The flow of money in F1

[kartracer41]

This has been brought up in more than one thread lately, so I figured it would make for some good discussion.

As it seems, everyone has to pay to play in F1. Manufacturers spend, teams spend, the tire supplier spends, the tracks spend, sponsors spend, spectators spend, TV channels spend... Who's making money?

There is more than one way for money to flow and most parties still be successful. Here is my opinion of ways it should be.

Payers:
Sponsors spend money or donate services or product to get an indirect profit.

Television networks should pay to televise a race, just as they do everything else they show. Money from commercials, other advertising, and subscription services (cable, dish, internet etc.) cover them.

The fans pay a fee at the gate and buy other products.

The management company should be paying others for their respective services. This company could be like a club (made up of the teams) or it's own money making entity. The management company would employ the workers and stewards.

Payees:
Teams (drivers, crew, suppliers etc) should be paid for the show they are putting on. The amount of pay should be related to their performance, but all teams should receive some of the winnings. It should be able to generate a profit for all teams involved.

Tire supplier(s) should either sell their tires to the team or the track, or be paid for their services at an agreed price. With their name plastered everywhere, they are obviously getting some advertising out of it, so a discounted price on their product or services would be fair. It should be weighed on the "value" of their sponsorship. If having your name plastered all over F1 has a worth of millions of dollars, then I guess that is fair, but they should still be paid for their services, not just paying to be a part of it.

A promoter should receive a small percentage of the revenue generated for it's service of promoting the sport.

Tracks should be paid to use their facility, either a small amount to guarantee some cash flow, while the track keeps all of the money from ticket sales, or a larger lump sum, while the management company receives the money from the ticket sales.

I would like to hear others opinions, and if anyone has any knowledge of how it works now (beyond, all money funneling in the direction of the FOM), please fill us in.

[kartracer41]

Nobody?

[Satorian]

Originally Posted by kartracer41

if anyone has any knowledge of how it works now (beyond, all money funneling in the direction of the FOM)

There's your reason.

[Armco Bender]

All money flows to Bernie.
He uses the original Ghengis Khan economic model or its later equivalents the Attila the Hun income flow projection model or the very similar Vlad the Impaler financial gratification upflow technique.

[MrTTraces]

All money flows to Bernie!

Thats basically it!

[old man]

Originally Posted by kartracer41

This has been brought up in more than one thread lately, so I figured it would make for some good discussion.

.............

I would like to hear others opinions, and if anyone has any knowledge of how it works now (beyond, all money funneling in the direction of the FOM), please fill us in.

The question will draw the cynical answers seen above and the real truth is that nobody really knows how it is all split but the truth is somewhere between what you say kartracer41 and the "all to Bernie cynics".

For example I am reliably told that even the new teams will get $10 million next year from Bernie's pot and the rest get precalculated amounts depending on points scored as we all know. This does create a sort of anomoly in that Brawn, as the Champion will get lots from the pot and will be popular with sponsors, success breads success. The other strange thing is that it said on some threads here that Ferrari have a "special deal" that gives them an extra $70 million to keep them in the game

Before Bernie all the power was with the circuits and organising clubs who paid start and prize money, the FIA or its predecesors had no money to speak of and what Bernie did was organise it and was allowed too much freedom to make himself and Max Mosely rich but in the process the money machine was created and lots of people have benefited. I include myself as race fan in that as I have many amazing races to look back on and a TV series every year that is always interesting as far as I am concerned.

It would be fascinating to know just how it is all divided up under the new Concord agreement but I doubt we will ever find out. Books have been written on the subject and perhaps there are those contributors who know more if the thread is taken seriously as I think you intended

[Cynic]

Before CVC, as I understand it the host circuit would a pay a fee to FOM to host the race, and the teams paid an entry fee (not sure if it was to FIA or FOM)

Proceeeds from broadcasting rights, trackside advertising and hospiltality packages went to FOM. All the circuit got was gate receipts and associated income (catering etc)

I have no idea what the tyre deal is / was - presumably a company pays a fee to be the 'official tyre of F1', but makes some of it back either through advertising or through charging the teams for tyres.

[old man]

I don't think the sale of the rights to CVC changed the way money was ditributed as they just became the principle owners of FOM and need a certain level of income to repay the banks from whom they borrowed the money to buy it from Bernie.

