The Weekly Grapevine

Cash causes conflict, and the bigger the pile, the bigger the conflict. Formula One is, if not the, then certainly right up there with, the wealthiest sports. And thus the potential for money-driven clashes is omnipresent, with only the members of the warring factions varying from time to time.

The situation Germany's two Formula One tracks find themselves in epitomises the conflict and, although they are not at war with themselves - unlike the tension between Silverstone and Donington or (possibly) Sepang and Singapore - collateral damage from Hockenheim's financial squeeze is impacting upon the 'Newburgring'.

Although the demise of one or both venues as Formula One hosts has been alluded to by this column for close on two years now - since they announced plans to 'timeshare' grands prix within the country that gave birth to the motor car - it was assumed by many that a rotational deal could save a grand prix in the home of BMW and Mercedes-Benz regardless under which title - German or European - the race is promoted.

But now Hockenheim's losses have caught up with it and, with the local community and regional government refusing to further subsidise Formula One at the now-emasculated 'Ring, it seems no race will be held at, ironically, the circuit situated within 20 kilometres of Karl Benz's first motorised forays come 2010.

The Mercedes-Benz stand at the Hockenheimring © LAT

With the other 'Ring declaring that it is unable to carry a race every year on 'commercial grounds', which seems a pretty good euphemism for 'losses', it is not inconceivable that Europe's most populous country, the home of not only afore-mentioned automotive giants, but also Toyota's primary international motorsport facility and no less than 25 per cent of the drivers on this year's Formula One grid, could be without a home grand prix within a year.

Walter Kafitz, CEO of Nurburgring GmbH, is hopeful that another timeshare deal could be struck with a circuit outside the country which nurtured Michael Schumacher. But, if anything, that would compound the problem, for at present sponsors and teams at least have the opportunity of strutting their stuff in Germany on an annual basis, whereas under that model all continuity would be lost, resulting in even greater loss of interest.

This entire scenario has been driven by conflict; in fact, numerous instances of conflict: between the need of the commercial rights' holder for (loads of) cash and the circuit promoters' need to turn a (reasonable) profit. Between this combined need for profit and fans' willingness to be fleeced, between the sport's controlling body, the FIA, and the teams, ostensibly in the interests of cost-saving and, last but certainly not least, the teams' collective determination to be remunerated by the CRH on a fair and equitable basis for their participation.

And, herein lies the biggest conflict of all. Where under the previous revenue dispensation, which died a natural death with the demise of the 1997 - 2007 Concorde Agreement, the teams unequally split an effective 23 per cent of all F1's revenues among themselves. They now share 50 per cent on an as-yet unknown, but up-for-revision, basis originally agreed in May 2006 but not yet enshrined in a new agreement.

The key to the previous figure of 23 per cent, however, lies in the prefix 'effective', for the teams actually received 47 per cent of the sport's television revenues, which in turn equated to approximately 23 per cent of total turnover. Thus hosting fees were in real terms excluded from their slice of the pie, so, whether Bernie Ecclestone charged a circuit zillions of dollars or zilch for the privilege of promoting a race, made absolutely zero difference to their combined income.

Now it does. Should Ecclestone charge, say, Hockenheim, $30m (£20m) for its 2010 race, then the teams would profit to the tune of $15m. Should F1's ringmaster, however, decide on a fee of $20m, then they would collectively be $5m the poorer, or an average $500,000 each. Multiply that by 18 or 20 races and the figure rapidly spirals up to around $10m, or approximately what a title sponsor pays a mid-ranking outfit.

Under the new dispensation, the Formula One Group has a voracious appetite for cash, for not only does it have a $2.3bn debt to service - one becoming increasingly more expensive as the effects of higher global lending rates and a strengthening US dollar make themselves felt, but it has more than doubled its pay-out to the teams - with the Formula One Teams Association pushing for 75 per cent.

Hence hosting fees - paid or underwritten by governments, usually Middle- or Eastern - of up to $55m (£37m), with, in most instances, 5 per cent or even 10 per cent annual escalators. And, hence, global partnerships of the type previously done by FOG with freight distribution service DHL and last week with the Korean electronics giant LG.

Bernie Ecclestone © LAT

The full implications of these, though, still have to work their way through the system, for although the LG deal is estimated to be worth $20m (providing average $1m per team given the present 50/50 FOG/team split), the terms and conditions could restrict teams (and circuit promoters) from acquiring and displaying sponsorships with opposition companies - as does the Olympic movement, upon whose commercial model the programme is said to be based.

(Incidentally, could this sudden modelling on Olympian ideals lie at the root of the recently-mooted gold medal concept - that CVC Partners, F1's ultimate owner and thus Ecclestone's direct superior, which has increasingly made references to the Games in interviews recently, is attempting to escalate the sport to Olympic levels in the hopes that governments and promoters will pay progressively more to host races?)

The proceeds from the LG agreement could be the most expensive $1m any team has ever (indirectly) received, with the same applying, but on a far larger scale, to the teams' slice of hosting fees.

In order to justify their engagements in Formula One, teams and their partners, whether technical or commercial, require audiences. These audiences can take the form of spectators and VIP guests or worldwide television viewers.

The latter group outnumbers the former by a factor of about 1000 per race, although the teams are able to interact with 'live' audiences at race circuits - hence the massive promotional and marketing pavilions erected especially for the purpose near major grandstands.

(These, however, are another source of conflict, for the average going rate is believed to be around $125,000 per stand, all of which goes straight to FOG. Given the revenue split, this means that nine teams benefit to the tune of 45 per cent of stand holders' weekend rental.)

But the high hosting fees are putting pressure on ticket costs, with obvious results. In 2008, just four grands prix played to full houses, with the stands in Hockenheim being conspicuously barren. Just how the likes of BMW, Mercedes and Toyota, plus the German subsidiaries of myriad sponsors, felt about interacting with rows of empty seats can only be guessed at.

Just how much emptier these stands would become under F1's new spec-engine and homologated chassis regulations can also only be speculated about, but the (lack of) crowds at A1GP's race in Malaysia a fortnight ago provide a pretty good indicator. And, remember, ticket prices for A1GP's Sepang event were approximately 10 per cent of F1 levels.

Kimi Raikkonen practices for the Japanese Grand Prix in view of Mount Fuji © LAT

Saliently, Germany is not the only country to have struck a timeshare deal; nor is it the only one believed to have struck trouble. Japan, too, agreed to rotate, in this instance between Honda's Suzuka and the Toyota-owned Fuji circuit.

After just two years - precisely the same period as Germany - of the arrangement the Toyota-owned circuit nestling in the shade of the iconic mountain is said to want 'out' of the deal. What, then, will happen to the Japanese Grand Prix?

Thus the teams are between a rock and a hard place: rightfully push FOG for increased income and they are immediately pressured into reducing costs by the FIA; push FOG for an even greater slice, and hosting fees go up, thus reducing live interest in the sport; push to the limit, and four of the ten teams stand to lose their 'home' grands prix.

The teams are therefore in conflict with themselves: allow FOG to increase hosting fees and cream 50 per cent of the incremental income while simultaneously watching live audiences - a major reason for their engagement - drastically diminish, or cut back on their fiscal demands in the hopes of encouraging live audiences.

There is, of course, another option: how long before Mercedes persuades the others to look at the DTM model, with its massive crowds and bargain-basement ticket pricing - all made possible by teams effectively promoting the series and races through a wholly-owned organisation.