The Future of FOTA

December 7, 2011

The news that both Ferrari and Red Bull Racing are planning to withdraw from FOTA has led many to suggest that this is the end of the team’s association. Clearly it is better for the teams to act as one if they wish to get a bigger share of the FOM revenues, but as seems to always happen, self interest is the decider at the end of the day. They are all agreed that they want to reduce costs – doesn’t any organisation? The important question is therefore how do you do it? When you’ve got your own bespoke test track then a ban on testing means you can’t use one of your key assets to improve your performance, so you can see why Ferrari would feel that being in FOTA isn’t in their best interests, RBR are in a different situation where their business model is a very different one to the other teams, so, again it may make better sense for them to go their own way. Of course we also have HRT who were the first to leave FOTA back in January 2011. The other reason rumoured for the departure of Ferrari and Red Bull Racing is the issue of third (or fourth) cars where constructors are allowed to sell/loan their cars to other teams, a practice well used in the 1950 and 60s. Stirling Moss’s legendary victory for Lotus at Monaco in 1960 was not achieved for Lotus Racing, but for Rob Walker’s private team using a Lotus 18. This is an issue which FOTA has been divided on and it could be argued that building more cars would effectively reduce the costs of certain teams such as Ferrari and also for RBR, whose original concept was to provide cars for Scuderia Toro Rosso. It’s just a very different way of achieving the same objective.

However regardless of the reasons for Ferrari and RBR to leave the team’s association, does this spell the end of FOTA? As history has a habit of repeating itself, it is interesting to note that in the controversies around previous Concorde Agreements, there were three teams who were united in refusing to sign up to the fourth agreement which was due to run from 1997 to 2002. They were McLaren, Williams and Tyrrell. In many ways it was this stand that led to the financial demise of the Tyrrell organisation, a team who had dominated F1 in the late sixties/ early seventies. Eventually a revised, fifth, agreement was drawn up which included the three teams and was to run from 1998 to 2007. The current (sixth) agreement is to run until the end of 2012, and this is where the negotiations are focused. The point of history is that the three teams who resisted the fourth Concorde Agreement are very much at the heart of FOTA today, McLaren providing the chairman, Williams a committed participant and the team that was originally Tyrrell Racing has now morphed into Mercedes GP (sorry Mercedes AMG GP!), via spells as British American Racing and Honda, with senior management team Nick Fry and Ross Brawn very much committed to FOTA. So even if FOTA doesn’t represent all the F1 teams, it may represent a significantly powerful voice that can influence the terms of the seventh Concorde Agreement, if it holds together.

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The Three Futures of #F1

December 1, 2011

With the 2011 season now at an end the teams are working even harder on their 2012 cars. We are also getting more clarity on driver line-ups, with F1 very much in tune with work practices in general – extending the retirement age with Kimi Raikkonen now returning to F1, this time with Lotus Renault, not sure if he’s having to make bigger pension contributions.

But while much of the media attention focuses on 2012, the movers and shakers: the Team Principals and FOTA, the FIA, Formula One Management and CVC are all focused on 2013. This is when a new Concorde Agreement should come into effect. Recently in the FT, Leisure Industries Correspondent, Roger Blitz aligned the politics of F1 to those of the Eurozone, with an intense battle emerging between the haves (Bernie and CVC) and have-nots (FOTA and FIA) – my definition not Roger’s. The complex web that is the governance of F1 is yet again going to be stretched and rewoven, and currently, no-one is quite sure how this will all end up. Certainly we will see Bernie at his best – he always enjoys a good fight – and will undoubtedly be focusing on divide and rule with the teams, not a new strategy, but always an effective one, but who knows perhaps Martin Whitmarsh and his peers will be able to keep FOTA united and carve out a good result? The key is going to be where the FIA end up. In the past they have traditionally aligned against the teams, but perhaps this time we will see a new permutation? Expect plenty of off-track fireworks during 2012.

