11/04/2013
FEATURE BY TONY PURNELL
Step Two: Fair competition, do we want it?
There's always an elephant in the room with Formula One when it comes to a fair competition: Money. It pervades every aspect of the game, yet until relatively recently it was never queried as whether finances should form part of the regulations. The unwritten rule it seems is simple; if you want to win you better have the cash to spend and lots of it. Getting the money is part of the competition. It's all out total war. If the billionaire spends more than he ever dreamt possible, too bad, there will be another to overstretch himself and for a while that big spender will be someone: A Big Potato Charlie, in the land of really Big Potatoes. Well good luck to them, who am I to tell people how they should spend their money? Hold the thought, however, that this isn't a particularly aspirational or noble state of affairs. Nor does the money always come from sources that are whiter than white, a problem if you are a potential sponsor with a family brand image to protect.
Spending a lot of money on each car is essential for Formula One as high technology costs money, and leading edge technology is part of Formula One's brand, an essential part of its DNA. Shabby old tech 'spec' cars, such as one seen in IndyCar until 2012, will be a big turn off to the F1 fan. It's more than that. The cars need to be awesome, and awesome costs money. The thing that is less clear is just how much one needs to spend to maintain this brand image.
In 2003/4/5/6 teams were spending truly biblical sums on their entries, the top half of the grid in the order of £350m each year. Today there is a dramatic change to somewhere around £250m all-in for the same teams. Do the public view 2013 Formula One as shabby and old technology? Of course they don't, indeed I'd be a little surprised if the average viewer has really noticed the reduction, because the cars are still awesome. Blimey, even the back runner cars are fantastic to the average fan when they see them close up. Moreover has public interest appreciably diminished during this period? No, the TV figures are still grand. So one has to say that this huge reduction has not harmed Formula One a jot.
Noteworthy is that the disparity of spending from top team to, say, the ninth or tenth team has remained constant (to the nearest ten percent) during this time i.e. Ferrari or Red Bull/Renault spend about five times more than, say, Marussia or Caterham. One might think, well perhaps it is not the amount per se, it is the disparity in spend that is important to Formula One. I can't see any compelling argument or evidence to support this, can you?
So it appears that the present spend at the top of circa £250m is not a problem for Formula One's popularity. At what level of spend would the public think what appears on the grid isn't 'proper' Formula One? £70m? £50m? £30m? It's hard to be sure, but my feeling is that teams like Sauber or Force India do a good job that people view favorably. This would put the figure around the £50m to £80m mark. Back in 2008 when such a figure was suggested as a suitable amount for a budget cap we at the FIA met with a high degree of ridicule from all but the lower ranking teams. Flavio Briatore even suggested that we were trying to 'kill' F1 with such a reduction. Max Mosley opted for an even lower figure of £35m, but Max always knew what the end game was and I suspect had £50m in mind as the compromise number. Bang on.
Now before I jump into a diatribe on the virtues of a budget cap (next article), I should say that the amount of spend is not the root issue. Instead it is whether or not Formula One should be a sport based on a level playing field? To date this has never happened. All the teams being equal as far as finance resource would be a dramatic change, but the result would likely be very similar in terms of race entertainment. Indeed one can compellingly argue that the entertainment would be better rather than worse. Today's also-run teams might make a better fist of it than the established winners, so we might see Williams and Sauber fight it out at the front while Ferrari and McLaren struggle in mid-field. It might be that the status quo remains and Red Bull and Ferrari still lead the charge, who knows? This is very much the point, unpredictability is good. We do pretty much know right now for 2014 that it won't be Williams, Toro Rosso, Sauber, Force India or any of the bottom seven teams. Next year it will be Mercedes, Ferrari, Red Bull, for sure as they have the money. Lotus may keep their miracle of technical management efficiency going another year (or is it that the Genii Capital folks are finding the money - if they are, why? Are they not an investment Company? Well good luck on getting the money back.) Would it not be better if there were real hope for the rest of the grid? Would it not be better if owning Lotus F1 were a truly great investment that actually pays?
A look at the history books shows that different teams have dominated the front from time to time, and when someone new appears (like Red Bull in 2010) no one watching on the telly seems to lose interest. So I don't buy the thought that having new players at the front would be a turn off for viewers. Actually folks went wild last year when we really had some big surprises winning races.
