Formula One's rich-poor divide

New York

THE withdrawal of two cash-poor Formula One teams, Caterham and Marussia, reduced the starting grid to 18 cars in last weekend's US Grand Prix in Austin, Texas. And Sunday's Brazilian Grand Prix at the Interlagos circuit outside São Paulo was reeling under the threat of a boycott by three other struggling teams, Sauber, Force India and Lotus.

The financial situation has prompted Formula One to do some soul searching, as it has periodically done throughout its history.

Paradoxically, the problem is not a lack of money but rather too much money distributed too poorly. The series earns about US$1.7 billion in annual commercial rights, with half of it going to the teams according to individual contracts that each signed with the promoter of the Formula One series, Bernie Ecclestone, and the rest going to the Formula One Group and its owner, CVC Capital Partners.

The individual contracts vary so much that teams like Ferrari may earn as much as US$90 million simply for showing up, while teams like Marussia and Caterham may be lucky to get US$20 million with prize money included. Team directors estimate that the minimum cost of building and running a team, travelling to races and operating at the races is about US$120 million a year, so it is inevitable that some teams will not survive on sponsorship alone.

When Mr Ecclestone made the deals a couple of years ago, he was under pressure to sign some of the bigger, richer teams to long-term contracts. But the day before the Austin race, he acknowledged that the crisis was perhaps his fault and that the individual deals "seemed a good idea at the time". Mr Ecclestone's proposal in Austin to have the richer teams share a percentage of their prize money with the poorer teams, with matching contributions from him, was not well received by team directors.

"We have signed agreements," said Christian Horner, director of the Red Bull team, "and I am not convinced that even if you double the money to Caterham and Marussia it would have solved their issues".

The problem has been building since at least 2010, when the series added three teams, including Marussia and Caterham, with the promise to cap team budgets at US$40 million a season. The idea of a cap has been floated for a decade, but it has always been rejected by the wealthier teams.

Toto Wolff, director of the Mercedes team, said: "If you look at the budgets of Marussia and then you compare the highest spender, whoever it is, Ferrari or Red Bull, you are talking about a gap from US$70 million to US$250 million. So if you want to start with a cost cap, how do you do that? Where do you cap it? And if you cap it on the lower end, well, do you make two-thirds of the people redundant in the big teams?"

Possible solutions to the financial problems have included increasing the cars on the grid, with each team running three cars instead of two, or having richer teams sell cars to poorer teams, rather than requiring each team to make its cars.

Monisha Kaltenborn, director and part owner of the Sauber team, said that buying a chassis would not only be expensive for small teams but would also make getting sponsors even more difficult.

"How could we get sponsors when we tell them we never have a chance to win with that car?" she said, suggesting that a chassis from Ferrari, for example, would never be better operated and improved by another team.

As for racing three cars, Felipe Massa, a driver for Williams, said Formula One would have to change all the rules to avoid other problems.

The same front-of the-grid teams might score even more points than they do now, he said, pushing the others out of the points race.

"Just thinking about this year, putting a third car on the track, the championship would have been finished in the middle of the season," Massa said. "You will have had three Mercedes all the time, first, second or third in most of the races."

More than 160 teams have participated in the series since it began in 1950. Ten to 12 teams have raced each season for most of the past two decades, but during the 1950s, which many consider the golden age of the series, Formula One had seven or eight teams.

"Today we don't live in those times," Sauber's Ms Kaltenborn said. "Through manufacturers coming in, bigger companies coming in, costs have just gone sky high. We have to start right there and bring it down to decent levels."

Gérard Lopez, a team owner and director for the Lotus team, said that in the Formula One support series known as GP2 - which is also run by Mr Ecclestone - cars race only four to six seconds slower per lap than in Formula One, and a GP2 team's full season costs four million euros, about US$5 million.

"Are we really better to the point that a team needs to spend 300 million euros to be six seconds faster?" Mr Lopez said. "We're not. I wouldn't accept that argument from anybody. So it's a bit ridiculous to say that you need to spend that kind of money to have that kind of performance because that makes us the worst managers in the world."

But Mercedes' Mr Wolff said: "This is the pinnacle of motor racing, and if you want to compete at the pinnacle of motor racing, then you need to have the resources of competing there. This is a high-entry-barrier sport."

That raises the question of whether the common interest of the series is served by a smaller or a larger grid of cars and teams.

"You can't have Formula One with only manufacturer teams; you need smaller teams," said Vijay Mallya, the owner of Force India. "It's part of the DNA of Formula One for several decades, and the FIA, on the one hand," he said in reference to the sport's governing body, "and the commercial rights holder, on the other hand, must both work closely to ensure that it is viable and sustainable."

Insiders have no doubt that the series will find an answer. "F1 has some problems, but it is not the end of civilisation as we know it," Joe Saward recently wrote on his Formula One blog. "The distribution of money has to change or we will lose more cars." He added: "It is a time for compromise and a goal of sustainability." NYT