Formula 1

Money and Egos in the world’s greatest sport

The finances and running of Formula One is almost as exciting as the sport on the ground. We may not be looking at winning flags and crashing cars, but we are looking at massive egos of owners, managers and financiers who collide and haggle with as much passion as the fans at the races. This expose of the finances, the regulators and the team administrators opens up much uncharted territory. How should the sport work, and why does it let down its participants!

Regulators of the sport will be shown to compromise fairness between the teams in favour of big finance and vested interests. Their requirement to maintain legal and ethical probity is too easily flexed by the big battalions.

Conflicts of Interest

Understanding the structure of what might be called ‘governance’ is complicated by the number of parties seeking to participate in the rich rewards available to those who engage in Formula 1. Numerous legally based organisations, contracts and agreements fail to build a convincing, watertight and clear structure.

Time and again, there are disputes about the nature and availability of prize money, legal and operational definitions of teams, and many others contentious issues. Each dispute puts further stress on the tripartite structure of the sport, whose governance agency, called the Federation Internationale d’Automobile (FIA), the commercial rights holder (the ultimate arbiter of the sport’s financial solvency), and the team investors and stakeholders raises questions about Formula 1’s competence to produce a level playing track for its participants.

Discussions of governance in Formula One inevitably come back to the ‘Concorde Agreement’, the covenant between teams, commercial rights holders and the representative body which has governed the commercial and regulatory aspects of the sport since the early eighties.

These interests continue to battle to this day. Until 2010, Concorde brought together only two parties, namely the teams and the governance body. But in 2010, a third party was brought into the agreement, the commercial rights holder (CRH). The first CRH was Bernie Ecclestone’s family trust, and he was followed by CVC Capital Partners and today it is Liberty Media.

Successive agreements set out the commercial and regulatory obligations and commitments of the teams, CRH and FIA. The Concorde Agreements detailed how much money each teams would receive provided it fulfilled certain conditions, and spelt out the regulatory process to be followed throughout the period of validity. The complexity, not to say murkiness of the agreement towards a decision was the subject of frequent media speculation.

The creation of unilateral arrangements changed the governance of the sport, removing the transparency and equity enshrined in the multi-lateral structure. This led to growing tensions between owners of teams and the governance body. The mediation power of the FIA was diminished.

The decline in the significance of the Concorde agreement, already a long term trend, gathered pace during the pandemic when the FIA applied a clause in the International Sporting Code to replace regulatory clauses previously enshrined in Concorde.

The agreement that started in 2021 needed only to outline the revenue distribution structure and the process to be followed should major amendments be made to the regulations. This in turn meant that no Concorde Agreement was required. Today’s Concorde agreement has a diminished role for the FIA and a greater place for commercial haggling between the teams and the CRH.

A further body involved in this increasingly murky world is the EU, which must give its blessing for the sale of F1’s commercial rights. The EU precludes the FIA from involving itself in commercial matters.

The potential absence of any commercial agreement does, though, mean that no formal revenue structure is in place. As a result of dubious decisions and backroom deals by the FIA in its negotiations with  teams and the CRH, the question is being asked about the usefulness of Concorde, and whether the greatest casualty of the change of regulation of Formula One is the FIA.

To add to the complication of the sport’s funding structure needs to be added “the 100-Year Agreements”. These allow Formula 1 to hold the licence to all of the commercial rights to the World Championship, including its trademarks. Formula 1 paid the FIA $313.6 million in 2001 to gain these rights, while also agreeing to pay the FIA an annual regulatory fee.  The way the FIA uses its regulatory payments, which have increased markedly over the years, has created further tensions with stakeholders while raising question marks over its independence and the sport’s governance.

Access to prize money was at the centre of one of the FIA’s most controversial recent decisions. The rules are arcane: F1’s pot of prize money is split into two equal columns: Column 1 prize money is divided equally amongst all qualifying teams, while Column 2 money is disbursed on a sliding scale (19%-4%) amongst the top ten finishers in the previous year’s championship.

Governance has been a considerable thorn in the side of Formula 1, and this analysis will seek to break new ground, not only in  explaining its complexities but also in showing how the cannier operators of the sport can navigate those complexities for their own dubious advantages.

Research for “Formula 1: Money and Egos in the world’s greatest sport” is presently in preparation. The outcome will be a book, for publication in 2023. The author is available to receive comments and contributions from interested parties.

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