Crisis? What crisis? Says Bernie Ecclestone – Part 1

Back in 1979, then-Prime Minister James Callaghan left the UK, which was at the time impacted by rolling electrical blackouts due to power generation workers strikes, to attend the Commonwealth Prime Ministers conference in Mustique. TV viewers in the UK were treated to images of him and other dignitaries sitting under palm trees and mugging for the media while their power supplies cycled in and out.

When Callaghan returned by RAF plane to Northolt, a member of the media asked him whether it was a good idea of him to have traveled to Mustique in view of the crisis at home. “Crisis? What crisis?” was his reported response.The quote, as is the case of so many infamous quotes, was pulled out of a much longer series of responses. 

That response, reported countrywide, was probably a major contributor to his and the Labour Party’s resounding electoral defeat, and his replacement as Prime Minister later in 1979 by Margaret Thatcher.

I repeat that tale, not as a cautionary reminder, but as an illustration of how a few words can be pulled out of a longer statement and used for a long long time as a stick with which to beat a person or a governing body.

Today Bernie Ecclestone, the CEO of Formula 1 Management (FOM), is quoted thusly by the BBC:

“People say F1 is in crisis. Absolute nonsense. We’ve had a couple of teams in crisis.”

He pointed out that many F1 teams had failed over the years and criticised Marussia and Caterham for what he said was poor financial management.

“People come and go,” Ecclestone said, adding that team bosses needed to know “how much is coming in and how much is going out”.

So, according to Bernie, Formula 1 is not in crisis, just a couple of teams.

Hmmm. OK then. I guess we will need to overlook a few other salient points.

1. The signing by Sauber of no fewer than 7 drivers at various times in calendar 2014, culminating in their announcement of two new drivers for 2015 prior to the Brazilian Grand Prix, leading to two of their current contracted drivers (one race driver and one reserve driver) issuing statements that leave you in no doubt that they feel that they have been badly treated (possibly contractually). This article in Auto Motor Und Sport makes it clear that the underlying reason for all of the driver signings is Sauber’s desperate need for cash with which to make it to the end of the current season. (The article also reveals that Ferrari’s engine supply is secured via the use of the FOM money to Sauber as an escrow account from which Ferrari is paid directly, rather than Ferrari invoicing Sauber directly – a pretty good indication that Ferrari has a problem with Sauber’s ability to pay).

2. The rumours that Force India only received their fifth power unit component collections from Mercedes when they paid $6m of outstanding invoices from Mercedes by October 27th. Without that payment, they would have not had any race-worthy engines for the last 3 races of the season. (They could have participated in practice using older power units, but they would not have been able to race). The auditor reports on their 2013 accounts also revealed a massive loss of over $50m in 2013, and issued a warning about the “material uncertainty” that the company can continue to operate.

3. The failure of one of the most successful Formula 1 teams of the last 30 years, McLaren, to obtain a title sponsor since the departure of Vodafone at the end of 2013. While they may not need the money, since Vodafone left a year before the expiry of their contract, and would therefore have had to pay a penalty for early termination, it is jarring to see a “Grandee” team running with a mostly blank silver car, with a rotating collection of sponsors from race to race.

4. Worldwide viewing figures for Formula 1 are declining. Google “formula 1 worldwide viewing figures” and see what hits and websites you get. Nearly all of them talk about drops in viewing figures.

5. The publication of the distribution of Formula 1 revenues for 2013 that shows a large disparity between the amounts of money that top teams receive, and the amounts distributed to the bottom teams.

6. The almost total lack of transparency in the operation of Formula 1 from a financial perspective. Unlike most other forms of motorsport, where the amounts of money gained by competing are published, and all teams stand to win the same prize money amounts, Formula 1 is managed by a complex web of secret bilateral contracts between FOM and the teams, where officially no team knows what any other team is getting in terms of revenue and prize money. Ferrari apparently obtains over $200m just for showing up in 2014, while Marussia obtained a mere $10m.

7. The escalation of the cost of engine supply for a 2 car team from $10-12m in 2013 to at least $24m (and in some cases up to $30m) in 2014, due to the introduction of new V6 hybrid power units, replacing the frozen-specification normally aspirated V8 engines.

8. The utter failure of the sport’s governing body to understand the extent to which social media publicises leisure events. When people cannot even put up 1 minute clips of race highlights on Youtube without being hit by takedown notices, you know that you are dealing with a governing body that is clueless about the current media landscape.

9. The creation of the “double points for the last race” idea, voted into existence with seemingly no understanding for what it could do to the Drivers championship. Now that the leading team (Mercedes) has realized that the double points rule has the capability of destroying the credibility of the Drivers championship in a single race, they now think it is a bad idea. However, the sport appears to be stuck with the rule for this season.

This is only events in 2014. Think back to 2013.

1. We saw a supposedly well established F1 team (Lotus) lose its #1 driver Kimi Raikkonen to Ferrari because, if you believe the paddock rumours, by the time he stopped driving for the team, they still owed him all of his 2013 salary. Throughout 2013 we heard stories about how Lotus was going to be bought by a collection of investors, but after months of variations on “the money’s coming soon – honest”, no purchase occurred, and Lotus instead signed Pastor Maldonado for 2014 in order to be able to continue. Concurrently they lost their Technical Director and a number of other senior staff.

2. Sauber (again) spent most of the latter half of the 2013 season in crisis, with suppliers threatening to file court petitions which would have closed the team down

Bernie Ecclestone, smart guy that he is, is not about to be trapped into wringing his hands and shouting “the ship is sinking!”. He is going to continue to ra-ra and cheerlead, It is part of his job. However, those of us outsiders who have been following the progress of the sport over the last few years, it is difficult to not conclude that there is indeed a crisis developing. Maybe those of us not directly involved in the sport can see it better than he can.

 

 

 

 

 

 

 

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