The Formula 1 Financial Crisis – A Modest Proposal

The Formula 1 Financial Crisis – A Modest Proposal

Any World Championship should give every competitor an equal chance.

Formula 1 finances are in crisis. Some teams struggle for survival, while others enjoy record-breaking income from FOM payments. This results in unequal competition, where the leaders and winners of races come from less than half of the teams.  Weaker teams contract pay drivers in order to make their payments, and there is limited on-track wheel-to-wheel racing. In addition, these questions regarding the fairness of competition have attracted the attention of the EU Corporate Competition commission. However, existing long-term contracts, and the influence of strong stakeholders in Formula 1, limit the ability to modify these financial programs.

I have a suggestion for a revised distribution of finances that would equalize the competitiveness of all teams, while recognizing the contributions of most if not all major stakeholders.

First, the main portion of FOM revenues (beyond those retained by the commercial rights holder) should be distributed equally to all teams (constructors) competing in Formula 1. This will help level the playing field for on-track competition.

There would be a second distribution of income to the power unit manufacturers (PUMs) that supply power units to the F1 teams.  This distribution would be measured by the number of teams to which a power unit supplier provides engines. So a PUM that supplies one team would receive one equal share of this fund; a PUM that supplies four teams would receive four equal shares of the fund.

As a consequence of this distribution, the cost of power units to the teams would be fixed at a level that allows all teams to manage the payments from their share of the constructors funding.

This arrangement allows most of the current major stakeholders in Formula 1 to manage similar relative income levels to the present situation, with the exception of the Red Bull and Williams teams. It does recognize and reimburse the contribution of the power unit manufacturers in a way that may increase the likelihood of additional PUMs entering Formula 1 in the future.

I have created a straw-man proposal for this distribution. Click below to view the spreadsheet.

https://drive.google.com/file/d/0By0pcBXAOE6PVjV0NFJUVERSZVk/view?usp=sharing

 

 

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