However there are those in F1 for whom 2012 and 2013 matters not a jot: for the technical strategists in the teams work is well underway for the 2014 regulations which will require the cars to have 1.6 litre V6 power units and substantial Energy Recovery Systems (ERS) to harvest and reuse the energy to improve performance. The engine manufacturers are well underway with a variety of permutations and concepts and the teams will be keen to see how they can build the optimum package from this new powertrain.

All in all the next few years are going to be a busy time for anyone involved in F1, regardless of whether or not the Eurozone holds together.

The World Motorsport Council meeting of last week will be best remembered for its ‘unanimous’ decision to reinstate the Bahrain Grand Prix in 2011, although it appears that any changes to the calendar require the agreement of the teams themselves, and so there are still quite a few twists and turns to go on this story yet.

But the other interesting piece from the meeting was the announcement that the engine regulations for 2013 were approved and that these will be four cylinder 1.6 litre units with ‘extensive energy management and energy recover systems (now known as ERS)’ this effectively ratifies the decision made in December 2010. However, the interesting bit of the statement is as follows: ‘In consultation with the main stakeholders, and following the outcome of this consultation, a fax vote by the WMSC could be considered by 30 June latest to redefine [my underlining] the implementation date of these technical regulations.’ In other words the regulations are agreed, but when they actually come into force is not, the implementation date may be put back, presumably this could depend on the timing and costs of developing the new engines. I wonder what the implications may be for the cash flow projections of Craig Pollocks new venture – PURE? So let’s see if anything happens by 30 June, latest.

The Turkish Grand Prix reaffirmed Sebastian Vettel and Red Bull’s dominance of the season so far, it was an exciting race, but there seems to be some developing unease about the impact of the Drag Reduction System or DRS and the effect it is having on overtaking. The Guardian’s Richard Williams seemed to capture this perfectly with the following tweet: Another hectic GP. But does your heart sing to hear (for example) that Alonso has used his wing flap to pass Rosberg? Mine doesn’t”. Part of the problem is that the DRS provides a differential advantage to one car over another, which means the overtake often looks (as was the case in Turkey) more like someone passing a back-marker than a fight for a place in the race, we certainly did get a lot of overtaking, but perhaps not enough racing.

The other main area of speculation related to Michael Schumacher, who seems to be still struggling to assert himself both as the lead driver in Mercedes and as a serious contender with the current crop of drivers. I was recently going through some old tapes of interviews with some of the senior technical people in F1, and came across one from one of Ferrari’s former technical chiefs, he made some interesting comments on Schumacher: “From a Ferrari point of view I don’t believe Schumacher is so good as a test driver. He is good at setting up the car for himself, but I tell you he is not so good as a test driver because in three years with Benetton the car was not one of the best chassis.” The suggestion being that Michael is great when you develop a good chassis for him to work with and get his own set-up, but if you want to develop the car that is a different story, however given the general absence of testing today perhaps this is a non-issue.

The news that the popular Sam Michael is leaving Williams at the end of the year, along with aerodynamicist Jon Tomlinson, has also had quite a bit of coverage. If you look at Williams’ performance, it really drops off from 2005 after Sam Michael took over as Technical Director, but these things are never as straightforward as that. They also, of course, lost the manufacturer support of BMW in 2005. However, given the focus on aerodynamics I also wonder how much is due to them never having really got to grips with their 60% wind tunnel which came on stream during 2004, they say it’s all about aerodynamics and perhaps Williams have struggled to get their new facility to work as well as some of the other teams. It’s interesting to note that Mike Coughlan, their new chief engineer, is not an aerodynamicist.

Away from the track we have the possibility of a bidder for the commercial rights business of F1 from News Corp. and the Agnelli family’ Exor SpA. This appears to have produced some interesting reactions from Bernie Ecclestone (standard response – it’s not for sale, unless they make a really silly offer) and Max Mosley (News Corp. would not be the right buyer for F1 – something to do with them owning the News of the World). The other interesting issue is the view of the FIA and more particularly Jean Todt (who some believe is supportive), and also the teams – what is their take on a Ferrari connection to F1 ownership (perhaps it just makes their implicit influence more explicit!), and is there a place for the teams as part of the consortia? – historically they have always avoided such commitments. Either way it looks like this has a way to go before it plays out, and throws another interesting variable into the Concorde Agreement discussions.

