29/04/2013
NEWS STORY
Since the start of 2013 one of the most frequently recurring questions in Formula One has been why Marussia is the only team which doesn’t have a commercial agreement with the sport’s rightsholder the F1 Group. The answer is revealed in an article by Pitpass’ business editor Christian Sylt in today’s Daily Telegraph. It is about a significant shake-up to the prize money system which has been implemented by Bernie Ecclestone and it puts even more pressure on Marussia to succeed this year.
We need to start by first looking at why the teams need commercial agreements in the first place. The reason for this is the expiry at the end of last year of the Concorde Agreement, the contract which committed all the teams to race in F1. The Concorde also set in stone F1’s technical regulations for the duration of the contract and it outlined the terms of the prize money received by the teams.
There are rumours aplenty about why the Concorde has not yet been re-signed but one thing that is for sure is it doesn’t endanger F1’s future. The next Concorde will run until the end of 2020 and one of the hurdles with getting it signed is that the teams, the F1 Group and F1’s governing body the FIA all need to agree to the terms in it. All it takes is one party to disagree and the contract cannot go ahead. It is far quicker for Ecclestone to agree terms with each team in separate contracts and this is exactly what he has done.
The commercial agreements with the teams commit them to race until the end of 2020 and, like the Concorde, they also outline the prize money terms. So why hasn’t Marussia got one?
In late February Ecclestone told Sylt that the teams are “all safe. We have got a deal with them all including Marussia.” It wasn’t clear from that comment exactly what kind of deal Ecclestone has with Marussia but there was no doubt that something is in place. Marussia’s sporting director Graeme Lowdon initially said that “we are in discussions with the commercial rights holder and we certainly expect to conclude something. This is not adversarial.” However, he didn’t stop there.
On 7 March a Marussia spokesperson said “we do not have a signed agreement” and 11 days later Lowdon spoke out again. This time he said “it does seem a little strange to treat one team so differently...The real question is: why us? We would argue we’re a pretty good team and we’re making good strides...The other teams have an agreement (so that) will come into discussions with sponsors...It unsettles them that we should be treated differently to other teams. There is a knock-on effect, there is no question.”
As Pitpass reported at the time, it seemed incredibly counter-productive for Marussia to broadcast that the lack of an agreement “unsettles” sponsors. It let brands around the world know that Marussia is not being treated the same way as its rivals and this could have influenced their decision not to contact the team about sponsoring it. Our article was entitled “Does Marussia know something that we don’t?” and it looks like we now know the answer to this question.
In March The Times asked Ecclestone why Marussia lacks a commercial agreement and he responded that “they have not been happy and they almost merged with Caterham, so that made me wonder what was happening.” If the teams had merged they would not have needed separate commercial agreements so this response made sense. However, of course the merger did not take place and Marussia is still without a commercial agreement. There is good reason for this.
Marussia joined F1 in 2010 under the name of Virgin Racing and it has finished outside the top ten every year since then. This is significant because F1’s prize fund is split between the top ten teams and to receive a full entitlement a team has got to finish within the top ten in two years out of three. It means that even if Marussia finishes this year in its current tenth place position it would still not receive a full prize money entitlement. So even though Marussia are currently in tenth place, they finished 11th last year and Ecclestone revealed to Sylt over lunch that they “don’t have a commercial agreement because they are not in the top ten.” That’s not all.
For the past three years, any team which finished outside the top ten received an annual fee of £6.4m ($10m). It was part of an agreement which Ecclestone made with former FIA president Max Mosley who decided to introduce three new teams in 2010 in order to reinvigorate F1 after BMW, Honda and Toyota pulled out during the recession.
It has given Marussia some money to fall back on despite not being eligible to share in F1’s prize fund as it finished outside the top ten. The £6.4m payment is far from inconsiderable to a team like Marussia as it comes to around 10% of its annual budget. It will have to do without this if it ends 2013 in the same spot as last year.
Ecclestone revealed to Sylt that he has shaken up the prize money terms and scrapped the £6.4m fixed fee to teams outside the top ten. “We pay the top ten, that’s what we do. For three years we did something different because we had an agreement with Max but from now on we will pay the top ten and that is it.”
It puts particular pressure on Marussia to stay in the top ten because, as Sylt revealed last week, the Russian sports car manufacturer, which the team is named after, recently bought a 25.3% stake in it from Lloyds bank. The shares cost Marussia an estimated £10m and if it finishes 11th again this year it will have even less money to play with.
Caterham is currently 11th but, interestingly if it stays in that position it won’t end up with no prize money. Sure, it won’t get a fixed fee, but it would still be eligible for a share in F1’s prize fund. The fund is comprised of 47.5% of F1’s operating profits giving a total of £358.8m ($557.1m) in 2011, the most recent year for which accounts are available. As Sylt recently revealed Ferrari, McLaren and Red Bull Racing receive guaranteed payments every year in addition to sharing in this prize fund but Caterham isn’t so lucky. It simply shares in the prize fund and this is divided amongst the teams in two completely different ways.
This fund is divided into two equal parts with one half split in decreasing amounts between the first to tenth-placed teams. The other half is divided by ten with each team getting an equal amount which came to £17.9m in 2011. Crucially, this is only available to teams which finish in the top ten in two years out of three. Caterham has done this which is why it has got the full prize money entitlement and a commercial agreement whereas Marussia has not.
It explains why Ecclestone says “I’m happy for Marussia to sign up to the Concorde Agreement” but he has not given it a commercial agreement. The Concorde will put in black and white that if a team finishes in 11th place this year, and has not been ranked in the top ten in two out of three years, then it won’t get any prize money.
It is a completely different question whether this arrangement is fair. It certainly encourages all teams to try their hardest and it could even be argued that it doesn’t go far enough. Sylt’s personal view is that any team which doesn’t score a point shouldn’t get any prize money and on saying this to Ecclestone the F1 boss responded “that’s even worse. What you are saying is probably what is should be but we are saying the top ten.” Time will tell if Marussia finishes the year amongst this exclusive group.