Leaked letter to Ecclestone. . .

[AfterLife]

LEAKED LETTER TO ECCLESTONE SHOWS SMALL F1 TEAMS’ DESPERATION OVER UNFAIR F1 MONEY DISTRIBUTION

The F1 Drivers’ World Championship is not the only thing coming to a head this weekend – it looks as though the smaller teams in F1 are set to press their case for a fairer distribution of the sport’s commercial revenues.

A leaked letter today written by Force India’s deputy team principal to F1′s commercial boss Bernie Ecclestone and signed by Force India, Sauber and Lotus, calls for an urgent meeting in Abu Dhabi and claims that F1 is heading towards customer cars and grids filled out with “Super GP2″ cars.

It highlights that the 2014 Prize Fund will “contain approx. US$ 835 million out of which approximately US$ 412 million is distributed amongst 4 teams in the Strategy Group” (Ferrari, Red Bull, McLaren, Mercedes and Williams).

In contrast the three smaller teams receive income from FOM ranging between US$52 and $64 million per year each.

As the final race of the season approaches this weekend, clearly the smaller teams want to use the occasion with all the attention focussed on it to push for change, “we request you, together with the other stakeholders, to implement a more equitable distribution” Fernley writes.

“Since Austin, Lotus, Sauber and Force India F1 have been in communication with Donald [Mackenzie of CVC] and your good self in order to highlight the critical situation independent constructors in Formula 1 are facing today. From our meetings we noted positively that our concerns were acknowledged and there was a basis for a constructive dialogue.

However, after our meeting in Brazil we clearly see the direction of Formula 1 towards customer cars / super GP2. It is equally clear that the Strategy Group has no intention at all to reduce costs.”

The letter also says that the smaller teams did not vote for the new hybrid V6 engines, these were forced onto them by the manufacturers, but the teams have to deal with the fact that installing and running these expensive units eats up most of the money they receive from FOM.

“70% – 80% of the FOM income has to be allocated to the engine. For us, as engine customers, the engine technology, i.e V6 or V8 turbo-charged or hybrid, is of much less significance, as opposed to engine manufacturers, who are using Formula One as a marketing tool to showcase high-end technology. Unlike manufacturer-owned teams, our core business is Formula One.

“Yet, we have no choice but to spend most of our income on the engine, and the remaining 30% is by far not enough to construct, enter and run a team over a twenty race season.”

The smaller teams take exception to the accusation that they are in trouble because they don’t know how to run their businesses, claiming that the cost of the V6 hybrid turbos runs to around $43 million per team on average for PU and the cost of installing it, gearboxes etc.

However research by this website has revealed that the cost of the lowest price 2014 Power Unit alone, without gearbox and other in-house costs, is closer to $20 million a season.

The sense of desperation is clear from some inflammatory language in the letter, particularly the use of the word “Cartel” to describe the group of individuals which is now making all the decisions in F1. The letter speaks about the bilateral agreements done between Bernie Ecclestone and the teams, which are the root of the distribution of finds we have in F1 today.

“The shareholder’s (sic) focus during the negotiations was on securing the co-operation with big teams in view of the planned IPO; we were effectively given no room for negotiation. Furthermore, the impact of providing various share options to key people and entities may well have clouded their judgement in respect of creating what is effectively a questionable Cartel comprising, the Commercial Rights Holder, Ferrari, Red Bull, Mercedes, McLaren and Williams, controlling both the governance of Formula One and apparently, the distribution of FOM funds.

“Whilst the FIA are involved in The Strategy Group, they are impotent to act.”

The smaller teams have put proposals to Ecclestone to control costs without specifically limiting budgets, instead limiting the number of developments allowed per season. As it’s impossible to police what work goes on among manufacturer teams like Mercedes, Ferrari and (McLaren) Honda, the idea is to control what is measurable, which is the updates on the cars as they arrive at the track for the Grands Prix.

So, for example, the top teams could spend as much money as they liked on a new front wing, but only on selected occasions in a season, not on a constant and ongoing basis.

Source: http://www.jamesallenonf1.com/2014/11/leaked-letter-to-ecclestone-shows-small-f1-teams-desperation-over-unfair-f1-money-distribution/

[AfterLife]

WOW, Just wow. I feel for smaller teams to be honest. Especially for those that paid for power unit and received rubbish.

