In the past several weeks, there have been discussions in the press about advanced payments on prize money to teams in an effort to assist them in staying afloat during the COVID-19 lockdown and the economic damage it has created via 10 postponed or canceled races and a compressed schedule with closed-door races.
Some of the impact is known but there are many elements that may not be known yet. Race promoters looking for reduced, eliminated fees or even revenue if no fans are present during races in 2020.
Teams trying to keep afloat with payroll, leases, and structured debt payments are seeking advanced payments via prize money. Cost caps for 2021 and much more all designed to reduce expenses and seek revenue to keep afloat in difficult times.
Much of the press I have read seems to suggest that F1 is working with teams, promoters, sponsors and more to keep everyone solvent and aligned. That is until I read an article today that left me questioning just how much F1 is or has been prepared to offer.
F1 boss Chase Carey said that the series isn’t handing out candy.
“Whether it’s the teams, or promoters or sponsors, we’re not going to be handing out candy to everybody,”
“We’re going to expect to be treated fairly, but we’re going to deal with it as adults, and with the expectation that 2021 is going to look like the business that we all knew four months ago.”
“I think in terms of the teams, 2020 for us and the teams, we’re not going to have the [financial] results we expected to have when we started the year.
“And I think everybody is doing what they can to shore up.
“Right now there are too many moving parts. There are so many ‘what ifs,’ I don’t think it’s constructive to address parts of it.
“I think we need to get far enough along in these plans to know where we’re at.
“We expect the teams to be taking the right initiatives to get them through it.”
When it comes to team revenue, much of that was gained through sponsors and investors in the past but a shift several years ago makes them mainly reliant on F1’s honey pot of prize money as their main revenue stream.
It has been that way for some time now and I’ve argued that it has made the search for sponsors and real marketing efforts on behalf of the teams a very lazy proposition. Not that it would help in these times but having multiple revenue streams is critical for any business.
What about those teams heavily reliant on F1’s prize money? Can they appeal to F1 to make advanced payments on future earnings to survive? Carey said:
“The prize fund is a contractual formula, so the prize fund is what it is.
“Realistically we couldn’t unilaterally change it if we choose. To expand on that, it’s a percentage of profits, and profits will be down, and the prize fund would be down.
“Would we do something to support certain teams? We’re not in the business of handouts, but that being said we’ll engage with all our partners and figure out how do we go forward in a way that makes sense for everybody.
“But the prize find itself is defined by a contract that is a percentage of EBITDA [earnings].
“I don’t think we really move to the next level until we really know what that is. Obviously we have a lot of moving parts, we haven’t settled the calendar, we don’t know how many races have fans.
“At this point we have a wide range of outcomes on the ultimate prize fund. I think when we have a better handle on that we’ll see where we are and see if it’s appropriate or right for us to do anything, whether it’s with a team or with any of our other partners.”
The article is based on a Wall Street call for investors and much of the commentary circles around the notion that F1 will sit down with stakeholders to discuss and this tells me that regardless of how much F1 has currently done to launch the season, there is still a tremendous amount of negotiating to be done and that’s on the back of a very fluid situation.
Again, I don’t envy the decisions Carey has to make but I do believe they are far from being out of the woods on the issue of solvent teams, healthy balance sheets and compromises that all stakeholders can survive with.
Hat Tip: Autosport