Formula 1 may be the premier racing series in the world with an enormous yearly turnover but this unprecedented crisis has exposed how financially vulnerable it really is.
The opening nine races of 2020 have either been postponed or cancelled and several teams have implemented cost-cutting measures to ensure their survival. While the world continues to grapple with the crisis there is no guarantee of when, or even if, the F1 season is likely to start.
As a consequence concerns have begun to mount over whether all teams will survive. Though big teams such as Ferrari and Mercedes can weather the storm it is those down the grid that are scrambling to ensure their survival. While there may be no racing the team still have significant overheads to manage.
As one of the only true independent teams left on the grid Williams is such a team. Deputy team principal Claire Williams has said that it is absolutely critical for Williams to race in 2020 in order to ensure their presence in Formula 1. “We don’t have the backing that the majority of our competitors have up and down the grid…going racing is absolutely critical this year,” Williams said. She stressed that F1 should only go racing however if it safe to do so. Williams have already secured a fifty million pound loan through a company owned by Michael Latifi, Nicholas Latifi’s father.
Liberty Media, the sport’s commercial rights holders, has given teams a shot in the arm by providing early payment of under the profit-sharing agreement. In 2019 Formula 1 pulled in 4.2 million fans, which emphasizes the sports dependence on getting some type of calendar together for 2020. Liberty Media is believed to working on several possibilities. While one of those possibilities is the cancellation of the season it will only be considered as a last resort. Other plans include back-to-back race weekends, a truncated calendar of ten races, racing at other venues such as Imola, and having multiple races at the same track.
This crisis has once again exposed the weaknesses in Formula 1’s financial model. While top teams, read Ferrari, receive guaranteed funds those further down the field depend heavily on a portion of the profits. For years, perhaps even decades, the disproportionality of funds in Formula 1 has had to big an impact on the final product. For too long teams with nearly unlimited budgets have held the advantage while others fight tooth and nail to ensure two cars make it to the grid.
Several teams, including McLaren, have called for the incoming budget cap to pushed down to 100 million dollars. Currently, the agreed upon cap sits at 175 million dollars. This suggestion has been met by outright refusal by Ferrari. The Maranello based team has gone as far as threatening to quit the sport should the budget cap be lowered. This isn’t a new tune from Ferrari who has threatened to walk away on several previous occasions. The reality is that the sport simply isn’t financially sustainable in its current guise. While the governing bodies could choose to appease Ferrari in order to keep the famous mark on the grid they could lose two or three teams from the grid. This, Ross Brawn has said, would be catastrophic for the sport.
The sporting world is wrestling with a significant crisis that everyone wishes never materialized. Nonetheless, it is a good opportunity for Formula 1 to overhaul their financial model and to ensure the future of the sport for once and for all.