[Hornet]

They deserve to get more money, but their development restriction proposal is too radical IMO. The lack of constant development is bad for competition, as we are severely limiting the other teams' ability to improve and make any real challenge to the faster team. We've seen what it did to the entire competition when we froze engine development, trying to restrict all other development will only make it worse.

F1 should not be a competition that is won and lost during winter development.

[AfterLife]

It is somehow astonishing and in a way (normal) that people really don't car about these things, but look at the teams like Lotus for example. They were world champions in the past but now they are struggling like other smaller teams. The direction is obviously wrong.

IMO

-limiting the number of developments allowed per season is not ideal because it is against the spirit of competition.
-Super GP2 means quitting Formula1 and it is not ideal.
-Customer car is kind of good idea but it is questioning the existence of smaller teams factories, because they can produce their own racing parts with the way they really intend to and they can do better sometimes than bigger teams and customer car is against the spirit of competition IMO.

The only sensible way IMO is changing the way of sharing prize money among teams or increasing the prize money for smaller teams without decreasing bigger teams prize money shares.

[scuderia_nano]

Bernie has made it clear.

He wants teams who stick around for long.
Its a sport of rich spenders who cn invest like Mercedes, Aim for a long term success and logetivity.

That's fair.

Its his idea of F1. Hence teams like FERRARI, McLaren ARE his fav.

Personally i do not like small teams. Lets have a tight grid with big names.

[AfterLife]

Sauber and Lotus are old enough.

RedBull is his fav too i believe.

[NickEice]

The only was the current F1 can survive is if it can attract big name manufacturers and historic constructors. We need a grid where nobody shares the same engine. Something like:

Ferrari - Ferrari
Mercedes - Mercedes
McLaren - Honda
Red Bull - Renault
Williams - BMW
Toyota - Toyota
Audi - Audi
An American team like Haas - Ford

Everyone runs 3 cars and you have a grid of 24 cars from powerhouse manufacturers.


However, I still don't think that is ideal because it is not truly Formula 1. There is something about rooting for the little guys at the back like Minardi, Sauber, etc. F1 has never been just about winning for a lot of the teams on the grid. There is something about a mixed condition race where a little team takes a gamble and it pays off with a surprise win or podium. It is not all about winning, and it was never all about money and "Road Relevance" like it is today. It is about the love of the sport and the little constructors are what makes F1 different from other sports. The lovable underdog. That is the DNA of F1.

[Kiwi Nick]

The problem is not revenue sharing it is the cost.

[Alonso14]

Bernie has made it clear.

He wants teams who stick around for long.
Its a sport of rich spenders who cn invest like Mercedes, Aim for a long term success and logetivity.

That's fair.

Its his idea of F1. Hence teams like FERRARI, McLaren ARE his fav.

Personally i do not like small teams. Lets have a tight grid with big names.


The only was the current F1 can survive is if it can attract big name manufacturers and historic constructors. We need a grid where nobody shares the same engine. Something like:

Ferrari - Ferrari
Mercedes - Mercedes
McLaren - Honda
Red Bull - Renault
Williams - BMW
Toyota - Toyota
Audi - Audi
An American team like Haas - Ford

Everyone runs 3 cars and you have a grid of 24 cars from powerhouse manufacturers.


However, I still don't think that is ideal because it is not truly Formula 1. There is something about rooting for the little guys at the back like Minardi, Sauber, etc. F1 has never been just about winning for a lot of the teams on the grid. There is something about a mixed condition race where a little team takes a gamble and it pays off with a surprise win or podium. It is not all about winning, and it was never all about money and "Road Relevance" like it is today. It is about the love of the sport and the little constructors are what makes F1 different from other sports. The lovable underdog. That is the DNA of F1.

People don't learn, do they? You already forgot Toyota and BMW? Not every manufacturer in F1 has Ferrari's and McLaren's passion and commitment to the sport. Pretty much every big manufacturer who has been in F1 has clearly showed that if they are not successful (Toyota and BMW) or don't get it their way (Merc and the V6) are ready to pull the plug as soon as they feel that F1 is not beneficiary to their core business (selling cars and making money outside of F1). Do you think if instead of McLaren another manufacturer was caught stealing data from a rival they would have survived and their shareholders wouldn't have pulled out because of the bad publicity? By 2010 Renault were out because they were not competitive and because of Singapore 08. Toyota pulled the plug out of nowhere and left hundreds of workers (and 2 drivers and the senior management) for dead. No gradual planning for leaving the sport, just pulling the plug. Mercedes were ready to leave the sport of the V6 were not introduced and after 4 years of lack of success (and mind you, it was Caterham type lack of success) they were willing to leave if not for Ross Brawn bringing in Hamilton. Privateers are essential to F1, those are teams treat the sport as its core business. Ferrari and McLaren, in terms of behavior, are much closer to private teams rather than car manufacturers.

