Bernie should should... Set his and MaXXX's salary at $1 euro/year for the next 2 years. Slash FOM's buget to the bone... Distribute all FOM revenue to the teams...
It was his wife and daughters. I love this pic. Maxxx would take the $1, he likes pain. Image Unavailable, Please Login
I was thinking about this the other day, and quite frankly I think Bernie has painted himself into a corner. All this talk of cost cutting so that new teams can come into the sport seems quite contrived and unnecessary. If there are multiple teams who would otherwise be competing in F1, the question is - why aren't they competing now? Well, there is of course the cost of development, but that is really a matter of ROI, not of cost. It doesn't matter if you spend $500mm a year, if you get $550mm back out. The problem is only if you put $500mm in and only get $100mm back out... meaning it costs $400mm a year to race. Thats a big number. There is also the cost of entry. The FIA requires a massive bond to prove the team is liquid. But this doesn't go too far towards making that happen, does it? You have Super Aguri bailing out because of funding. Then you have Arrows dropping out mid-season for same. You have Minardi and Spyker and lots of other teams bailing out for funding reasons too. They ought to eliminate the bond. The FIA has enough control without having to use this hurdle to prove liquidity, especially since it doesn't. The marketing benefit will be what it will be. A top team will always be able to command $X for sponsorship because it's based on the ROI for the avertiser. So if Ferrari spends $100mm to compete in 2010 instead of $300mm, are they going to cut their bill to Marlboro? I doubt it.... presuming the eyeballs are still there, then Marlboro still gets whatever benefit they feel they are getting, so there isn't much grounds to reduce their bill. And that's great for a team like Ferrari who have plenty of sponsor money, but what about a team like Williams who don't? Or, even more so, what about a team like STR or Force India? They don't win, so they can't really command the level of sponsorship $$ that Ferrari can. So with costs reduced, it means Ferrari may make $100mm a year on their F1 operation instead of breaking even, but it still means the small guys are losing money and struggling to survive. Making competition closer will be helpful towards the small guys getting their sponsorship income up, but it will likely happen at the expense of teams like Ferrari. If Force India can spend $50mm a year and compete with Ferrari spending $200mm a year, that makes it awfully hard for Ferrari to justify F1. Especially so if they suffer the imposed (not their own fault) embarassment of Ferraris getting beaten by garage-operations like Force India. Bernie and Max have to walk a very very fine line here. Right now spending in F1 is big companies who want to win, and small (comparatively) players who are just having fun (Williams, Force India, Red Bull, etc). If Max closes the gap too much, then he largely kills the argument for the big guys to be there. But there is a whole other segment that goes largely unnoticed... the TV money. While Force India can't command Ferrari prices for sponsorship, they *do* still put on the show in many ways as much as Ferrari does. It's the aggregate result of 20 cars showing up to the grid each week that gives Bernie a TV show to sell. And Bernie keeps the vast majority of that money, and the teams see precious little of it. Bernie should have divided that money up much more evenly and given the teams much more than they get. If the teams had a big wad of TV money coming in, then they would not have to rely solely on sponsorship money to get their income, and teams that otherwise are not participants in F1 would likely want to get involved. I would dearly love to see 20 teams competing for a 30-car grid. Bernie could provide $50mm a year for the top 20 teams and then maybe another $200mm divided amongst the top 10 teams progressively. That way, even a schelp bottomfeeder team could have a chance to run with the big boys. Now, those numbers may not work (that's $1.2b in money paid out to the teams), but reduce them by whatever amount is necessary to make the numbers work. Certainly there is enough $$ in F1 to let a MUCH larger chunk be paid back to the teams. Problem is, Bernie can't do that because he's already sold F1. F1 took in gigantic debt in order to cash out much of what Bernie had. They have interest payments that are gargantuan. Despite all the $$ coming in, F1 itself makes precious little, if anything. So it's not possible for Bernie to give $$ back to the teams, because he doesn't have it to give. He personally got his $$ and F1 is footing the bill. So the only place they can reduce costs now is to slash the team budgets and continue to let them fend for themselves to get sponsorship $$. That's great, but likely unsustainable. There will be drastically less sponsor money flying around, and there will be significantly decreased wealth of the rich billionaires who dabble in F1 for fun. I think Ferrari, Williams, and McLaren are commited to F1. All the rest (and I mean ALL the rest) will come and go as it suits them. Bernie can't increase their payout of TV money because he doesn't have it, and Max wants to cut budgets and make the competition closer so Force India can have a shot at podiums. They must be very careful to manage this or it will all blow up in their faces. We shall see.
