Start, Circuit de Catalunya, 2019

Why F1 teams are rolling out the red carpet for new rivals

2021 F1 season

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Since we revealed Panthera Asia Team’s plans to enter Formula 1 in 2021, the subject of how the sport can attract new teams has been widely debated. Clearly, the sport needs to attract new entrants as a form of insurance against the possible departure of existing teams, for whatever reasons.

Had Gene Haas not entered his team in 2016 the current grid would have been down to nine teams after the collapse of Manor. Only the intervention of Lawrence Stroll during Force India’s darkest days just over 12 months ago prevented the loss of another outfit. Without the largesse of these two billionaires the sport would now be down to eight teams and 16 cars.

Given Ferrari’s periodic threats to exit F1 unless, it is not inconceivable that grid numbers could drop to – or even below – 16 entries. That is not what Liberty Media needs after acquiring F1’s commercial rights just three years ago. That is not the legacy FIA president Jean Todt wants to leave when he steps down after his final term at the end of 2021.

So it would be logical to assume that Liberty would go on the offensive to woo fresh blood to the sport. But no: On Friday F1’s managing director for motorsport Ross Brawn told Sky: “What we have said to [potential entrants] is ‘Let’s get these rules introduced, let’s stabilise the situation. Let’s get everything working properly before we seek more teams.’”

Reasonable enough, but what if one or more teams walk before then, unhappy with the technical, sporting and commercial changes Liberty plans on making? The horse will have bolted from its open stable.

On the flip side, the teams should be expected to resist new rivals. After all, they stand to lose revenues should newcomers join the fray, for not only would competition for a place in the top ten heat up considerably, but the revenue pot would be divided between a greater number of teams, meaning less money for each.

But they too are not toeing the predicted line. During Friday’s FIA press conference four team principals conditionally welcomed new teams when asked by RaceFans.

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“Twelve teams, it’s a good number and you never know what’s going on with any other team,” said Toro Rosso boss Franz Tost. His opposite number at Renault, Cyril Abiteboul, said much the same, as did Haas team principal Guenther Steiner: “I think it would be a good thing to have more teams, as long as – as Cyril and Franz said – they are well-funded and high-profile.”

Franz Tost, Hockenheimring, 2019
Tost: 12 teams would be “a good number”
Otmar Szafnauer, CEO of Racing Point, formerly Force India, chimed in: “I think in future with the cost cap being introduced and implemented there might be room for 12 teams but we have to be careful about getting the money distribution to be a little bit more equitable so that you can have 12 sustainable teams.”

So how can we explain why both parties, the teams and Brawn, are adopting positions which seem contrary to their motivations? What might the teams know that has thus far been hidden from media scrutiny?

A clue lies in comments from Mercedes Motorsport CEO Toto Wolff on Sunday, who said he was “not surprised there is interest from potential investors [and] potential team owners.”

Asked what the arrival of new teams would mean for F1’s revenue distribution, Wolff said: “I think we are all aware that entering a Formula 1 team into the world championship is something that should happen on merit, needs to be credible, needs to be funded in the right way and needs to be agreed by all the stakeholders. Especially the ones that will be diluted.”

Who could be ‘diluted’, and by what? Clearly team income stands to be ‘diluted’, and they will be called upon to agree the process. So why should they agree, unless their revenues are ‘un-diluted’?

The answer lies in Liberty’s rumoured plans to introduce a franchise model, with each team having a franchise value as per America’s National Football League. New entrants would need to ‘buy in’ to a place on the grid. The figure being bandied about for this is $200 million.

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That would be over and above the cost of establishing a turn-key operation, reckoned to cost $100-$150m. Factor in the first two years’ budgets as well, given that new team would not qualify for full revenues during that period in the (likely) event that the current structure is retained. That puts the final price of entering the grid at $500m or so, just to get two cars onto the grid, with no guarantees of revenues.

Ross Brawn, Spa-Francorchamps, 2019
Brawn played down the possibility of expanding the grid
What happens to the $200m buy-in fee? Although opinions differ as to whether Liberty will cream a commission off the top, the bulk of the bucks would be shared equally between existing teams to compensate for their ‘dilution’. No wonder bosses grin broadly when asked about new teams, for they would score both ways: Either a slice of the ‘un-dilution fund’, or the value of individual operations increases massively at the stroke of a pen…

Is history repeating itself? At the turn of the century, then-F1 tsar Bernie Ecclestone introduced a requirement for new entrants to lodge a $48m bond, with sum to be returned to the team in 12 equal instalments during its first season. The result was only mega-rich Toyota joined during the period.

This in turn begs the question: How many new entrants does F1 actually hope to attract? Prior to his appointment as F1 managing director, Ross Brawn co-authored a 2016 book called Total Competition, in which he addressed the subject.

“What I think Formula 1 always has to achieve is to be accessible to the largest number of teams as possible,” Brawn wrote. “That’s what I feel is a big challenge and where Formula 1 fails.

“Wouldn’t it be great if we had 13 strong teams, with the franchise of a Formula 1 team being extremely valuable, and a queue of people who want to come into the sport because they can be profitable and successful?”

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17 comments on “Why F1 teams are rolling out the red carpet for new rivals”

  1. Given the budget needed to compete in F1 even with a spending cap, a one time fee of $200 million doesn’t seem out of bounds to me.

    At least, not if the described franchise model really takes off, as that means over time it will generate a reasonable return, which makes it an investment that might be financed by a solid consortium of interested parties. Not quite Eddie Jordan moving up the grid, but not something which I feel should stop a serious team with a 5 year plan. It remains to be seen what actually competing at the top would cost (which for an ambitious competitor would be the 5th year goal), but, that’s something F1 anyway feels pressure from within to address.

