Formula 1 needs its middle class

That Force India, in association with Lotus and Sauber, should write a strongly-worded letter to Formula One Management CEO Bernie Ecclestone regarding the "sport's" current commercial and governance structures came as absolutely no surprise, for the issues raised within the two-page missive (that was leaked to AUTOSPORT by a recipient team) have long been raised by this writer - since March 2012, to be exact.

As outlined here matters reached a head last week in Brazil after the embattled trio had their proposals, which Ecclestone had publicly called for, not only rejected but somewhat cynically rebuffed.

Worse (for them), the teams found their business models criticised and being accused of what amounts to financial mismanagement when costs are constantly and consistently escalated, seemingly on a whim.

The letter, signed by Robert Fernley - deputy team principal, but, due to the business commitments of boss man Vijay Mallya, the de facto strategic driver behind a team that has slowly clawed its way up the grid - exposes the undeniable and gross commercial inequalities that exist in a business that masquerades as 'sport' for two hours on 20 Sundays each year.

Although regular readers will be familiar with the numbers that were first exposed by this writer at substantial risk of wrath over the past 24 months - and summarised most recently in The true cost of Formula 1 feature - a brief resume by way of excerpts from Force India's letter confirms the massive void between F1's four 'Haves' (Red Bull, Ferrari, McLaren, Mercedes) and three 'Have-nots' (Williams/Toro Rosso are addressed separately):

Fernley signed a strong-worded letter to Ecclestone © XPB

"In total, the 2014 prize fund will contain approx. US$ 835 million out of which approx. US$ 412 million is distributed amongst four teams in the Strategy Group."

The letter goes on to state: "two of the bigger teams, soon to be three, are the only beneficiaries of the expensive power unit".

Indeed, in 2015 three of the Big Four will receive what amounts to 'free' engines (in as much as the individual teams do not pay for them, their costs being allocated elsewhere); unsaid is that the fourth (Red Bull Racing) enjoys financial (and other) support from Infiniti, an alliance partner of engine supplier Renault.

This puts another excerpt into perspective: "In this context we wish to highlight that the income we receive from FOM this year ranges from approx. US$ 52 million up to US$ 64 million (£35m - £44m). The costs of the power unit together with the installation costs amount on average amongst us three to US$ 43 million (£28m). This clearly shows that 70 per cent - 80 per cent of the FOM income has to be allocated to the engine."

Obviously the quoted engine costs are up for debate - and already rebuked by engine suppliers - but it seems Fernley is referring to overall costs to independent teams of installing these complex turbocharged power units, technically and ecologically impressive as they may be.

While the invoice value of 'bare' engines - delivered without even exhaust systems - pans out at around £16million per annum per two-car team, Fernley's estimate encompasses costs of hybrid installations, including batteries, intercoolers/radiators, intricate brake-by-wire and electronics/hydraulics systems, plus crucial development/simulation: the majority of which items differ radically (and substantially) from what went before, and are not included in the invoice value.

Whatever, the fact remains that engine costs have at least doubled (if not tripled) compared to just a season ago, while FOM disbursements to the three teams have not risen dramatically despite sycophantic trumpeting to the contrary. Thus, as a portion of FOM receipts, engine costs have risen dramatically, while revenue from other sources has remained virtually static.

Ironically, the independents do not benefit materially in any way from the said increase - quite the opposite, in fact - as the rationale underpinning the introduction of the power units (devised during the manufacturer era) was to facilitate technology transfer from track to road (and vice versa). In fact, customer teams are paying (heavily) to provide marketing pedestals for their suppliers, who gain marketing/technical kudos...

Engine costs have doubled this year © LAT

As if such negative economics do not provide sufficient obstacles, on the sponsorship front the trio is being squeezed from all sides: from above by the sport's tainted reputation and competition from other activities (sporting and cultural); to the left from major teams able to discount rate cards by virtue of receiving triple the annual pay-outs from FOM - one embittered team boss referred to this as being "double-f***ed" - and to the right by dwindling TV and live audience ratings, which have impacted on rates.

In addition they are being undercut from below, too, as Fernley stated succinctly: "The generation of further funds though sponsorship is achievable, but we all recognise that other global sporting competitions are chasing the same sponsors which are at lower levels than even two years ago. It is challenging when the Commercial Rights Holder of F1 is also competing against the teams, therefore, we have been focusing on the reduction of the costs."

