, Mercedes and Williams - trousered 68 per cent of 2013's 'pot', itself just 63 per cent of the sport's underlying revenues. They also sit "by right" on a Strategy Group, which frames F1's future regulations in conjunction with the FIA/FOM.

Todt admitted cost-cap plans are off © LAT

By contrast, the six 'minors' share 37 per cent of distributed revenues, and have secondary input into the Formula 1 Commission, which provides the next regulatory step after the Strategy Group, and in turn feeds the WMSC.

They therefore have little democratic input, yet are required to adhere to regulations largely framed by teams that enjoy massive support from parent companies such as Daimler-Benz and Red Bull, the latter holding a 43 per cent slice of a global energy drinks market last year estimated to be worth £6 billion.

Given that budget size generally equates to on-track performance - and certainly makes the task of 'catch-up' easier, as proven this year by Red Bull Racing, Ferrari and McLaren - is it any wonder the six minnows feel somewhat aggrieved?

They were, though, somewhat appeased by FIA declarations in December last year and again in January after a meeting of all teams and the CRH that a form of budget cap would be introduced for 2015. Their joy has proved to be short-lived.

While the old chestnut 'if you can't stand the heat, get out of the kitchen' once held sway in F1, the fact remains that chief cook Ecclestone has through inequitable procedures and structures ensured that the sport's metaphorical kitchen is far from evenly heated, being hellish hot at the back end, and snuggly warm at the other.

Indeed, some parts of the room, particularly the chef's table, are cosily comfortable, but out of bounds to most...

This column was extremely sceptical about the proposed budget-cap process, a stance proven correct in Bahrain when Todt stated during a group interview attended by this column that cost-cap plans had been abandoned, adding "Most of the teams were in favour of the cost cap, but I understand that all the teams that are part of the Strategy Group are against it now.

"So clearly if the commercial rights holder, and six teams, which means 12 of 18 are against, I cannot impose it. It's mathematics. So in this case, no more cost cap." He was making reference to the Strategy Group voting structure, which works on a simple majority, with each of the six teams having a single voice, and the FIA and FOM blocks of six each.

"Am I disappointed? In a way I am disappointed because it may be more difficult to achieve the reduction [in spending] that I feel is needed. But everyone says we are all in favour of reducing the cost, [but] through sporting and technical regulations."

It subsequently transpired that on March 14 - Melbourne Friday, the very day representatives of the Big Five appeared in the FIA media conference, deftly avoiding pertinent questions put to them by this column - they collectively wrote to Todt suggesting as alternative cost reduction by regulation rather than blanket cost capping.

The overall gist was that budget caps could not be effectively policed, whereas regulatory measures could.

Teams like Sauber are upset © LAT

Most telling at the time was the response from (departed) Ferrari team principal Stefano Domenicali, who said: "I think progress is on the way because we are discussing what to do at the level of the Strategy Group. I'm sure [this column is] aware of the work that is [done] around that. I think at this moment it's better to stay quiet and tell you when the thing is done than say we are doing something without going into detail."

Note 1: Notwithstanding the fact that the FIA was committed to instituting cost caps, by Domenicali's admission the Strategy Group was working on alternatives in secret.

Note 2: Between the January 22 Geneva meeting and the opening grand prix, Red Bull Racing and Ferrari realised the on-track performances of their cars had more in common with the rear ends of their flagship animals than their noses. Thus mega-bucks were needed to extricate themselves from their respective predicaments. Cost caps would be counter-productive.

Note 3: At McLaren, Martin Whitmarsh, arch-supporter of the Resource Restriction Agreement, was replaced during a management coup staged by returning Group CEO Ron Dennis. Newly-appointed racing director Eric Boullier, a proponent of cost-saving while at Lotus, deftly about-faced, stating: "We just need to draw the line and make sure that technically we can't spend too much to be competitive and try to have some targets that could be reasonable and suiting everybody."

So what could these "reasonable" and "suiting" targets be?

In a Powerpoint presentation - excerpts of which were shown to this column - made to the FIA, the Strategy Group proposed a three-year programme to save costs through technical and sporting regulations:

2015. Tyre warmer ban, said to be doubtful by the tyre supplier due to safety issues; common fuel systems, brake ducts, suspension parts and front wings; reduced engine/gearbox usage; intensified curfews

2016. Common front and rear impact structures; steering racks and final drive (differential) systems

2017. Active suspension and 18" wheel rims (ie low-profile tyres, something the sole supplier has so far resisted on cost/operational grounds).