    For the other teams, if that means that they are perceived to be within a closer fought, more exciting championship, the value of the franchise goes up, while the actual challenge for the midfield doesn’t seem that much bigger: they have to bridge that gap to the front, which only a smoothly operating, well structured and organise team of racers can achieve. And the top teams should have experience and the best people, even if they can’t throw around money quite as easily anymore, so little reason to fear a new entrant initially, while for them too, the struggle is to remain at the front, and one extra team does little to change that.

  2. Guybrush Threepwood
    3rd September 2019, 10:36

    The $200m entry would be palatable if the operational costs were significantly capped…

  3. At the moment it’s basically fine… but it does feel very finely poised. Imagine if Red Bull withdrew. Or even Mercedes; would that lead to the demise of Williams, for example? An 8 team grid just isn’t appetising.

    There needs to be a constant stream of potential new teams queuing up. While I agree that more isn’t necessarily better (see 2010-2012 for details), there is a certain charm in backmarker teams that has run through the history of the sport; most famously Minardi. I’d welcome two or three new teams, particularly if they are able to follow the Haas model and get on the pace reasonably quickly.

  4. I was massively disappointed by Brawn’s comments on keep team numbers stable for now. I am a huge fan of his; he is a huge fan of the sport and very clever, so there must be good reasoning behind his comments. But I yearn for another 24 or 26 car grid.

    1. @shimks It makes sense really, there is no point signing up a new team for 2021 when there is about to be a big overhaul in the sporting/technical regulations along with the structure and governance of the sport. Otherwise F1 will probably end up in the same position as the last 3 teams to enter in 2010 ish, where they were promised one thing (cost cap etc.) which ended up not happening.

      All Brawn is saying is lets wait until the future structure of F1 is agreed and then look at increasing the number of competitors when they at least have some idea of what they are getting into.

    2. @shimks He has given valid reasons already. Let’s get settled in with the 2021 regs first and when that happens let’s take on some good strong potential entrants who will be sustainable entities in F1, not ones that will only ever struggle. Not sure what’s to be disappointed about.

      1. @robbie @asanator I’m just impatient to see the field size increase; that’s all. But it makes sense to keep things stable – as you guys say – unless one or two teams leave, as suggested in the article; that would not be good at all for the sport. But maybe Brawn has some behind-the-scenes guarantees from the likes of Mercedes. I see there are rumours flying around that they will have achieved all they wanted to and may leave at the end of next year.

  5. Get rid of the liberty parasites and then there is enough money for all the current teams and 5 new ones. These thieves who knowingly bought stolen property from a known crook (BE was on trial while they did their “due diligence”) have no right to “own” the commercial rights of F1.

    Eddie Jordan once said that Bernie was a genius for selling something(F1) 4 times that he never owned in the first place, Eddie was only half right, that is not genius, it is criminal genius. I don’t understand why the teams never got together and got rid of bernie and they would be foolish not to get rid of liberty by not signing an agreement with them for 2021.

  6. The answer lies in Liberty’s rumoured plans to introduce a franchise model, with each team having a franchise value as per America’s National Football League. New entrants would need to ‘buy in’ to a place on the grid. The figure being bandied about for this is $200 million.

    @coldfly – they stole your idea!!! :)

  7. Reading between the lines I see, “we don’t want anymore teams” and why would they? $200 million is a lot of money on top of what is required to get in. This franchise thing is ridiculous as well. If you look at the NFL or MLB you have franchises that are actually worth something because if someone wants to sell their team there will actually be there to buy it. Brawn knows this more than anybody since he bought Honda for a pound. These teams never sell for very much because nobody wants them.

    1. Your missing a detail: nfl teams are really cost caped with rigorous control, and make profit, because they can’t have a budget larger than what they get from tv (wich is the same for everyone). If f1 had a similar system of revenue sharing and cost control, those franchises will be worth billions of dollars, because it’s a guaranteed money maker with global reach in every market you can imagine. If there is one model they should implement in F1 surely it’s NFL one.

  8. Gene Haas is not a billionaire.

    1. His company produces revenues in excess of 1 billion dollars each year. It is private, so financials are hard to come by, but assuming it is an ok business, 1x revenue would be a reasonable valuation. The company is worth a billion or maybe even more to a buyer which makes Haas a billionaire. Being a billionaire does not mean people have a billion in cash. They could raise a billion by selling all of their assets. ´

  9. This line of thought probably reiterates a previous racefans article (because this is the only F1 site I read), unless the 2021 regs reduce the gap between the top teams and midfield and balance the reward payments, no new teams will appear, and I feel the top team bosses know that they will win this battle, resulting in no new teams appearing anyway. So they can say anything they want about more teams joining, its all fantasy.

  10. One thing I agreed with Bernie Ecclestone was his proposal to have only 8 teams much better funded (with bigger share of the revenues for each) and with 3 cars per team. THAT would be great!

    1. So when one team leaves or closes, then you lose 3 cars from the grid?
      You just need to look what happened with Mercedes in DTM to see the dangers in going that route.

  11. The new financial model should include income sharing for an 11th and 12th team by default from the outset, irrespective of whether they are there or not.
    Unpaid money should be put into a ring-fenced account to assist new teams become competitive faster, & it would put Liberty in the enviable position of being able to select teams most likely to succeed – from feeder series and other series. There are some great professional race teams that could add value to F1, like HWA, WRT, Carlin, ART, Penske, Rebellion, etc.
    Any funds in the account from periods with less than 12 teams, could also be used in emergencies to assist teams out of situations like Force India were in last year … but with guaranteed income for all teams, there should be a permanent waiting list pipeline of teams looking for one of the 12 available spots, so rescuing weaker teams might not even be necessary.

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