Imagine a grid of Ferrari, Mercedes, McLaren, BMW, Audi, Toyota and Ford. Building an F1 team and car takes year. Even if you buy ready-made structure like Red Bull did with Jaguar and you bring along top level staff right away (Newey, Prodroumou) it's not that simple to get success. You play catch-up while teams at the front stretch their advantage further. Red Bull poured millions and didn't enjoy success until a major aero rule regulation change was introduced. So it is pretty safe to assume that BMW, Audi, Toyota and Ford would be miles behind Ferrari, McLaren and Merc in the beginning. And someone would be at the back of the grid. Do you think the shareholders of BMW/Toyota/etc. would be willing to invest hundreds of millions to watch their brand lapping seconds off the pace and people to see a Ferrari/Mercedes lapping the Audi or BMW. These team would be out of the sport quicker that you can blink because there is nothing to be gained for them. Bad publicity (another brand beating them), tons of expenses and little revenue.

So private teams should get a bigger piece of the pie to stay afloat and crucially F1 should go back to free TV. Huge markets like the UK, China and France were slashed down to 1/3 after changing the TV model. And while big teams have no problem with it because 1) sponsors want to be associated with them 2) they get the lion share of those TV money; the smaller teams endure a suffering. Suddenly they face a situation in which sponsors tell them "Hey, why should I pay as much money as before as F1 these days reaches less than 200 million people compared to 600 million before?" [these numbers are used for an example, probably not pretty accurate but the difference of viewership is]. F1 should save the private clubs or risks destroying the sport for good.

[Nova]

Looks like F1 teams wouldve saved a lot of money by staying w/V8's. Def wouldve helped
the smaller teams..n sounded better too.

[Hornet]

The problem is not revenue sharing it is the cost.

Isn't those two points related though. The smaller teams do not have enough money due to the high cost of the sport, so they need more money. Had they been given a larger share of the revenue, they could have paid their bills.

The thing is, big teams who are financially more capable already, are getting significantly larger portion of the revenue. So, some people feel it may be more fair to give the smaller teams a larger share, since they need it more than the larger team. Maybe even divide the money evenly, that can't be a terribly bad idea.

[Kiwi Nick]

Isn't those two points related though. The smaller teams do not have enough money due to the high cost of the sport, so they need more money. Had they been given a larger share of the revenue, they could have paid their bills.

The thing is, big teams who are financially more capable already, are getting significantly larger portion of the revenue. So, some people feel it may be more fair to give the smaller teams a larger share, since they need it more than the larger team. Maybe even divide the money evenly, that can't be a terribly bad idea.

No, it is a cost issue. The higher costs get the fewer teams there are who can afford to race. Even if the money is redistributed differently, it will eventually not be enough. It is pretty simple math. If the value (income, sponsorship, marketing, R&D, etc. - all moneys flowing to the sport, whether actual or imputed) of the sport to the stake holders is $XXX and the cost to run the show is $XXX+2, some team(s) will be left $2 short. Cost is the barrier to entry in the sport. Lower the cost and you lower the barrier. That has all sorts of benefits. Like more teams, more capable teams, more competition, better drivers (no need for pay-drivers), more sponsors...

Clearly the single biggest problem on the cost side is the price of a PU. Change to a PU (engine) and you could cut the cost to a team by $20-$25 million per season. Caterham said that PU costs represented more than 1/3 of their annual budget. Had the PU cost been the same as last year they would likely still be racing. It is reported that McLaren will not be paying for its Honda PUs next year. That frees up a significant amount of money to be spent on chassis, aero and a particular driver.

I could go on and on, but you get the idea. Cutting costs is like curing cancer. Redistributing the prize money is like taking an aspirin.

[Hornet]

I agree that giving extra money to the smaller team isn't a solution that will last forever, but it may be a good start.

