Big money is made in Formula One, but how is the pot split? Barry Hope explains the Concorde Agreement, and why big changes could be afoot as it winds down at the end of 2012.
Pole Position: Split of the F1 money pot could split the race itself
Last week I wrote about the mysteries of the 12 teams that are licensed to put 24 Formula One cars on the grid. We know that they rely heavily on their sponsors to pay the bills, so what exactly is it that drives these teams to be so competitive? Money. Lots of money.
That money is governed by a document called the Concorde Agreement. It is signed by all the teams and commits them to a set of rules and legal obligations that govern how the commercial income from Formula One, which is a very significant sum of money, is distributed between the teams and the owners of Formula One.
Crucially, a proportion of Formula One's income is derived from TV rights, and the prize money that teams receive is linked to their success as measured by Championship points. So financially there is a world of difference between finishing 12th or first. The contents of this document are not made public, but we do know that the teams are always looking for a bigger slice of the pie. They received a total of US$658 million (Dh2.4 billion) among them for 2010, yet this is only half of the total income from the sport they deliver. They want it to be nearer to 75 per cent in the next agreement.
One of the best ways to get more money from your boss is to threaten to leave the job, right? It's sort of similar with Formula One. Of course the teams need the income, and may have to stamp their feet and threaten to leave in order to negotiate a bigger slice. The only place they can go is to a rival race series. But there isn't one. In the past, Bernie Ecclestone, who represents the owners of Formula One (CVC and himself) has offered multi-year financial incentives for some of the better teams to stay. Yet there is always the threat that if enough teams are unhappy with the financial split, then they will form another race series. But everyone knows this would be really tough because Formula One has exclusive agreements with the race circuits they would want to race at.
The FIA is trying hard to mandate a maximum spending limit on the teams, as it feels that costs are getting out of hand and make it impossible for new teams to be competitive. However, this angers the better-funded and more mature teams such as Ferrari.
With the current agreement expiring in December 2012, there are signs that various parties to that agreement are already beginning to set up the pieces on the chess board that will play out over the next 18 months.
One of the more interesting plays is that of a consortium being put together, ostensibly to buy Formula One from its current owners. They, of course, claim to have the interest of the participants and fans at heart. But is it so straightforward? A simple piece of research shows that one of the three parties in that consortium has significant indirect interests in one of the current Formula One teams. Given that the Concorde Agreement effectively gags all the parties that have signed it, such an independent consortium may be the best way to get the first pawn moved into position in a very public game of Formula One chess.
Barry Hope is a director of GulfSport Racing, which is hoping to produce the first Arab F1 driver through the FG1000 race series. Pole Position appears every week in Motoring. Join the UAE racing community online at www.singleseaterblog.com