There have been some rumblings around the new engine regulations which are to be established for F1 from 2013 onwards. The proposal appears to be that a small (1.6 litre) four cylinder hybrid (ie with a KERS type system) replaces the current 2.4litre V8, this has provoked negative responses from a number of F1 luminaries, not least Mr E himself, who has claimed that the development costs will repel engine manufacturers from F1 and will also reduce the attractiveness of F1 as a TV spectacle and so TV companies will also pull out. The first part of his argument is based on sound logic, I remember Bernard Ferguson, the former Cosworth Commercial Director, saying to me that the biggest cost in F1 was obsolescence and so, as far as engine manufacturers were concerned, the fewer and less radical the rule changes the better. In an era where F1 is battling to reduce its cost base surely continuity of engine supply is one area where costs could be contained by sticking with the current format for a further five years, or for however long the next Concorde Agreement is going to be in force? The second part of Bernie’s argument is also persuasive, there is nothing quite like the sound of an F1 car, and if you put 22 of them together at the start of a race it is an incredible sensation akin to putting your head in the speaker of a PA stack at a Ramones concert (which a friend of mine did try for ninety seconds  – the typical length of a Ramones composition). The sound is amazing, although I have to say that my most enduring memory of F1 is going to Silverstone in the late seventies and hearing the flat 12 Ferrari before it became obsolete – that high-pitched scream sounded totally different to the Cosworth powered competition, today the cars sound incredible, but they all (to my untrained ear) sound pretty much the same. However for me the sound is very much part of the spectator experience (try being in a garage when they start an engine up and you forgot to put in your ear-plugs – not recommended), which is not something that has been at the heart of the F1 business model, in fact, apart from the corporate market, spectators haven’t really been anywhere in the F1 business model. So I’m not sure that the TV viewing experience would be that much poorer for different sounding engines.

But the real clincher for me was when I recently gave an F1 talk in Geneva and someone had said to me that his fourteen year old son was mad on cars and so he’d taken him to the Geneva Motor Show a couple of weeks before. I asked, what kind of cars is he interested in, Ferrari? Porsche? No, came the reply, he’s really into electric cars and doesn’t care about the make. The big danger is that current F1 merges seamlessly into historic F1 without us noticing. The internal combustion engine is on the way out and it doesn’t matter who you talk to in the automotive industry they all agree, we are moving into an area where the hybrid will transition us into electric cars and other low emission solutions. The iceberg waiting for the F1 Titanic is that it suddenly becomes very outdated and totally out of step with the new generation of fans that it needs to attract to remain viable, and of course without the fans you don’t have the TV and without TV you don’t have the sponsors. So my vote is for change, it will cost more in the short term, but it will cost far more in the medium/long term if we don’t do it.

I did a slot on BBC Radio Oxford this morning commenting on the Brawn GP accounts for 2009. My esteemed colleague Dr Ruth Bender glanced over them and her assessment was ‘wow!’: they look fantastic whichever way you look at them, sales up from £170 to £234 million, profit up from £1.3 to £98.7m and costs down from £166.5 to £102.9m, an accountants dream! Of course there is a subtext to all of this with the support from Honda and FOTA, but it is undoubtedly a story of the success that is possible in F1 if things go your way, and you get a reasonable amount of luck. Who would have predicted the Mercedes buyout when the management team decided to take the risk of running 2009 on their own and looking for a long term backer in the middle of a recession?