The bond is repaid over the course of the team's first season. FIA put it in place to keep every tom, dick and harry from showing up and clogging the grid with rolling garbage disguised as F1 cars. Absence of that bond would have done nothing to keep Aguri, Minardi and Spyker from going Tango Uniform. Really, if you can't afford the bond, then you've got 0 reasons to be in F1.
I think the 'glory days' of F1 where lots of teams showed up to give it a shot were not such a bad thing. Now, obviously those days won't happen again.... but since having the bond clearly did not prevent teams going TU, and the absense of the bond would not have prevented it either, then why have it? The FIA already has control over who does and does not get into F1, so why set the financial hurdle in place to begin with? It makes it more attractive for new teams to wait at the sidelines and grab an ailing team rather than jump in for themselves. IIRC the bond is around $45mm? (could be wrong on that)... but with talking about $5mm a year for a driveline, then $~40mm is a HUGE amount for a privateer team to come up with. I just don't see that it serves a purpose, and I don't think it keeps "riff raff" out of F1 either, to be honest. It's just an unnecessary hurdle.
What it does is create a franchise. Existing, but insolvent, teams can, in effect, sell their entry rights. Otherwise a defunct team would have little or no value.
And don't come back no more no more! Bernie needs to visit this guy (aka Jack Kevorkian, MD). All will be well. Image Unavailable, Please Login
Since when did it make sense to take B&M at their word? F1 is at heart a club. Newbies are welcomed only after initiation is paid.
Good post. What are some of the details with this? I remember all the financial battles over who owns what part of the sport, but I kind of lost track with how it all settled.
You mean she DIDN'T need more of ze punishment?!?!? Wait, I got it - *this* is the punishment. Max is a sadist, I forgot - it all makes sense now
Forget about glory days. There were lots of complaints then, just as now. The problem with F1 is not in the bond, but in the amount of money needed to be competitive. Pick a price point from the lowest to the highest on the grid, find funding for your team, and that's where you will be, forever. If your team has $50M in funding, you've just bought a team that can never, ever be competitive. Add $200M to that original sum and you can make a team that is kind of sort of competitive, but only if luck is there. Toss in another $50M and you can be Renault for 2 years because your team got the new rules right and the others didn't. There are few teams that can turn $400M+ into results. And one team that can turn $400M+ into no results. The bond is not a road block to entry in F1. The $400M a year is the roadblock, and that's what the FIA is trying to address with cost cutting. But the FIA is dain bramaged...cut costs here and there yet levy huge sums of money on developing competing, non parallel KERS development (just to name one). Toss in weird tire rules, frankly childish engine rules and scatter-brained qualy rules and it's clear that no real adult is running the show. Save costs by working with the teams in developing 5-10-15 year plans and working from that. Not the knee-jerk band-aid fixes that don't fix anything.
It's an interesting story - here's some links if you are into long reading http://www.independent.co.uk/news/business/news/f1-debt-is-3bn-but-returns-are-so-good-hedge-funds-want-in-460297.html http://www.crash.net/motorsport/f1/news/171688-0/f1_debt_to_scare_teams_back_to_table.html Here's a brief history lesson for those that don't know. In the 70's, Bernie was a team owner (before that he was a used car salesman!). He banded together with the other team owners to form the FOCA (Formula One Constructors Association). Bernie took on the role within FOCA of negotiating with the FIA over TV rights... the teams felt they were not getting their fair share. Another team owner who was part of the FOCA was Max Mosley. During Bernie's time at Brabham, he became the president of FOCA, and a few years later he sold his F1 team for a nice profit. Over the next several years, Bernie negotiated with the FIA (run by Balestre at the time), with his legal adviser, Max Mosley by his side. Bernie managed to negotiate the rights (for himself) to promote Formula 1 and for this purpose he established his company called FOPA (Formula One Promotions Administration). During these negotiations, there was a famous big blowout where it looked like no deal would be struck, but in the end Bernie was able to negotiate a deal whereby the teams got 47% of F1 revenues divided up amongst them, the FIA got 30% and FOPA (Bernies company) for 27%. There was a lot of tumultuousness in the 90's... Mosley had become president of FISA's Manufacturer Association and after he said Balestre had improperly intervented to prevent Senna from being DQ'ed from a race after a collision with Prost, Mosley started a campaign to remove Balestre. Mosley won the election and supposedly it was going to be a amicable resolution with Balestre standing down to become president of the FIA senate, a new group Mosley would organize, but pretty quickly Balestre was out, and Mosley was the #1 guy in the FIA. And concidentally, Bernie was now negotiating TV rights with his old business partner and old friend, Max Mosley. In 1997, the Concorde Agreement was signed, which radically changed how monies were divided in Formula 1. Quite frankly, Bernie got a smoking deal with the Concorde Agreement. There was a LOT of anger amongst the F1 constructors that Bernie, who was supposed to be negotiating on their behalf, had worked a deal where HE became the guy with the TV rights. IIRC McLaren and Williams never signed it. 2-3 years later, F1 is gaining in popularity, and Bernie has this big asset worth a lot of $$$. In 2000, Bernie struck a deal with a private equity firm named Morgan Grenfell to buy 12.5% of SLEC (which was his company that owned the TV rights). They had an option to take their share to 50%, which they declined, so Bernie then approached another investment