Why Ferrari must no longer be F1's favourite

The week of the Spanish Grand Prix traditionally features Autosport revealing payments made to teams during the course of a season by commercial rights holder Formula One Management.

These were known as 'Bernie Monies', but given that Formula 1 is now a Liberty Media subsidiary and Bernie Ecclestone is no longer CEO but 'chairman emeritus', a revised moniker for a pot totalling almost a billion dollars will need to be coined.

Various possibilities spring to mind: 'The Money Chase', named after current F1 chairman/CEO Chase Carey; 'Brawn's Bucks', after the company's motorsport managing director Ross Brawn, or even 'Bratches' Riches' - after Sean Bratches, the new marketing guru. In their own inimitable way, F1 folk are sure to find fitting nicknames for the money pot.

Whatever, a billion split 10 ways provides for an average of $100million (£80m) each, or roughly what it costs to design and build two cars, fund a tyre supply and engine lease costs, cover logistics for the season and make the payroll for mid-ranking teams. One wonders, then, why Mercedes, Ferrari, Red Bull Racing and McLaren persist in spending double that, or triple in some instances, every season.

The reason is simple: because they can, partly due to preferential financial terms extended by the then-commercial rights holder CVC Capital Partners, which was desperate to milk F1's riches via a listing in Singapore. That went sour through a combination of the global economic crisis and bribery charges pressed against Ecclestone - these were dropped in return for a $100m settlement - but its ravaging effects remain.

Of this year's projected 'pot' of $940m (£725m), Mercedes, Ferrari, Red Bull and McLaren collectively receive almost one third simply for entering the championship, with Mercedes pocketing over a tenth of the fund in bonuses regardless of on-track performance. And that will continue until the end of 2020, when current covenants expire.

In total, Ferrari's projected earnings for 2017, based upon its '16 third place constructors' championship finish, amount to $180m. Contrast that with Force India: this independent team placed fourth, yet earns just $72m - $108m less.

Brawn recently suggested in his co-authored book Total Competition that a tenth of a second gain in lap time costs around $125,000. If you want to oversimplify things, Ferrari's bonus theoretically buys it an 80 seconds per lap over the next-placed team.

In an activity in which money counts for a lot, that helps illustrate how F1's inequitable commercial arrangements impact on performance, and just how disadvantaged the disenfranchised teams actually are.

Projected 2017 Formula 1 payments to teams ($m)

Disbursed over 10 instalments during 2017, in order of payout.

(Figures rounded off for simplicity)

COL 1 = Payments are based a team's classification over two of the past three years
COL 2 = Payments are based solely on a team's 2016 classification
LST = Long-standing team
CCB = Constructors' championship bonus

The overriding question, though, is what sort of revenue structure should be introduced once current agreements expire to redress the inequalities of the past? And when?

Taking the timeline first, it is clear no changes can be enforced before current contracts expire, for privileged teams are highly unlikely to voluntarily accept reductions, and why should they?. So the earliest revision date is 2021.

Liberty is on a mission to expand F1, if only to generate additional revenue streams in the face of anticipated income shrinkage due to waning public interest and subsequent reductions in race hosting and broadcast fees. Simultaneously, independent teams are expected to push for larger slices of F1's revenues.

While Red Bull team boss Christian Horner is in favour of levelling the financial field, Red Bull would only accept such terms if payments it receives did not decrease. "It [paying independents more] wouldn't bother me at all as long as our payments don't drop. I don't think any team will be happy to take less money," he said last year.

That attitude is understandable, for Red Bull's infrastructure and manning levels are geared to certain levels of income - and nowhere are the effects of sudden reductions in income more visible than at Sauber, which experienced an income drop of over 50% after BMW abruptly withdrew from F1 at the end of 2009. Entire corridors are barricaded off in Hinwil, and one shudders at the non-productive overhead the team carries annually.

Still, it is surely better to suffer that situation by choice (or lack of inherent performance) than as a result through the manipulation of F1's revenues by a group driven by the need to extract every last brass cent from the championship in the name of fund holder dividends, even when it brings teams to their knees - as happened thrice in as many years after the revenue structure was introduced.

Clearly, though, change must occur - and FOM's parent, Formula One Group, itself a subsidiary of NASDAQ-listed Liberty Media Corporation, is ideally placed and structured to introduce transparency and equality to F1's revenue structures if for no other reason than the stringent reporting and disclosure requirements of stock exchanges in the USA.