From what I understand, the new PU was expected to be more expensive initially due to it's development cost, but the plan is that once most of the PU's part has been permanently frozen in few years time, the cost should be cheaper than V8. At least that was the plan, and we won't know if it will work out as we're not quite there yet. But the PU cost will certainly fall once it's frozen (permanently, not just for 1 season as is the case right now), which we can't do at the moment due to the need for more development.

The problem is of course, the smaller team will have to survive the development period, and it's proven to be too expensive for Marrusia and Caterham, unfortunately. If we seek an immediate solution, then yes perhaps going back to the frozen V8 would do the trick. But that will bring up many other issues too, as we've already committed to V6, all the developments are already in place. And the sport would have to give up it's various goal with the V6, not just in terms of introducing new efficient tech, but also the fact that engine has been an area that is stagnant for many years with the freezing of V8. I don't think we can do that indefinitely, having the same engine for the next 10-20 years.

[NickEice]

People don't learn, do they? You already forgot Toyota and BMW? Not every manufacturer in F1 has Ferrari's and McLaren's passion and commitment to the sport. Pretty much every big manufacturer who has been in F1 has clearly showed that if they are not successful (Toyota and BMW) or don't get it their way (Merc and the V6) are ready to pull the plug as soon as they feel that F1 is not beneficiary to their core business (selling cars and making money outside of F1). Do you think if instead of McLaren another manufacturer was caught stealing data from a rival they would have survived and their shareholders wouldn't have pulled out because of the bad publicity? By 2010 Renault were out because they were not competitive and because of Singapore 08. Toyota pulled the plug out of nowhere and left hundreds of workers (and 2 drivers and the senior management) for dead. No gradual planning for leaving the sport, just pulling the plug. Mercedes were ready to leave the sport of the V6 were not introduced and after 4 years of lack of success (and mind you, it was Caterham type lack of success) they were willing to leave if not for Ross Brawn bringing in Hamilton. Privateers are essential to F1, those are teams treat the sport as its core business. Ferrari and McLaren, in terms of behavior, are much closer to private teams rather than car manufacturers.

Imagine a grid of Ferrari, Mercedes, McLaren, BMW, Audi, Toyota and Ford. Building an F1 team and car takes year. Even if you buy ready-made structure like Red Bull did with Jaguar and you bring along top level staff right away (Newey, Prodroumou) it's not that simple to get success. You play catch-up while teams at the front stretch their advantage further. Red Bull poured millions and didn't enjoy success until a major aero rule regulation change was introduced. So it is pretty safe to assume that BMW, Audi, Toyota and Ford would be miles behind Ferrari, McLaren and Merc in the beginning. And someone would be at the back of the grid. Do you think the shareholders of BMW/Toyota/etc. would be willing to invest hundreds of millions to watch their brand lapping seconds off the pace and people to see a Ferrari/Mercedes lapping the Audi or BMW. These team would be out of the sport quicker that you can blink because there is nothing to be gained for them. Bad publicity (another brand beating them), tons of expenses and little revenue.

So private teams should get a bigger piece of the pie to stay afloat and crucially F1 should go back to free TV. Huge markets like the UK, China and France were slashed down to 1/3 after changing the TV model. And while big teams have no problem with it because 1) sponsors want to be associated with them 2) they get the lion share of those TV money; the smaller teams endure a suffering. Suddenly they face a situation in which sponsors tell them "Hey, why should I pay as much money as before as F1 these days reaches less than 200 million people compared to 600 million before?" [these numbers are used for an example, probably not pretty accurate but the difference of viewership is]. F1 should save the private clubs or risks destroying the sport for good.

My point is that in a vacuum that would be a dream Formula 1, but it will never happen. So the powers that be need to realize that they must save the midfield and backmarkers if they are to save F1.

F1 is in a very bad place right now thanks to a private equity group running a sport that millions enjoy. Not everything in life is dollars and cents. Until the people that run F1 realize this we will see our product deteriorate.

[NickEice]

No, it is a cost issue. The higher costs get the fewer teams there are who can afford to race. Even if the money is redistributed differently, it will eventually not be enough. It is pretty simple math. If the value (income, sponsorship, marketing, R&D, etc. - all moneys flowing to the sport, whether actual or imputed) of the sport to the stake holders is $XXX and the cost to run the show is $XXX+2, some team(s) will be left $2 short. Cost is the barrier to entry in the sport. Lower the cost and you lower the barrier. That has all sorts of benefits. Like more teams, more capable teams, more competition, better drivers (no need for pay-drivers), more sponsors...