firm named Hellman & Friedman and sold them the 37.5% stake, reportedly for $720 million. So now, Bernie is sitting on a pile of cash. A big pile. 2 months later, a German media group called EM.TV bought out Hellman&Friedman and Morgan Grenfell ... they bought all of their shares for 1.3 billion GBP (which was close to $2 billion). EM.TV ran into financial trouble, and a bank called Kirch Group paid around $700m for half of EM.TV's share of F1 (so it was EM.TV @ 25%, Kirch @ 25%, Bernie @ 50%). EM.TV went in the tank, and there was legal wrangling as EM.TV tried to prevent Kirch's F1 share being siezed and sold by creditors. Then, Kirch went toes up, and the banks that were creditors to Kirch ended up taking over their share in F1 - those were Lehman, Bayerische Landesbank and JP Morgan. Fast forward to 2006, those banks want to cash out their investment, and a group called CVC Capital Partners comes along who wants to buy F1. They take a $2.9 billion loan from RBS bank and Lehman and they buy out the banks, and they also buy a big chunk of Bernies share - so now Bernie is a minority shareholder, but he is still the CEO of SLEC which has all the rights, so he's still in control of F1. In the meantime, the Concorde agreement was up in 2007 or so. Bernie set about renegotiating it. Bear in mind the billions that Bernie selling shares in his company SLEC for... well, he was able to negotiate the full rights to commercial aspects of Formula 1 for a one-time payment of around $300m... and the term was 100 YEARS! So Bernie negotiated with Max to buy commercial rights to F1 for 100 years, for only about $3m a year. Almost criminal! Andreas knows the story better than me (it was posted from BusinessF1 before), but essentially there was a back-door payment of $300m that went from Bernie right to Max. Then, Max appointed a committee with full authority to negotiate the contract. They gave the rights away for $3mm a year, and despite the outrage, Max said "hey, it wasn't me negotiating - it was those guys - its not my fault". In the meantime, those F1 rights are now with major $$$... and Bernie sold them for all they were worth. CVC had taken on a LOT of debt to pay for it's share of F1, and they were on the hook to pay back hundreds of millions in interest alone on their loans. They took $2.95 billion more in loans and used it to refinance their original debt. Today, Formula 1 has around $5 billion in debt, and is paying around $450 million a year in interest alone. This has the teams quite angry, because Formula1 (aka CVC) is also the one that pays their % of the TV money. And they get a very small percentage indeed. Total revenues in Formula 1 for CVC (which includes the fees paid for TV rights, the fees the tracks pay, etc) amount to around $1 billion a year. But last year they had a net LOSS of around $500 million. It's tough to make money when you are doing $1 billion in sales and are losing $500 million on that. And here are the teams like Honda who have NO sponsorship at all... they pay all of their F1 costs from their own pocket with the only payback being whatever they get back in TV money. I am not sure how much the teams get back, but it's certainly not what most of us would call fair. If F1 does $1 billion in sales, and the teams get back $250m in aggregate total, it's pretty lop sided considering they are the ones who spend their own $$ to build the cars and to travel to all of these events. Bernie just negotiates with the tracks to get them to agree to hold a race and he collects 75% of all the money for doing that. Bernie also holds on to the $$ from all the track side advertising (that $$ doesn't go to the track but rather to Bernie). That's a big part of why the teams formed the GPMA (I think that's what it was called). They were going to run their own championship where they would keep all the money. Bernie offered Ferrari around $250 million if they would agree to leave the GPMA - Bernie did this believing if he could get Ferrari on board, it would crush the GPMA's chances - and in the end it worked. Ferrari were also able to order their surrogates Red Bull to do the same, and IIRC Minardi was not far behind. Those left in the GPMA had little choice but to come back. An interesting tidbit is that when the three banks were negotiating to sell their shares of F1, the teams (Renault, McLaren, BMW, Mercedes, Ferrari, etc) were talking about getting together to buy Formula1 from the banks. Bernie didn't really want this and the teams weren't willing to pay his super-high asking price - likely because a big part of what the teams wanted was more of the $$ to go back to them instead of to Bernie. They knew what the numbers looked like and what a fair price for F1 was. Well, CVC paid WAAAAAAAY more than market value for F1, IMO. They paid at least double or triple what it was worth. And in my opinion, F1 is in serious trouble because of it. CVC is losing $500mm a year just to keep F1 going. That was through November 2008. It's probably going to be MUCH worse in 2009. And now Honda has dropped out. STR is for sale. Renault is talking about giving up making engines. It's potentially very bad. And if CVC defaults on their payments, then the owners of F1 would be RBS and Lehman... but Lehman is gone... so whoever got Lehmans assets and RBS would be the shareholders in F1. I am not sure what deal Bernie has, but it likely keeps him in control. But he's older than dirt, and when he is gone, who will be in control? Much of F1 is in his wifes name - and she is divorcing him. She probably doesn't know or care too much about the details and certainly doesn't have the skill and acumen to run F1, so if she bails on her ownership and once Bernie is gone (which is likely within several years I'd say - he's 78yrs old now!). The future of F1 will be very interesting. Sorry to post a book here - took me a while to research all that too
Bernie turned an almost bankrupt racing series into a multi-billion dollar enterprise with worldwide viewership worldwide second only to soccer...I think he's done pretty well without the advice of a bunch of people chatting with strangers about cars on a computer...