In short, the quintet plans to expand the list of permitted common parts to save costs, but given that budget caps of £150m were targeted from 2015 - and Ferrari and co already spend well in excess of that figure - the proposals are unlikely to hit the sweet spot, particularly as further restrictions on powertrain usage are likely to affect the on-track spectacle. Indeed, these measures could be adopted in conjunction with cost caps, rather than in place of them.

Upon hearing the news in Bahrain that plans for cost capping had been abandoned, the disadvantaged teams reacted angrily, with two in particular - Force India (currently ahead of all bar Mercedes in the constructors' championship) and Sauber - being highly critical of what they see as the FIA reneging on a publicly stated undertaking.

Active suspension could return to F1 © LAT

This column understands that four teams - the aforesaid two, plus Marussia and Caterham, leaving Red Bull-owned Toto Rosso in the cold - wrote a robust letter expressing their frustrations to Todt under the heading of 'F1 Cost Restrictions and Governance'.

The missive is said to include references to International Olympic Committee sporting standards - the FIA recently received full recognition by the IOC - and EU Commission laws on anti-trust, competitive practice and monopolies.

That, they believe, should get the rapt attention of CVC Capital Partners, the venture fund that acquired a controlling slice of FOM via a convoluted process - Ecclestone, who sits on the WMSC as CRH, would surely have advised his paymasters of the implied threats contained in the letters.

For background, see this column's previous analysis of F1, Concorde and the EU.

The letter is believed to question the powers of the Strategy Group, particularly after two sessions of the WMSC - the FIA's supreme regulatory assembly - ratified the governing body's determination to introduce cost caps from 2015.

In particular, the quartet believes any form of discrimination against any team to be an abuse of dominant position by the CRH.

According to WMSC insiders, the letter was tabled at Friday's WMSC meeting in Morocco by Force India team principal Vijay Mallya, who sits on the body as India's representative, and is thus ideally placed, potential conflict of interest or not.

Why have four teams suddenly turned militant after 18 months of 'put-up-and-shut-up'? Simply, they foresee their businesses facing ruin, for all four face major challenges.

At Force India, Mallya is confronted with the real prospect of losing his partner, Sahara's Roy Subrata, who is currently languishing in an Indian jail and thus unable to contribute any shortfalls, leaving it up to the increasingly beleaguered Mallya to make up any delta between budget and expenditure from his own (depleting) pockets.

Sauber's travails were documented here, but subsequently a raft of promised Russian partners became increasingly elusive, not least due to the current Russia/Ukraine/EU tinderbox - this column understands certain commercial partnerships were placed on hold in March after hostilities broke out - and thus the team is again feeling the squeeze.

At the unveiling of Caterham's new car in January team owner Tony Fernandes threatened to quit F1 unless the team's performance improved markedly, and thus is absolutely desperate to operate in totally level sporting and business environments.

Marussia, too, has problems after the Marussia Car Company ceased trading last week, raising questions about its future, and viability as a saleable concern, particularly given its paltry £9m 2013 FOM payout.

The smaller teams get a smaller slice of F1 revenue © XPB

True, all four teams underperformed last year, although Force India can point to Pirelli's mid-season tyre construction change for its drop-off. But when Sauber (which finished seventh in the constructors' standings) posts 57 points in 2013, yet earns 10 per cent less than ninth-placed Williams on five points, there is obviously no justification in a sport which prides itself on meritocracy.

Equally, financially struggling Lotus (on the Strategy Group by invitation) not only beat McLaren by 315 points to 122, but won a race to the silver team's zero podiums, yet earned just 60 per cent of McLaren's 2013 FOM income. Justice?

So the chasm created across the grid by the inequitable revenues and governance structures and their combined impact on team earnings - and, by extension, performance - is clear. It's certainly of potential concern to anti-trust regulators in Brussels, and surely to the IOC, which demands material equality in all competitions.

Todt, however, reacted to the letter with commendable swiftness, calling a summit of all teams and the CRH for 1 May (of all days), during which the Frenchman hopes to "clarify the means to achieve a substantial F1 team cost reduction". Note, though, the absence of reference to 'cap.

Not only is the question of cost caps likely to run and run well beyond the 30 June cut-off for inclusion in the 2015 regulations, but it could ultimately provide the tipping point for EU (and IOC) intervention.

It is, frankly, the last thing F1 needs at present - but it could well prove to be its long-term salvation.