Clearly the single biggest problem on the cost side is the price of a PU. Change to a PU (engine) and you could cut the cost to a team by $20-$25 million per season. Caterham said that PU costs represented more than 1/3 of their annual budget. Had the PU cost been the same as last year they would likely still be racing. It is reported that McLaren will not be paying for its Honda PUs next year. That frees up a significant amount of money to be spent on chassis, aero and a particular driver.

I could go on and on, but you get the idea. Cutting costs is like curing cancer. Redistributing the prize money is like taking an aspirin.

It is not a cost issue. The cost will exist to find performance. None of these teams are trying to spend a penny more than they have to. But when you have an entity (CVC) taking a healthy portion of the pie for no value add that is the problem. They are sitting there getting paid for nothing. For no risk. Then forcing teams to take on new engines and 20 races a year, in countries all over the globe rather than mostly Europe. While the economy in the world is still not as strong as it once was. Tell me how we can innovate and still be solvent? Give the teams some of the money that they generate rather than some corporate pigs taking half of it.

[Kiwi Nick]

My point is that in a vacuum that would be a dream Formula 1, but it will never happen. So the powers that be need to realize that they must save the midfield and backmarkers if they are to save F1.

F1 is in a very bad place right now thanks to a private equity group running a sport that millions enjoy. Not everything in life is dollars and cents. Until the people that run F1 realize this we will see our product deteriorate.

A league of F1 teams, like FOTA, need to own F1. Each team would have shares, and the shares could be transferred (bought and sold) as teams come and go, much like a country club. Run the circuit as a not-for-profit and share the proceeds equally amongst the shareholders.

Unfortunately, that would require the teams breaking away from CVC and probably the FIA, because there is no way that they could afford to pay what CVC thinks the franchise is worth (probably in the $8-$12 billion range).

[scuderia_nano]

Learn smearn.

Bernie doesn't want teams with no money. Guys like Audi are already waiting in the wings.

[Ed Harley]

Spec series is the solution. Not desiderable but affordable.

Another one is to spec just small number of details such as width, length, weigth and displacement etc. and let them duke it out to the death without a budget limit.

[Nova]

I read on AS about Chandrok I think his name is, trying a 90's Williams, and
saying how simple the car is compared to the F1 cars of today.
Truthfully, I enjoyed the 90's cars much more than the hybrids.
If F1 stayed with a simpler format, such as the 90's, it wouldnt be as expensive
as it is now, and we probably would be looking at full grids, ie: teams not dropping
out because they cannot afford the expensive engine/electronics they r forced to buy.

How can the fia say they want to cut costs, yet introduce power units so expensive that
smaller teams cannot afford them? They cut crucial things like testing, yet introduce silly
rules such as an engine freeze. Who in the heck is running the show? They r sorely misguided.

[Kiwi Nick]

I read on AS about Chandrok I think his name is, trying a 90's Williams, and
saying how simple the car is compared to the F1 cars of today.
Truthfully, I enjoyed the 90's cars much more than the hybrids.
If F1 stayed with a simpler format, such as the 90's, it wouldnt be as expensive
as it is now, and we probably would be looking at full grids, ie: teams not dropping
out because they cannot afford the expensive engine/electronics they r forced to buy.

How can the fia say they want to cut costs, yet introduce power units so expensive that
smaller teams cannot afford them? They cut crucial things like testing, yet introduce silly
rules such as an engine freeze. Who in the heck is running the show? They r sorely misguided.

Agree 100%. F1 is a racing circuit, not a test bed for Mercedes. LMP and Formula E are there for that purpose. Does the FIA need to be reminded what the "P" in LMP stands for.

[roflcopter44444]

I agree with you there, what technical development is there when you have all 3 manufactures building an engine to the same specs then locking it down for the whole season ?. In WEC people have the option to go pick their own engine configuration, fuel source and ERS configuration.

[Sriharsha]

I think the ban on Testing only increased costs as it put whole lot of effort on Team Aerodynamic improvement with using more Windtunnel hours.
the Problem started when FIA started Road relevance and freezing words to F1 and then cutting most developed or intelligent tools Engineers provided