The problem with upping payments to the disenfranchised outfits without cutting back on other revenues is that Liberty will be unable to balance their books, nor keep shareholders sweet. Equally, plans by the championship's new owners to grow F1 via marketing and social media programmes, means underlying revenues will decrease, further reducing the size of the fund, which has already shrunk by 3.5% over 2016.

So whatever structure is introduced come 2021 will need to satisfy various requirements: be profitable for Liberty, be sustainable for all teams, provide a sufficiently level playing field to ensure that basic performance elements are attainable by all, and, last but not least, be totally acceptable to US, EU and British authorities, plus motorsport's governing body, the FIA. Tall order.

F1 faces five fundamental alternatives: a) continuation of the present bonus and performance payment structure, possibly with a revised mix; b) straightforward division of the pot by the number of eligible teams; c) payments based on a mix of qualifying/race/championship performances; d) championship performance-linked structure and e) incentive-linked structure combining performance and marketing activities.

Given its patent shortcomings, continuing with the current structure - which has resulted in only three privileged teams winning grands prix since 2014 - would not find favour, save, possibly, among teams that currently benefit from inequality. Ferrari tops that list.

At the other extreme lies the socialist approach outlined in b). F1 is arguably the most capitalist of all sports, and therefore socialism hardly befits its ethos. Some of F1's tail-enders may push for 'an all animals are equal' structure, but that is more through kick-back against F1's 'prancing horses are more equal than others' philosophy than any inherent conviction in socialism. Plus, they all hope to be at the sharp end one day.

Combining practice, qualifying, race and championship performances to calculate earnings provides an alternative structure, and could well incentivise teams to participate in all sessions and push for position rather than cruise for points.

But given ongoing restrictions on engines, transmissions and tyre usage, such a formula is unlikely to find widespread favour. Plus, such a structure proved unnecessarily complex during the seventies/eighties, when teams were paid on the basis of grid positions, one-quarter/half/three-quarter and final race positions, plus championship classification.

The constructors' championship-based structure outlined in d) prevailed from 1998-2012, and delivered the most realistic revenue distribution formula by demanding that teams finish in the top 10 at least twice in three years (so-called Column 1 monies) to provide historic elements, and classification in the previous season to reward recent performance (Column 2).

Apart from a 5% premium then paid to Ferrari and covered equally by the rights holder and the teams' fund, all teams were treated equally within the provisions of Columns 1 and 2. So fourth place in the constructors' championship paid $XXm, regardless of whether the applicable cars were painted red or pink.

To date this proved the least contentious structure, and arguably the fairest - maybe that's why during this time Ferrari, Renault and McLaren fought the likes of Honda, Toyota and BMW, not just independent teams.

During its 15 years of operation it was seldom - if ever - openly discussed, which surely proves that it ticked all boxes. Still, time has moved on - and so have Liberty's plans for F1 - and so it may be best idea of those discussed above, but still not provide the ultimate structure.

Which brings us to e): combining a classification-based structure with marketing-linked elements to incentivise teams to market themselves and F1 in line with FOM's plans to grow F1.

How, then, would such a structure operate? Rather than disbursing revenues purely on the basis of Columns 1 and 2 (as per 1998-2012), a third column should be introduced - not, though, to be confused with the Column 3 that paid up to $30m from 2010-13 to three newcomers attracted to F1 by the misguided budget cap concept concocted by ex-FIA president Max Mosley - to reimburse team marketing costs.

Columns 1 and 2 could be worth, say, 40% of the pot each, with Column 3 making up the balance.

Such promotional activities could take various forms, including social media initiatives, driver appearances and sponsor activation - with the aim of spreading F1 far and wide, including pushes into new territories - and would be listed in menu form, with values or contribution detailed.

Such co-operative marketing funds are operated by the vast majority of franchise systems - from McDonald's through hotel chains to motor dealerships - more usually on a 50/50 basis. So if an approved programme comes in at $100k, FOM would cover $50k.

Percentages may be adjusted up/down dependant upon the programme - for example, were a team to send a car and driver to an upcoming race venue to publicise an event, FOM may deem that of greater value than a team sending a car and reserve driver to Outer Mongolia at the behest of a sponsor.

Those teams doing the most to market F1 would benefit proportionately - which, in a meritocracy, is as it should be.

Incentivising teams would shift the focus from privilege versus poverty to one of on- and off-track performance whilst levelling F1's commercial and sporting playing fields.

The biggest advantage of structuring performance with marketing, though, is that such incentives could be introduced gradually - to the benefit of teams and F1 - in order to prepare the ground for post-2020, when change must surely come.