F1’s Dénouement: FOTA starts new series!!!

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After many months…actually years…of attempting to work with the FIA and the Commercial Rights holder of Formula 1, the manufacturers have finally decided to leave the Formula 1 series to start their own, competing series. It became clear Thursday evening at Renault’s Enstone headquarters that there is no was forward for the FOTA membership. While Max Mosely, FIA President did concede to some of FOTA’s requests earlier this week, he remained adamant that a budget cap was still the regulation for 2010.

It was inevitable that a move had to be made really. As the global economy has placed serious strains on every facet of business, it has impacted almost every revenue source in the Formula 1 World Championship model. Car manufacturers, sponsors, track owners, promoters, employees of all the above, fans, spectators, television networks etc. There is really no corner of the revenue machine in F1 that hasn’t had some impact. Bigger still is the impact that the FIA has had on the sport over the last ten years which have cost the series billions in expenses due to constantly changing regulations (the latest of which is KERS). The cost of the buyout of Bernie Ecclestone’s SLEC by CVC Capital was in the billion dollar bracket and the interest expense must be astronomical. Bernie too has his contracts and financial desires while facing a division of his assets through divorce, he has also left Europe for Asia where the sanctioning fees to host the F1 event has gone through the roof. The money made and retained by Bernie is obscene and in a day and age where buying a cup of Starbucks coffee is frowned upon as being decadent; surely demanding hundreds of dollars from fans to attend a race is equally insulting. Bernie’s fleecing of third-world and emerging markets has become embarrassing and his penchant for holding governments hostage over guarantees is legendary. He sought similar government backing from the US, Canada and the UK to no avail. Trusting that our lawmakers know better than to succumb to the electric glow of Bernie’s bling racing series. The bloated system finally, like the housing markets around the world, has become painfully aware of its over inflated valuation.

The machine, as Bernie and Max tell it, is over the top because of the teams…in particular, the engineers. The money spent by the teams has become the scapegoat for Max and Bernie because they say teams are engineering things that don’t matter to the spectacle of F1. Like wheel nuts, as Max pointed out. But that betrays the logic behind the business. When the stakes are as high as F1’s, the money spent to win the prize and dominate the series is large. The payoff even larger. They created the series, to Bernie’s credit, that grew to an untenable level. Most of that money going to Bernie’s bank account. The FIA living off the fat of the land.

Like the housing markets here in the US, F1 had become over-valued as an asset and the money pouring in to the series dropped dramatically. When that revenue stream dropped, changes had to be made. Max and Bernie like to say they are saving F1 from itself now that the teams have got it all screwed up by over spending but it’s not quote that simple. The over-valued industry has to have serious changes. The CVC, who purchased the commercial rights of F1 from Bernie Ecclestone, have a very large payment to make and interest on that note as well. Recall that when CVC Capital bought the stake in F1, there was some serious wranglings with a new company set up called Alpha Prema that Ecclestone was also a part of. The details were very convoluted but the CVC move and subsequent bond issue was an attempt to foil the GPMA (the predecessor to FOTA) from breaking away. Sound familiar? Floating a bond that hedges all the future profits of the sport is only good if you have all the teams locked in for 10 years at best, 5 years at worst. This is exactly what CVC Partners was attempting to do; get an early pay day for their investment in F1. Bambino Holdings, FOA, FOH, FOM, CVC, SLEC, Kirch and others…Could this have been a bigger, more tangled web of greed and convoluted business dealings? Is it any wonder, with off-shore accounts and businesses taking the cash out of the series that the teams started to have serious misgivings about the veracity of the sports owners? Max also had to have a long-term deal signed before getting his 2008 regulations set and without that in place, he ran the risk of upsetting the teams, via goofy regulations, and seeing them leave. CVC, Bernie and Max have all been playing the teams, fans, track owners and networks for every dollar they can get an FOTA have finally called them on it.

Now it seems their worst nightmare may be coming true. FOTA are leaving. What will all those future revenues actually be worth now? Will the new teams all remain in their applied-for status or will they jump ship? I think of the burgeoning Team USF1; will Ken and Peter go with the FIA or jump ship? Will Max initiate his “reserve list” of new team applications to fill the grid and if so; who will watch the series which at this point contains: Williams F1, Force India, Manor, Campos and USF1? Will the new teams, passed over on the initial entry announcement on June 12th feel scorned and join the new series?

FOTA said:

Silverstone, 18 June 2009 – Since the formation of FOTA last September the teams have worked together and sought to engage the FIA and commercial rights holder, to develop and improve the sport.

Unprecedented worldwide financial turmoil has inevitably placed great challenges before the F1 community. FOTA is proud that it has achieved the most substantial measures to reduce costs in the history of our sport.

In particular the manufacturer teams have provided assistance to the independent teams, a number of which would probably not be in the sport today without the FOTA initiatives. The FOTA teams have further agreed upon a substantial voluntary cost reduction that provides a sustainable model for the future.

Following these efforts all the teams have confirmed to the FIA and the commercial rights holder that they are willing to commit until the end of 2012.

The FIA and the commercial rights holder have campaigned to divide FOTA.

The wishes of the majority of the teams are ignored. Furthermore, tens of millions of dollars have been withheld from many teams by the commercial rights holder, going back as far as 2006. Despite this and the uncompromising environment, FOTA has genuinely sought compromise.

It has become clear however, that the teams cannot continue to compromise on the fundamental values of the sport and have declined to alter their original conditional entries to the 2010 World Championship.

These teams therefore have no alternative other than to commence the preparation for a new Championship which reflects the values of its participants and partners. This series will have transparent governance, one set of regulations, encourage more entrants and listen to the wishes of the fans, including offering lower prices for spectators worldwide, partners and other important stakeholders.

The major drivers, stars, brands, sponsors, promoters and companies historically associated with the highest level of motorsport will all feature in this new series.

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