F1’s power struggle- Mark Gallagher

At the heart of the problem lies vested interest and the structural inadequacies of the sport. The technical regulations are made by the FIA under Jean Todt, the commercial control lies with Formula One Management under Bernie Ecclestone and the 12 teams have to somehow manage their affairs such that they can stay in business and, in some cases, even try to make a profit. And the 12 teams never speak with a common voice, for some such as Ferrari and Red Bull Racing are more equal than others, enabling FOM and the FIA to divide and conquer during critical negotiations.

Take the fact that engine regulations set to be introduced in 2014, and fully ratified at a Formula One Commission meeting exactly one year ago, are potentially up in the air. The reason? Word has come out that the cost of these engines to many of the teams could be as high as £15m; potentially three times as much as they cost today. This has come at a time when another issue, cost control, is high on the agenda of many within the sport because, surprise surprise, the global economic situation is having a profound effect on Formula One.

The reason for the introduction of these new engines was the FIA’s quest to create a greener future for Formula One, anxious to communicate messages about sustainability and attract more car manufacturers into the sport by promoting sophisticated energy recovery systems and fuel efficiency. The current 2.4 litre V8 engines would be thrown away, replaced by tiny 1.6 litre V6 engines mated to a large electric motor; fuel consumption would be down 35%, the cars would run on electricity only in the pit lane. Radical stuff, and laudable were the economic situation different.

Sustainability of a different kind is what concerns the teams, however, for the very survival of perhaps half the grid is in question. Sponsors are hard to find, many have quit the sport due its cost, alleged financial excess and sometimes tawdry image. While the FIA argues that green engines will attract car manufacturers and sponsors back in, there is no guarantee of that – and certainly not to the benefit of the six or seven teams who never win races, secure airtime and thus don’t attract the big deals.

Currently teams use 16 engine lives across a season at a cost of around £5m. The new regulations require only 10 engine lives for 2014 and 8 for 2015, so at face value many of the smaller teams hoped this would be cheaper. Unfortunately the cost of developing these highly sophisticated new power units is perhaps as much as £30m which, when amortised across a 3-5 year lease agreement, means the cost is set to rocket.

As if this is not enough, Bernie Ecclestone at FOM has never wanted the engines partly due to cost but also the entertainment value since the current V8’s rev to an impressive, ear-splitting 18,000rpm, while the new units are officially limited to 15,000rpm.  That may not seem like a big reduction, but when you consider that maximum fuel delivery to the engine will be achieved at 10,500rpm, revving them much beyond 12,000rpm will be pointless. A 30% reduction in engine speed will dramatically affect a sport renowned for its noise as much as its colour and glamour.

All of this could have been avoided had the FIA, FOM and the teams engaged together in discussing the future. Instead, the FIA engine regulations were framed with the engine manufacturers only, without the direct input of FOM and the teams. Ultimately the F1 Commission, when it voted, didn’t really understand the economic context of what it was voting for.

In the end, it was a case of turkeys voting for Christmas, and now, on Christmas Eve, everyone is trying to negotiate. Unfortunately the chefs, in this case Renault, Mercedes and Ferrari, have already started cooking, for the engines have been under development for up to two years and many millions already committed. They are not keen to stop.

Ultimately some solution will have to be found; a postponement of the regulations, a commercial deal whereby the manufacturers will have to subsidise leases for a period of time, or Bernie will once again be asked to support the teams with the sport’s commercial revenues. It was ever thus. A fudge, unhappily achieved against a backdrop of bitter wrangling, with the fundamental structural issues unaddressed.

About Mark Gallagher:

Mark Gallagher is Managing Director of the CMS Motor Sport consultancy, co-owner of the Status Grand Prix motor racing team which competes in both Le Mans sports car racing and the GP3 feeder-series to Formula One, and an F1 commentator on ESPN Star Sports in Asia.  

He is also a professional conference speaker on the business lessons to be learned from Formula One, drawing on his experiences in senior management positions in the sport.

You can follow him on @MarkGallagher62

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