The bit we don't know is what percentage of the take is paid to the teams and this was the contentious point that led to the threats by the manufacturers to set up their own series as I recall. They said the share paid to the teams was too small so has this been improved in the new Concord agreement, I thought it was?

[JABWOA]

I believe it's now 50% to the teams (was something like 40% IIRC), a small fee to Bernie (multi millions but not that outrageous) for management services and the rest to CVC who need it to repay the loans they took out to get it in the first place. Pitpass has some articles on this in thier archives.

Intersting to note that for most businesses, approx 30-40% of thier operating costs are labour related and the F1 circus relies on a large contingent of volunteers to make the race meetings happen.

[csirl]

In comparison with other major high income sports, the percentage going to the participants is very low. Compare this with the % that most Champions League or NFL teams get. In my opinion, FOM are being paid way over the odds for there services. As the debt essentially belongs to FOM (what happened to the money they borrowed to get into debt???? and why was it borrowed, given F1s large income???). In professional sports, management fees of 5-10% would be the norm.

The other thing about FOM is that it dictates to the participants. The relationship is supposed to be the other way around. The participants generate the income that pays FOM, so FOM should be answerable to the participants.

Based on the figures that are speculated upon in the press, F1 income is around 800m per annum. If most of this were shared among the participants, then issues like lack of sponsorship, manufacturer support etc. would become secondary - all teams would have enough money to survive.

To make a suggestion, I would divide the 800m as follows:

10% management fees/overheads/admin (80m is a lot to set aside for these).
50% divided equally between all teams entered in the Championship.
30% prizemoney - to be divided pro-rata the number of points scored (split 50:50 between the team and driver).
10% other costs incurred by teams e.g. subsidised transport.

[old man]

Originally Posted by csirl

In comparison with other major high income sports, the percentage going to the participants is very low. Compare this with the % that most Champions League or NFL teams get. In my opinion, FOM are being paid way over the odds for there services. As the debt essentially belongs to FOM (what happened to the money they borrowed to get into debt???? and why was it borrowed, given F1s large income???). In professional sports, management fees of 5-10% would be the norm.

.

As I recall Bernie raised a massive sum on the strength of the income and then sold the whole deal to some German Bank(?). They then ran into trouble so Bernie bought it back and sold it, or a large % of it to CVC which is a venture capital outfit. They borrowed the money to pay Bernie so the money went to him. At some stage in all this there are reports that $300m went to Max I believe. I cannot vouch for the accuracy of all this but it is worth reading the Pittpass pieces mentioned above

[old man]

According to a piece on Pittpass Brawn/MBL at this time have only £9m in sponsorship confirmed for 2010 but this is boosted to £53m by their prize money for winning the title. We don't know how this is calculated (or if it is correct) but that would be £255,814 per point.
I was told 20 years ago by an ex Lotus guy that a point was worth $250,000 but cannot vouch for either figure

[duke_toaster]

I heard it was more complex than per point, with bonuses for pole, fastest lap, positions part way through the race and other stuff ...

If anything, I'd do away with prize money and share it all out equally to all the teams, to stop the slow teams at the back staying there.

[kartracer41]

This article shows an interesting point. F1 revenue dropped by $200mil this year, sponsorship is 8% less, while FOM got a 11% increase in race holding fees. Funny how that works.

http://f1.gpupdate.net/en/formula-1-...-200m-f1-drop/

[old man]

Not surprising that FOM income would increase in 2009 as the fees for races would be agreed either in long term contracts or earlier in 2008 when the downturn was not as apparent.

By contracting circuits the way he does Bernie ensures the FOM income in the same way as long term property rents are fixed in leases. As the slump reduces circuit income and the event is loss making so circuits will pull out of agreements and FOM will have more difficulty drawing the "rent" for the event, simple market forces.

However, given the show we are likely to see in 2010 with 4 world champions including MS in competitive cars and 4 new teams trying to make their mark the races will attract increased attention and TV fees and attendance should be higher. For the circuits income depends on the detail of their contract, for the teams it depends on the detail of the Concord but for the spectator I think 2010 is a mothwatering prospect which to me harks back to Senna, Prost, Mansell, Piquet days and so the financial health of F1 should be good and the money flow assured