F1 doesn't need magic formats, just equality

Two stories hogged Formula 1's headlines last week: A (temporary) resolution to the farcical qualifying debacle, and Autosport's disclosure of the projected payments to teams - based on F1's 2015 receipts and paid out by commercial rights holder Formula One Management in nine tranches during '16 followed by a 'balance' (or check) payment in February '17.

This 10-way division is crucial, as it explains the difference between projected payments, actual payments and reported payments during a given financial year because amounts could vary due to bad debts, unexpected income (for example, assume an India or Korea settles any arrears to FOM from previous years) and/or other provisions.

In short, payments will be made "on the last business day of March, April, May, June, July, August, September, October and November of the relevant financial year", with a balance payment, the difference (for whatever reason) between the projected amount and actual 'pot', made "by 28 February of each financial year following the relevant financial year (or, if such date is not a business day)".

Complex yes, but that balance payment difference could be anywhere between zero and $30million in any given year.

This 'pot' of now close to a billion dollars comprises race hosting fees, TV (and other electronic media) rights income, and 'other', the last-named being a potpourri of earnings from high-end hospitality, 'bridge and board' signage, and merchandising/licensing fees.

Around 60 per cent of the pot is paid on the basis of participation and performance, and the balance disbursed to selected 'grandees' by way of historic/heritage payment structures that you could argue were conceived to exclude certain teams and benefit others.

Disparate as the two topics of qualifying and team finances may seem, they are intimately intertwined, and not only on account of both epitomising F1's utterly dysfunctional governance procedure, a process that was instituted with eyes on maximising the IPO share price if and when F1's commercial rights were taken to market in Singapore.

Therefore FOM, majority controlled - the operative phrase - by venture house CVC Capital Partners, offered the likes of Ferrari, Red Bull Racing, McLaren and, later, Mercedes, premium annual payments to secure their blue chip signatures on long-term contracts, with Williams qualifying for a $10m sop on a heritage basis despite having won more championships than Red Bull and Mercedes (under any guise), albeit not recently.

Why were premiums offered in annual form as opposed to the more traditional upfront payment upon signature? The answer illustrates CVC's commercial cunning: upfront payments come straight off the investment fund's bottom line, whereas annual payments are deducted from future revenues, and therefore deducted before dividends are disbursed.

However, the planned IPO was soon aborted due to a variety of factors, including the Munich corruption trial in which F1 CEO Bernie Ecclestone settled $40m bribery charges via a $100m non-admission payment, plus a bursting stock exchange bubble. The complexities contained within the convoluted 498-page IPO brochure didn't exactly grip prospective investors, either.

The bottom line is that F1 is governed not by a structure devised for sporting purposes, but one created by number crunchers to maximise the bottom line, then aimed at institutional investors typically working in seven-year investment cycles. Any wonder F1 now finds itself in such a malaise, with no way of extricating itself until 2020? If, that is, it does not implode first...

Nowhere is this clearer than in F1's revenue structure, which tilts the playing field - and will continue to do so until the existing bilateral agreements expire - in favour of the wealthiest teams with instant access to the best infrastructures, while independents are increasingly marginalised commercially, politically and, by extension, performance-wise.

For proof look no further than qualifying sessions. These often delivered though two-by-two grids reminiscent of animals trooping up the drawbridge to Noah's Ark.

The result: Increasingly processional racing on Sunday afternoons, certainly at the front. Not coincidentally the best racing tended to be in the midfield, where the revenue spilt is more equitable...

The absolute irony, though, is that rather than fix the revenue structure to fix qualifying to fix (not in the corrupt sense) the racing, F1 has, as its wont, grabbed the wrong end of the bull by both paws and proposed injecting unpredictability through artificial means such as topsy-turvy grids, time/weight ballasts or sprint races - all of which further dilute the sporting ideal.

It surely is not difficult to grasp that the essence of competition is equality, and in a sport as financially dependent on results as F1 it stands to reason that teams with the largest budgets generally have the largest firepower, acquired through the best facilities, most expensive drivers and best engineers on the market, plus, of course, the innate ability to outdevelop their peers over a season.

Remember how McLaren prided itself on having the best performance recovery on the grid after regularly starting the season with cars possessed of distinctly canine characteristics, and how Sauber invariably hit the ground running before gradually falling back as the season progressed? Well, both examples perfect illustrate the connection between budget and development. In other words, F1's budget corollary.

