Wilde Consulting

As teams prepare for the final qualifying session of the season, what started as murmurs around teams requesting advances on 2015 prize money from Formula One Management (FOM) is heading towards a deafening crescendo with Manor Marussia, Sahara Force India, and  the Sauber F1 team reportedly making requesting support.

The distribution model under which teams are allocated and receive prize funds was established a number of years ago. The model has not changed. The distribution model splits prize fund payments to the team through the season following the season in which the funding was earned. Once a paying position is achieved (i.e. higher than 10^th place in the WCC) the team are assured payment for multiple seasons.  Payments are only made in season.

It is the payment structure teams appear to struggle with. Since requests have been lodged it should be assumed the teams in question have insufficient funding or credit rating in place to sustain team plans from December to March.  The Force India F1 Team found themselves in a similar situation in the lead up to the 2015 season, commenting that ‘close season’ is the most expensive period for a team and the only period when they as not getting paid through prize funds or commercial agreements.

Formula One Teams are companies in their own right; they are independent of Formula One. They are masters of their own destiny. They develop their own commercial agreements, agree to the terms of funding distribution models, and should be empowered to budget accordingly. Teams find themselves in a predicament of funding shortfalls in the ‘off season’ because they have made decisions to spend money they, in reality, did not have. A complaint Bernie Ecclestone has often publically voiced.

If a team is not capable of planning capital expenditure over a rolling 12 month period do they really deserve to represent the pinnacle of motorsport?

Perhaps it is cynical to view Formula One teams in this regard, to suggest they should operate as first and foremost as a business, perhaps it would diminish from the racing spirt, but would a more calculated approach to racing really be such a bad thing? To achieve a level of sustained security as to which teams are on the grid and what their position is within the sport may make investment a more attractive proposition.

Looking back to early part of 2015, the financial challenges faced by the Force India team were clear for all to see, the team failed to attend the majority of pre-season testing stating the car they would begin the season with was essentially the 2014 challenger updated to comply with 2015 safety regulations. This hybrid 2014/2015 car was the result of severe budget restrictions limiting payments to 3^rd party suppliers. Working to a limited budget the team used this car for the first 8 races of the year, developing the 2015 challenger once prize funding and sponsorship revenue came back to the team. Through these first 8 races, the team amassed 31 points, an average of 3.8 points per race. Once the team were able to introduce the 2015 challenger they achieved a further 89 points over 10 races, (average 8.9 per race) the culmination of these 2 vehicles have left  Force India with 120 points heading into Abu Dhabi, with 5^th place in the constructors championship assured.

But what if they had taken a different route? Had the team stuck with hybrid 2014/15 challenger for the entire season and for the sake of argument maintained their points scoring ratio of 3.8 per race they would be heading into Abu Dhabi with 70 points battling with Lotus and Toro Rosso for the 5^th they have already secured. Had the introduced the non-budget constrained 2015 challenger from Melbourne and assuming a the afore mentioned average of 8.9 points per race they could have been looking at a total point’s tally of 160 points, but still be in 5^th place with an outside chance of achieving 4^th against Red Bull Racing.

This simplistic maths ignores the variable points tally other teams would have been able to achieve had Force India’s performances differed from those actually seen, but the point is in both scenarios the possible outcomes in terms of constructor championship performance  do not differ greatly if at all.

The very fact that Force India are again requesting  early payment of prize funds ahead of the 2016 season suggests the team went the wrong way, the desire to race, to compete, overtook the business rationale, perhaps this is what racing is all about, but is it sustainable? Force India over achieved through apparently over spending and are now reliant on external influences to assure 2016 plans.  This is not a criticism of any specific team, rather an observation of the culture of racing.

Across business the way in which a Formula One Pit Crew services a car in under 3 seconds is often cited as the epitome of teamwork, individuals working together towards a common goal. These lessons in teamwork have changed the business world. Perhaps the world of business can give something back to Formula One, and teach teams that a budget is something you work within, not something you take to Bernie when the numbers turn red.