While Lewis Hamilton and Nico Rosberg were busy pounding the opposition at Canada’s sunny Circuit Gilles Villeneuve on Sunday, storm clouds were gathering over the sport as an official complaint to the European Commission looms ever closer relating to questions from the smaller teams about competition rules and the commercial arrangements and governance in Formula One.
If the investigator, Margrethe Vestager, were to uphold such a complaint, born of the smaller teams’ ongoing frustration and struggle for survival, the complex current structures could be dismantled, creating the need to build a new financial and governance framework.
After an EU investigation 12 years ago the FIA, the sport’s governing body, agreed to act only as a regulator and not get involved in commercial matters. Bernie Ecclestone’s Formula One group, meanwhile, agreed to deal only with commercial matters and not governance. However, the smaller teams allege that the deal between the FIA and Ecclestone – which led to the creation of the Formula One Strategy Group, on which few of them are represented – oversteps such agreements.
It is believed that Ecclestone negotiated financial guarantees with the biggest players to obviate the risk of any of them withdrawing unexpectedly, in a deal that lasts until 2020.
With a rumoured $1bn penalty for withdrawal, albeit reducing by $100m annually, that cleverly creates long-term stability, especially as, despite its current difficulties, the sport’s massive global reach makes it a very strong, albeit expensive, marketing platform.
The additional money the major car companies receive from the Formula One group enables them to take the revenues that are contracted and extrapolate future income, thereby raising the overall values of the individual companies.
Thus Ferrari, for example, can extract another $100m a year in revenue, which adds $1bn or more to the value of the business – a useful boost that can create a higher price for shares.
Part of the dissatisfaction of the smaller teams, such as Williams, Sauber and Force India, is that the big four – Mercedes, Ferrari, Red Bull and McLaren – are pushing again for the introduction of customer or “franchise” cars. The smaller teams say this would breach the sport’s core principles, under which everybody has to be a constructor in their own right.
They believe that, rather than being a means to boost dwindling grids, the proposal is a Trojan horse to enable the big teams to swallow up the smaller ones in order to gain access to their revenues by making them satellite operations.
It could also be a discreet means of trying to reduce the power of the commercial rights holders – CVC Capital Partners and Ecclestone.
The smaller teams argue this would do untold damage to the sport’s image, where underdogs are as important to the fans as the major players.
As they demonstrated in Texas last October, when Marussia and Caterham were missing from the grid, the big teams argue that this does not matter because the small teams are now so weak that they will probably fail anyhow and thus it is better to throw them a cost-effective lifeline to survival.
In a sport where competition is the fundamental driver, the only thing everyone agrees on is that Formula One costs too much and cuts are necessary. But in reality none of the big teams will initiate them for fear of losing their competitive edge on the track.
It is expected that the complaint will be lodged with the EU within the next month.
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