F1s flawed financial model explained

Formula 1 has revealed its blueprint for major changes in 2021, but those well-intentioned plans could all fall flat if it fails to fix the way it distributes prize money among the teams. The current contracts between F1 and the teams were agreed with Bernie Ecclestone, at a time when he needed to do whatever it took to get long-term commitments from the main players. The result was a disproportionate amount of money being paid out to the most important teams, which has created an imbalance that now plays out on the track. This video explains how the current system works, and it’s pretty clear to see why it needs to change

Of all the changes coming to formula one for 2021 the most important one could be nothing to do with the cars at all for years f one’s financial model has been flawed in terms of how prize money is distributed amongst the teams this is a bigger cause of the split in competitiveness in the field what we so often refer to as class a and class b than any set of rules

That have been designed since certain teams started picking up a disproportionate amount of f one’s cash compared to their rivals while we wait for f ones chiefs to come up with a better system for 2021 onwards let’s take a look at how it works right now and why causes so many problems f1 reserves a certain percentage of its annual revenues for team payouts which

In recent years has been close to a billion u.s. dollars the first step of this process is simple each team that is finished in the top ten in the constructors championship for two of the past three seasons is entitled to what’s known as a column one payment this is an equal amount paid out to each team that is eligible with only ten teams on the grid at the moment

That means you receive this money just by competing in two of the previous three seasons the most recent team to have to wait for this money to kick in was hass which joined the grid in 2016 and did not receive a column one payment until it completed two seasons in f1 the american outfit then challenged the decision for racing point to receive this money after it

Acquired the assets of force india in 2018 as racing point was considered a new team rather than just a set of new owners for the same entity every other team on the grid agreed to racing point receiving this payment but hass had only agreed originally when it thought the new owners were taking over force india rather than buying its assets from setting up something

New the next stage of payments handed out follows sensible logic teams are paid based on their performance in the previous year’s championship with the constructors champions and the table get in the least battle sounds quite sensible doesn’t it and to look at our piles of money at this stage there’s not much you can argue with everyone gets a reasonable share

And those doing the best job are rewarded according but so far we’ve only distributed roughly 2/3 of the total pot and it’s how the remaining money is given out that causes the real problems first up mercedes ferrari red bull and mclaren all receive an additional payment known as a constructors championship bonus or ccb these were negotiated when bernie ecclestone

Was in the process of getting f ones biggest teams to commit to long term deals that would take them to the end of 2020 there’s a slight adjustment in these payments each year based on performance although at mercedes winning a championship every year and mclaren going through a barren spell only the red born ferrari payments have fluctuated recently but the extra

Deals don’t stop there and we’ll save the biggest one until the end red bull picks up another payment which was agreed with eccleston and as an acknowledgment of it being the first team to make a new long-term commitment to f1 earlier this decade mercedes wanted a piece of that action as well and it came to an arrangement that would enable it to unlock an extra

Payment of its own if it could win back-to-back world championships which it julie managed in 2014 and 15 and every year since at the other end of the grid williams picks up what is known as a heritage payment which at 10 million dollars is smaller than the other amounts being dished out but can make a difference meaning the team can receive more money than some of

Its rivals even when it is at the bottom of the pile competitively and now for the biggest individual payout of the law ferraris long-standing team payment which is bigger than the column to amount given to whoever wins two championship this controversial deal was made in recognition of ferraris history in f1 having competed in every year since the formation of the

World championship in 1950 but it also means ferrari regularly takes home the most cash from f1 close to a fifth of the total pop despite not having one championship for more than a decade the team of the smallest payout picks up roughly 25% of what ferrari receives compare that to footballs premier league which has twice as many teams where the bottom team collects

Roughly 60% of the amount paid out to the highest earner when you take a step back and look at how the money shakes out is it any wonder f1 fans have had to put up with a two-tier f1 in recent years or to put a more positive spin on it imagine how competitive f1 could be if the hard-working mid field teams got fair a share of the money let’s hope change really is coming for 2021 you

Transcribed from video
F1’s flawed financial model explained By Autosport