Unpeeling the problem it seems to me that the Guardians of Formula One (who I think should be the FIA) have to make a decision with financial rules. It is a fundamental one. On the one hand continue with the 'all-out war' mentality whereby gaining enough money is part of the competition, or decide that it would be a better competition if this aspect was taken out of the equation i.e. it remains a competition between drivers and engineers, it becomes far more of a competition with regards to efficient management. It simply stops becoming a competition to spend as much money as one can get, instead one spends wisely the money one is allowed. If one makes the decision that such financial equality improves Formula One, then do it, if one makes the decision that it doesn't then just state clearly that this is the case and forget the rhetoric about containing costs.
Formula One has proven that it can't contain costs except by cutting off the money supply. When sponsors desert the sport and money is tight, the teams cut their cloth, but equally if the money supply is restricted they do the same. The Resource Restriction Agreement, which is a budget cap that dares not speak its name, may be flawed but in principal the thinking is sound and it's the first foot in the door. This said, self-regulation of such a thing is to my mind nonsense and to police such things is why regulation bodies like the FIA were invented.
So that's the score, but does all this miss the point? In real terms Ferrari, Red Bull, Mercedes, and to a lesser extent McLaren, have the money and so don't have the slightest real interest in losing this their key advantage. The FIA, nor for that matter FOM, do not have any absolute control over the sport so each round of Concorde or indeed moves to contain spending has these teams skillfully ensuring that they can spend more than the others. They are genuinely interested in spending less, but only if it's still more than the others. The Team Principals and their main shareholders simply can't take the risk that their teams will be able to compete on a level playing field, so they do all they can to stop this ever happening. They do it well, and to emphasize the point folks like Jean Todt and Luca di Montezemolo pronounce from time to time that controlling costs is 'vital' and then appear to ensure that no such thing happens.
The result is business as usual. The teams with the money use it to stay ahead and buy their way out of mistakes; the teams without the money struggle along until their main shareholder(s) have had enough and eventually exit. As Bernie Ecclestone once said to me (to paraphrase); 'Why worry about the back marker teams? Once one billionaire has had enough, there will always be another to replace him.'
The management strategy to win that this produces is essentially to poach the best people by offers of huge income and huge budgets to spend; don't worry about efficient use of resources and just plain waste, worry only about winning. Modern management techniques; best practice in technology development; well that can go to the birds and the bees. Why, because it's risky and difficult compared to just buying what looks good. Look at how Mercedes is approaching the task, hiring three technical directors! The last one apparently hired without reference to the incumbent management team. Red Bull took much the same strategy, poach the best, and while not clever it works really rather well. Meanwhile at the back and for that matter in the middle the billionaires are struggling. HRT threw in the towel, Marussia may be next, more worrying is that Force India's boss Vijay Malaya appears to be in big trouble with his empire, and there are good reasons to worry about Lotus and Williams. Probably these teams are in rather better health than the naysayers would like to admit, but the point is that it's pretty much always been the case; a considerable proportion of the teams are not in good financial health.
It could be otherwise. The popularity of Formula One allows for ten teams to flourish without financial worries, indeed to be rather valuable properties. There is no issue doing this still maintaining the level of spend required to keep the fans in awe of the machinery. It just needs a regulator prepared to do it.
Why hasn't a sound financial base for the teams been addressed? The problem is clear; no one is really in charge and the top teams use the lack of resolve from the FIA to maintain their advantage. Indeed if the veto on rule changes built into the new Concorde Agreement is the case for two or three of the teams, it just shows how successful these teams are at this strategy. It also reveals how the FIA and FOM have no interest in fighting this state of affairs, indeed they seem to condone it: Let's continue with the construct where the strong get stronger and the weak get crushed. Don't look at the teams to sort this, thirty years of failure can't be wrong. It has to be the job of the FIA and there will be a degree of unpleasantness to get such a fundamental change through. It can be done, but only if the FIA wants to see ten or so thriving Formula One teams producing cool cars on a truly level playing field, one that pits every aspect of technology management and development prowess as a key delivery to win.
The solution - financial regulations and a budget cap (for both teams and power train suppliers), this will be the next step in my ten part series. It delivers an environment whereby all the teams can attract sponsors, engineers, and fans with a realistic belief that they can win. It delivers potential profitability, more variability in cars and winners, and more competitive races. Thing is does anyone really want it? Maybe Bernie's right, new billionaires will always come, and who cares if half the teams are struggling with money, after all they only serve to make up the numbers behind the cartel-like gaggle of top teams, they are not realistically there for much else.
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