Modern F1 prescribes the number of race personnel per team, imposes curfews, controls tyre supplier and supplies, and regulates CFD teraflops and/or windtunnel hours, while all qualifying teams benefit from 20 air tickets and 10 tonnes of airfreight provided by the commercial rights holder per flyaway race. Therefore even travel costs are similar.

Add in that gear ratios are restricted and gear sets nominated, engine V-angles/centres-of-gravity prescribed, engine development is currently restricted by tokens and the number of penalty-free engines per season per driver limited, and it stands to reason the actual cost of going racing over a year varies little, whether for Ferrari or Force India - and more so when engine cost caps are introduced, as is planned.

Two team principals separately provided virtually identical numbers when asked about the actual cost of going racing, with both coming in at around $100m to design, build and run two cars for a season, and both put variance in budgets (and headcounts) between frontrunners and the midfield down to the cost of in-season development.

However, budgetary differences between frontrunners and independents stretch to 400 per cent - ditto headcounts given that the former group draws on staff levels of 1000 (or more) versus 300 of the latter. These advantages facilitate intensive development programmes, resulting in the 2.5-second laptime gains posted by frontrunners over the course of a season.

For the record, that pans out at around $100m per (virtually invisible) second. The absolutely crazy aspect, certainly on the basis of last week's payout revelations, is that around 40 per cent of Ferrari's expected 2016 performance gain will be indirectly funded by bonuses paid to the Scuderia by the same FOM now attempting to inject unpredictability through artificial means!

Of course, the grandee teams justify their larger budgets on the basis of marketing/hospitality costs, but Ferrari would be rather hard-pressed to present 700 red-clad waitrons at a grand prix or Mercedes a full staff line-up of silver-sporting hosts, regardless of how scrumptious the hospitality fare on offer may be...

Therefore let us recalculate F1's money pot via the only two metrics that apply in sport, namely participation and performance - other measures relate to 'show', not 'go'. However, first the projected payouts as revealed in value sequence - including all premium and heritage bonuses - with explanations for each column:

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Column 1 ('Participation Payment') relates to equal payments made to 10 teams that were listed in the top 10 classification at least twice during the past three seasons, and amounts to 50 per cent ($335m) of the (non-bonus) kitty of $670m. Note: where more than 10 teams finish during the period under review, the highest placed team in the most recent championship is deemed to be 10th.

Therefore each team receives $33.5 during 2016, based on '15 income. Column 2 ('Performance Payment'), is based on the table originally published in the 2010-12 Concorde Agreement and later incorporated in the bilateral agreements. For further details on the payment structure see here.

Here each team is rewarded according to championship classification for the previous season, in this case 2015, and it makes up the other 50 per cent ($335m), calculated on the following (diminishing) basis. In order to provide further clarity to the table above, an additional column, namely percentage payout per championship position is included. Therefore the detailed table (in championship sequence, without bonuses) is:

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Now, to illustrate the effect of bonus payments, assume the entire pot of $965m (split $482.5m each for Participation and Performance respectively) is paid as per the structure above, rather than on P+P plus some rather arbitrary (and arguably nefarious) basis. The table would look thus:

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Compare the revised payment structure to the projected payments under the existing structure, by team, in championship sequence:

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Now imagine how much tighter would be the grid were Ferrari forced to forfeit a performance loss worth $66m, or how the gap to Mercedes would close were the Silver Arrows to have the equivalent of $31m sliced off its pole time.

Consider how much faster Williams would be with $24.5m added to its already cost-effective budget, or how budget team Force India could take the fight to those ahead with an additional $30m. On a more practical note, given an additional $2m per month, every month, Sauber would no longer scratch to pay wage bills, while Manor could stretch McLaren.

In short, the solution to F1's qualifying dilemma - and, by extension, its predictability - lies not in magic bullets dreamed up in desperation while analysing tumbling TV ratings, but in eliminating the inherent performance inequalities created by inequitable structures devised for all the wrong reasons.

A briefing note published after Force India and Sauber filed official complaints over F1's discriminatory governance - which, for example, excludes five teams from the decision-taking process - and the inequitable payments outlined above, contends that "These unfair side payments put the independent teams at a perpetual sporting and economic disadvantage, and directly harm the sport".

Those 'perpetual disadvantages' and their root cause shouldn't be hard for Margrethe Vestager, the EU Commissioner for Competition, and her department to spot...