In this regard think DHL, Johnnie Walker, Emirates - all now FOM partners, but once team sponsors - while Pirelli's partnership with the commercial rights holder, which contributes an estimated annual £30million to FOM coffers for 'bridge and board' and race hosting fees while demanding that teams pay +£1million per season for tyres, has compounded the issue...

The real crux of the matter is that F1's 'mid-gridders' are being squeezed out of existence, but if put in global terms, the strength of any nation depends upon a stable middle class. Formula 1 needs independent teams, for they supply continuity in times of upheaval. Recall the chaos after Ford (Jaguar), Honda, BMW, Toyota and Renault departed en masse?

Force India's letter makes this point rather saliently: "[The three teams] have, like the others, a clear intention to continue as constructors in Formula 1; however, unlike the manufacturer teams, who could exit on the whim of a Board decision, Lotus, Sauber and Force India F1 are bound to the sport as it is their only business focus."

In a comment obviously designed to attract attention in Brussels, Fernley casts suspicions about the legality of the Strategy Group, calling it a "questionable Cartel, comprising the Commercial Rights Holder, Ferrari, Red Bull, Mercedes, McLaren and Williams, controlling both the governance of Formula 1 and, apparently, the distribution of FOM funds".

This column has long questioned this governance structure, doing so again last week - while the circumstances under which the trio signed their bilateral agreements with the commercial rights-holder was addressed during the FIA press conference at Austin, in direct response to a question from this writer.

Fernley then alludes to an abuse of power and position: "[Although] the FIA are involved in the Strategy Group, they are impotent to act, as demonstrated in the recent cost control process, which saw the FIA issue a media statement confirming their intent to impose cost controls and their subsequent climb down when overruled by the CRH, Red Bull, Ferrari, Mercedes, McLaren and Williams."

Fernley says the FIA is powerless to act © LAT

This is sure to sting the governing body after president Jean Todt in April admitted that the FIA was powerless where a combined Strategy Group vote went against his intentions, thus blocking the matter from reaching the F1 Commission, which approves any regulations changes prior to ratification by the FIA World Motorsport Council.

Ahhh, Williams: Like Toro Rosso, the British team is an anomaly in having a leg in each camp, but there the similarity stops, for Williams is very much an independent, albeit sharing a common shareholder in Mercedes Motorsport executive director Toto Wolff.

The team sits on the Strategy Group due to its successful heritage, but if the votes on key questions are analysed, appears to have aligned itself with the majors, rather than plough its own furrow as it once did under founder Sir Frank.

Toro Rosso is, of course, the 'lil sister' to RBR with a (primary) brief to develop drivers, and as such the Italian team has access to funding (and permissible technology) from mother company Red Bull AG in Austria.

Thus, in matters political it generally toes whatever line RBR may subscribe to, and, if anything its sentiments lie with the Strategy Group rather the independents - whose number has been depleted by two with the demise (certainly in their original forms) of Marussia and Caterham.

This further weakens the independents, whose vote in the 25-strong F1 Commission is now reduced by two. Thus the debates will rage back and forth until the commission meets on 25 November, followed by a WMSC session a week later. The outcome will decide the make-up of the 2015 grid.

A privileged few had already rubbished suggestions they have an agenda to drive independents from F1. Ecclestone's comments to suggestions of a cartel? No express denial, but he told the Financial Times that "It is stupid to say that"...

Taking these protestations at face value points to a logical deduction that no less than half the 2014 grid has been extremely badly served by sheer coincidence since their respective bilaterals kicked in last year.

The first such disbursements under the contracts were made in February this year - and within 10 months two of 11 teams are financially sunk, with three clinging desperately to the edge...

Hence Fernley's sign-off line to Ecclestone: "I would respectfully urge you to spare time over the [Abu Dhabi] weekend to meet with Monisha (Kaltenborn, Sauber), Vijay, Gerard (Lopez, Lotus) and myself to find an equitable solution to the distribution of FOM funds with a view to presenting a proposal and reaching consensus with all stakeholders, pre or post the F1 Commission meeting on November 25."

Collectively the trio of team principals are standing up for their rights and fighting for the survival of their teams, which employ 1200 employees in total. Including suppliers, 2000 families could be added to the 1000-odd who have already lost their livelihoods, and all face bleak festive seasons unless F1 acts incisively, and soon.

The "living standard" between front and rear is widening by the race, and will soon hit critical levels.