Thanks for the info, Mike. So the bottom line is, it's a mess. If the series goes belly up, can I assume that would clear the table for teams to re-organize and start anew? It seems as if they could do much better to recapture a lot of that revenue and follow cost-cutting measures.
regarding BE, its not my opinion at all. When Bernie took over the business and TV rights side of F1 in the late 70s, F1 was on the verge of bankruptcy with TV viewership almost non-existent. Since then it has became the premier motorsport it is today. And he has gotten very rich as result as well. That sounds to me like a great success story of a man to be admired.
You make a valid point, but lets see him get F1 back on track now. There are no pockets in shroud's, so lets see if he can pull it through the crunch time, instead of giving it all his wife!!
It would be worthy of admiration if Bernie hadn't stabbed so many folks in the back and participated in so many unethical deals along the way. If you feel that achieving financial success while acting unethically and imorally is OK, then Bernie is a great man to be admired. If you feel that fair dealing is essential to real success, then Bernie isn't a great man to be admired. Apparently his wife doesn't think he's all that great either, since she's leaving him.
It would be a mess. The problem is that CVC (aka Bernie) has the TV rights to Formula 1 for 100 years. So if F1 went belly up, those rights would still be transferred to... well, whoever. If all the teams got together and wanted to make a new series, what would complicate it is that the FIA sanctions the races and without that it could be hard. So for example lets say the GPMA had gone through and it includes all the current F1 teams. So the GMPA contacts all the nice tracks we would like to see a race at... Indy, Monza, Suzuka, Spa, N-Ring, etc. Well, if the FIA doesn't want to be cut out, they can just refuse to sanction the races. No big deal right? Well, it would be... because the FIA could (and would) pull FIA sanctioning for all races at that track... meaning WRC/Rally as well. The FIA is the authority for a whole lot of racing series', so if you own the Monza track, you would be giving up a HUGE amount of business if you tell the FIA to shove it and hold a GMPA race instead. For some tracks, it wouldn't matter - like Malaysia, Bahrain - all the new tracks really only have one race anyway. Then again, those tracks are under contract with Bernie and maybe can't have a race. So it would be relatively easy for the teams to bail on F1, but it may be a lot harder for this new series to become THE series, if they can't get the legitimacy of having all the good races. If the commercial side of F1 tanked, the teams' agreeement with Bernie would still stand and become owned by someone else... so unless the FIA agreed to sanction a new series, it may not be feasible. Imagine if McLaren, Williams, BMW, Renault and Toyota all went to a new series that was just like F1, but Ferrari, Red Bull, Force India and others stayed in F1. the F1 races are all the current ones on the calendar, and a bunch of no-name GP2 teams get moved up into F1. Then there is the breakaway series with all the big teams, and they are racing at Indy, Montreal, etc, but they may not be able to get into many other places. They could be locked out of whole countries if Max was on Bernies side - Max could pull sanctioning for any race in a whole country if they were going to grant races to the GPMA. Could be a big mess. But it's unsustainable now and new rules that lower the costs for the teams aren't going to help CVC to squeeze more money from the sport. Bernie sold it as it's peak, and the debt that CVC took on represents that peak. I think it's downhill from here for quite a while, and if a few countries who were paying $50mm for a race decide to back out, Bernie is going to have a REALLY hard time filling those slots. We shall see!
