Will Gray

Gray Matter: Life gets tougher for small teams

Will Gray

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It's always been tough for F1's backmarker teams to survive but this week it just got tougher – so how will confirmation that the 11th team will get no prize money affect the sport’s future?

F1 racing is an expensive business, with the smallest teams' budgets still over £50 million per season and the biggest over £300m, but it is also a lucrative one, generating a turnover of just under a billion.

The way the sport’s profit is distributed is complex, with the owners taking a return and the rest of the pot traditionally split amongst the teams through the highly secret Concorde Agreement, which governs the sport's commercial rights.

As part of this, since 2010 the three new teams that came into the sport have received a guaranteed annual income of £6.5m, wherever they came in the championship order.

The most recent version of the Concorde Agreement expired in December last year, and it appears that commitment expired with it.

A new Concorde is under discussion, but in the interim, chief rights negotiator Bernie Ecclestone has agreed individual deals with each team for varying portions of what is believed to be a 63 per cent share.

Caterham have an interim deal, having finished in the top 10 last year, but Marussia confirmed they have not been offered such a deal - so they currently stand not to get any share of the profits.

The team have shaken it off as a minor issue – but it will surely make a significant dent in the team’s budgets.

Despite the £6.5m 'newcomer' payment for each of the last three seasons, all three teams had to be run on a shoestring as they tried to build a base from which to grow.

By the end of last season none of them had come anywhere close to genuinely threatening any of the established teams on a regular basis and over the winter their commercial challenge became clear when HRT folded and Marussia and Caterham considered a possible merger (although they ultimately decided to continue going alone).

Before this season, McLaren boss and Formula One Teams Association chairman Martin Whitmarsh revealed it is not just the new teams who are struggling – claiming that seven of the 11 teams are currently operating "in survival mode".

So, at a time when the global recession is still being heavily felt in the world of advertising and marketing, is it really wise to cut those crucial payments to the bottom teams?

It’s not long since a healthy grid of manufacturer teams slowly disintegrated as one by one they disappeared.

The manufacturer involvement has always blown how and cold, but when they disappear it is the privateer outfits that are always there to keep F1 racing on.

But the global recession has made it very difficult for teams to gather in the budget to race, let alone compete.

HRT is the classic case, failing to find sponsorship as they tried to market themselves as s Spanish team at a time when Spain as a nation was just revealing major financial trouble.

Red Bull have made it work, but they are heavily funded as a marketing activity by their owners and perhaps there will come a time when the sport’s audience no longer resonates with their commercial vision – at which point why would they want to continue?

Their marketing budget bankrolls (to a certain extent) four of the cars (through Red Bull and Toro Rosso) and that would be a significant loss to F1. As too would Mercedes GP, who are beholden to their bosses in the car industry and will also surely reach a time when halt is called.

This is, of course, all a highly political move as the chess pieces are moved around amidst finalisation of the next Concorde Agreement.

In December last year, when HRT dropped out, Ecclestone openly admitted to Reuters that he would "rather have 10 [teams]".

It has been suggested that the reason behind this is the sport's plans for flotation, with Ecclestone hinting that 10 teams would be simpler for the sport’s commercial controllers.

But cutting the lifeline for the 11th team is a dangerous game to play – because the barriers to entry in F1, both in terms of restricted places and high-cost base infrastructure, make it so difficult and costly to go racing that it has a very closed door set-up.

As such, it’s hard to find teams to fill any gaps.

And while Ecclestone may be happy to lose one, with Whitmarsh’s admissions over the state of some of the others, perhaps the sport should try harder to hold on to the teams it has got.

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