PER 2015
How did a sport get so rich? The growth of the sport to a multi-billion dollar industry can be attributed to Bernie Ecclestone and his F1 Empire. Ecclestone took over F1 in the late 1970s, a former team owner who set up the Formula One Group (FOG), which represents the teams’ interests. Ecclestone and his organisation’s roll are to manage and negotiate the TV deal on the teams’ behalf. Previously, a team would negotiate their own deal race-by race. Instead, now, the races are negotiated as a package, which is put together by the FOG. What the FOG negotiated was that 30% of TV revenue would go to the FIA (the people who run F1), 47% would go to teams and 23% would go to the FOG (essentially going to Ecclestone’s pocket). In exchange for this extraordinary power, the FOG gave prize money to the teams on a race-by-race basis. So, Ecclestone now ran the financials of F1 giving him more power in the sport than anyone else as he controlled the one thing that truly mattered: money. In 1997, Ecclestone floated shares in his Formula One Group. Currently, an investment company owns the FOA by the name of CVC Capital Partners who bought their shares in the sport in 2006. Formula One is incredibly lucrative for these investors. In the last two years, CVC Capital Partners have gained $2bn, an astonishing return on the $1bn investment they made in 2006. What about the teams? It is therefore clear why someone like Bernie Ecclestone, CVC Capital Partners or Lewis Hamilton would get involved in F1. But they are nothing without the teams. So, how do they make their money? For a team in F1 there are essentially two revenue streams: sponsorship and prize money. First, I will address that of prize money. Last year, F1 made £1.1bn, 63% of that went to the teams and the rest went to the commercial rights holders (Ecclestone and CVC Capital Partners). However, this 63% is heavily weighted towards the bigger, more influential and richer teams. £500m of the £1.1bn is split into two £250m pots. The first pot is split among the top ten teams of the previous season, the better you do, the more money you make. The second £250m goes to the top ten teams of the past three seasons combined. This encourages longevity in the sport. So, if you are a successful team who runs a competitive car year in year out you are rewarded. Then, there is a further £187.5m pot. This is titled the ‘Constructors’ Championship Bonus’. This is split between the three big teams in F1: Ferrari, Red Bull and McLaren. This is paid to them for just being there, attracting fans to the sport and encourages them to continue to run a car. This is done despite Ferrari lacking a competitive edge in recent years and McLaren dropping off following the 2013 season. £18.8m pounds is paid to Williams and the same paid to Mercedes. This is a fee they are paid to sit on the F1 strategy group, which come up with the rules and are deemed to be of historical significance due to their history with the sport. Only £6.25m is given to each team, which does not finish in the top ten. Just about the most surprising and perhaps, some may argue, undeserving payout is to Ferrari. They are paid £56.25m just for competing in the World Championships. They could run the worst car on
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