I then saw the Autosport post on the financial results of the 2010 Australian Grand Prix and they certainly make an interesting contrast: a $46million loss, double the cost of the race in 2006. Of course you can argue (and many due) that the true revenue stream is impossible to define: how can you measure the impact on tourism and corporate relationships that the event generates? There are consultancies who get generate mutlipliers for you suggesting the economic impact of such events, but the true answer is we don’t really know, so it often comes down to considering the different ways you can create global exposure for your country or region and then making a judgement. Certainly when you compare it with the Olympics and World Cup Soccer you can argue that F1 is excellent value for money. The danger is of course that only those with deep pockets and global ambitions will host grand prix as they see it as a long term investment. For those who are part of the history and heritage of F1 if they simply start incurring ongoing losses, it becomes more and more difficult to justify. Add to that the power of the environmental lobby and it looks less and less sustainable unless F1 can really get its act together with clean technologies.

There was a time when the circuits were the ones that made most of the money in F1, they got the revenues from the spectators and the trackside advertising, if it was a well known race they could even sell the media rights. They paid the teams ‘start money’ for turning up and also some prize money if they did well, but that was it. Then along came FOCA led by Mr Ecclestone who, by bringing the teams together and getting them to work as one, shifted the balance of power from the circuits to the teams, in many ways he could be described as the most successful (and richest) shop steward of all time. Now the commercial rights holder: Mr Ecclestone’s FOG, controls all track side advertising and media and requires a hefty fee from the circuit for the privilege of holding a Grand Prix. The main revenue stream for the circuit is therefore the spectators and given we even had empty spaces in the grandstand at Monza that becomes a hard battle to win. With a new Concorde Agreement brewing from 2013 and the three parties of FIA, FOG and FOTA lining up for some tough negotiations, it is interesting that the circuits themselves have no collective voice in deciding on the distribution of the spoils.

Are we on the verge of another FIA, FOG, FOTA war?

There is no doubt that the 2010 Formula 1 season has been one of the best in the history of the sport. Five drivers and three teams all vying for the world championship, fantastic races (with the exception of Bahrain), the results very hard to predict and a paucity of the kind of off-track politics and scandal that dogged 2008 & 2009. However, I am sorry to say that I doubt that 2011 will be to the same standard, and I’m not referring to the racing here, but things are beginning to simmer gently between FOTA, FIA and FOG and are likely to start boiling over in 2011. The history of F1 can be described as brief periods of calm punctuated by major disputes and upheaval and such periods of upheaval are normally characterised by power struggles and it looks like we might be entering another one in the run up to the 2013 Concorde Agreement.

We essentially have three protagonists involved, FOTA, led by Martin Whitmarsh who represent all twelve teams (and the number seems unlikely to exceed twelve in the build up to 2013), FIA led by Jean Todt who represents the regulatory body and who ultimately control the sport of Formula 1 and FOG led by Bernie Ecclestone who are the commercial rights holders for F1, on behalf of FIA. A sudden peace broke out between the parties in 2009 when the threat of a breakaway FOTA series was averted by all three reaching agreement to move forward together on the basis of a variety of conditions, one of which was that Max Mosley, then President of FIA, would step down and not seek re-election. But that was last year and now attention is focused on the commercial and technical arrangements that need to be agreed from 2013 onwards. Given that it would be better for all  involved to get agreement in place sooner rather than later, that doesn’t leave a lot of time, and it is likely that 2011 will be the year that most things get agreed, if they get agreed.

Martin Whitmarsh has made an interesting statement to autosport.com in which he says:

“I think to now rewrite [The Concorde Agreement] is possible and, if you cannot get agreement, you have to look at all your options. Arguably the teams do not need the FIA, and the FIA does not need the teams. Arguably the teams do not need the current commercial rights holder, and the commercial rights holder does not need the current teams. We can all go our own ways. The FIA can have its FIA championship; there can be a GP1 with CVC, and F1 can go off and do Grand Prix racing; and the teams are big enough and ugly enough to do that as well. But to do all that would be counter productive – we should try and find a way of working together.”

So the message is pretty clear (he’s probably had coaching from Rob Smedley on giving coded messages), if we don’t like your terms FIA and FOG, we can go off an do ‘Grand Prix’ racing, and we’re big enough to do it if we want to. Let battle commence (or rather continue).