How F1 growth squeezes small teams

Formula 1 stands on the cusp of the busiest season in its history, with 21 races ahead - one up on the record-setting 2012 schedule; two up on last year.

That represents 20 per cent growth in a decade, and a 30 per cent increase on the 16 rounds that were the norm before Formula One Management bought F1's commercial rights at the turn of the century.

But growth at what cost? Not only the financial impact on teams, many of which stand to lose in direct terms, but also the enduring effects of over-exposure; and, above all, the cost in human terms. It's no coincidence that, as F1's schedule grows, so its overlords are increasingly absent.

Mercedes motorsport boss Toto Wolff recently revealed his team was evaluating staggered shifts for crews, adding there were distinct pros and cons to expanding calendars. He admitted certain key personnel could not be rotated, which implies that those vital team members would be over-burdened by 21 races. Imagine, then, the impact on those individuals should the calendar ever be expanded to 25 rounds.

McLaren has also spoken of alternating crews, as has Red Bull Racing, while tail-enders have complained about the costs of such rosters, which demand a total revamp of manning schedules to cater for two extra races. Independents, indeed, can ill-afford the expansion - which has zilch to do with bringing F1 to wider audiences and everything to do with maximising profits for investors.

After all, were the objective to reach as many folk as possible globally, then a raft of time-share deals such as the ones originally struck between Nürburgring/Hockenheim and Fuji/Suzuka could be reached, although on an international, not regional scale. That way F1 could conceivably visit up to 40 venues in two-year cycles.

While this column has consistently pointed out that such 'share' deals are myopic in the extreme, the commercial rights holder clearly believes in them or why else would FOM seek a continuation of the arrangement in Germany or have mooted it elsewhere for the likes of Imola and Monza?

Wolff, though, suggests that F1's expansion has resulted in increased income for teams.

Introducing F1 to new market has helped FOM revenue grow © XPB

Certainly this is true of FOM's revenues, which have increased at the rate of five per cent per annum - mainly by moving F1 off-shore into controversial markets, and through an increasing number of subscription TV deals.

Cash from FOM's boosted coffers eventually trickles down to teams a year on - via disadvantageous deals. For example, FOM partners DHL, Allianz, Emirates, and Johnnie Walker were all once team sponsors; now, at best, the odd team gets a look-in on those partners' budgets. All the while costs have risen as sponsor spend has, at best, stagnated, on account of lower viewing figures.

For despite the expanded calendar, F1's TV ratings have plummeted 30 per cent in five years and insiders fear 2015's numbers will provide further cause for concern.

A TV executive recently confided that his multi-year contract did not make allowance for a greater number of races. ("Nor do we enjoy discounts unless the number of races or entries drops markedly," he smiled.)

Therefore while FOM payouts to teams may have risen, overall team income has not kept pace.

In 2014, the last season for which breakdowns are available, FOM turned over $1.4billion from 19 events, providing an average income of around $74million per race. This was roughly split $27m (hosting fees)/ $27m (TV rights)/ $20m (signage and hospitality). That makes each additional race worth an average of $45m if the TV is disregarded and based on the assumption that hospitality and signage deals attract incremental dollars.

Total team payouts from FOM amounted to approximately $850m (62.5 per cent of total FOM income). However, as annually revealed in these pages, this amount is not distributed equitably. Formula 1's 'Big Four' (Ferrari, Red Bull, Mercedes and McLaren) received 70 per cent of the team 'pot' (approximately $595m) - or 40 per cent of FOM income; the rest shared the balance. That's $255m (or 21 per cent of FOM's income) split between six teams (and this year seven with the arrival of Haas F1).

From the notional $90m derived from two additional 2016 races, FOM will take $34m; the Big Four will share $36m (average $9m each); the seven independents split $20m (roughly $3m each).

Independents get some help, but more races ultimately increases costs © LAT

In addition, while FOM generally receives its fees upfront, the teams are paid a year in arrears, in 10 instalments. So the teams' average gain from 2016's extra races will be disbursed monthly between March and November 2017, with a final payment in February 2018. In the interim the teams will have carried the costs of the two rounds, some of which have already been incurred as this written. Any wonder independent teams invariably suffer cashflow issues?

FOM does subsidise events classified as 'flyaways' through airfreight concessions and staffing allowances, but the independents will still each be down an average of $7m over the two events. And they'll only recover some of the money 18 months later...

It's clear the additional races are vastly more affordable for the Big Four, particularly as all teams face roughly the same operational costs due to regulatory restrictions on tyres, engines, transmissions, and race staff. According to an independent team boss it costs $100m per season ($5m per race) to simply go racing. The gulf between independents' budgets and those of majors is largely down largely to R&D costs.

In addition while Mercedes and Honda may well boost car sales through F1 involvement, and Red Bull shifts cans, as Ferrari and Philip Morris entertain a few more tobacco guests, it is difficult to fathom how Airbnb will benefit from being seen on the flanks of Manors careering around Baku's streets, or Banco do Brasil profit from being on Saubers at Hockenheim.

'Additional TV eyeballs' goes the argument... But those brands are already seen 20 times each year - which borders on over-exposure.

The lion's share of the incremental revenue derived from two additional races ends up with FOM, with majority shareholder CVC Capital Partners benefiting by $10m from sending folk to race in Azerbaijan.

That's evidence enough of the disconnect between CVC, FOM, the Big Four and independents when it comes to compiling F1's calendars. The 'indies' make up the bulk of the grid, yet each faces hefty losses with every additional race. If they're already losing money on 19-race calendars, they will only lose more as it grows.