One of the features of the new Concorde Agreement between the Formula 1 teams and Liberty Media is the enormous $200 million entry fee for any prospective new teams wishing to join the current ten that make up the grid.
It’s been dubbed an “anti-dilution payment” and first cropped up at the end of last year. The idea is that the $200 million is split between the existing teams as a form of compensation. What are they being compensated for? Firstly, for the inconvenience of having another pair of cars to compete against. And secondly, because they’ll have to share Liberty’s revenues with their new playmate.
On paper, it makes sense. Liberty passes a chunk of F1’s profits over to the teams each year. The exact percentage has been the crux of Concorde (dis) Agreements for decades. But fundamentally, each team gets a slice of the pie to help make ends meet, making the championship (somewhat) sustainable. If a new team joins the party, that’s more mouths to feed with smaller slices of pie. The profit payments are therefore diluted, hence existing teams want to extract an “anti-dilution payment” out of any new players.
Would Haas have joined Formula 1 in 2016 if there had been a $200 million entry fee?
Haven’t we been here before?
Indeed, we have been here before. In the late 1990s, Bernie Ecclestone slapped a hefty $48 million ‘bond’ on the conditions of entry that would have to be paid by any new team. This was ostensibly to bar entry to teams such as Andrea Moda, Life and other late 80s/early 90s no-hopers that characterised the pre-qualifying lottery of that period. In reality, the costs of F1 by the late 90s were already enough of a barrier. Respected outfits such as DAMS and Dome tried and failed to get onto the grid. Others such as Lola and Pacific managed to make it, but didn’t stay long.
Asking for millions of dollars upfront on top of already sky-high start-up costs was the perfect deterrent to keep Ecclestone’s exclusive members-only club the way he liked it. It served to prevent any genuine new entries except Toyota in 2002, and Honda’s short-lived Super Aguri satellite, up until the new teams of 2010. There were plenty of team buy-outs in that time, but the pattern was set and continues to the present-day. All three of the new teams in 2010 have gone, leaving Haas as the sole remaining new entrant to Formula 1 since Stewart Grand Prix in 1997.
Formula 1 is controlled by car manufacturers
Jaguar (owned by Ford) was a typical manufacturer team of the 2000s. Big budgets but little in the way of results…
Stewart itself was backed heavily by Ford from the start. After assuming full control in 2000 (through Jaguar) the Blue Oval eventually gave up and sold out to Red Bull at the end of 2004. It was a sign of things to come. As soon as the financial crisis of 2008 hit, F1 found itself in trouble. Honda, BMW and Toyota walked in quick succession, with Renault dropping back to only supplying engines.
It was very apparent that, unlike 20 years ago, 21st Century Formula 1 was in the control of the car manufacturers. Max Mosley, head of the FIA at the time, understood this and attempted to re-balance the sport with an influx of new privateer teams. But his ham-fisted attempt to force through a budget cap amidst the threat of rebellion from existing teams, saw it all come to nought. Except for the three woefully underfunded and underprepared outfits – Lotus, Virgin and Hispania.
Thankfully, there was still enough manufacturer interest at the time of the 2008 crash for F1 to stumble on. While the new teams of 2010 struggled in the background, Mercedes stepped up to full team ownership. Cosworth fell by the wayside as an engine supplier once it became apparent the new hybrid engine formula was far too expensive for it without a manufacturer partner. But the new engines were enough to tempt Honda back after they launched in 2014. And eventually Renault reclaimed ownership of its Enstone-based team too.
The state of play today
The withdrawal of Audi and Porsche from the World Endurance Championship decimated the LMP1 category.
Since the launch of the hybrid engines, F1 has found itself in a holding pattern. Four major car manufacturers either own teams or are supplying engines to them, and the loss of any one of them would be disastrous for the sport.
So what does this have to do with a $200 million entry fee? Liberty Media knows it has to keep the existing teams happy, and more importantly, afloat during these troubled, unpredictable times. But we know from history that car manufacturers have little sympathy for championship promoters. If the budget isn’t there or the image isn’t right, they’re off, without looking back. Take the World Sportscar/Endurance Championship, or World Rally Championship as examples. Both (particularly in the case of endurance racing) have seen massive boom and bust cycles. Periods of huge manufacturer involvement and great competition are interwoven with desperate scrabbles for respectable grid sizes and even survival.
A huge entry fee, reducing the likelihood of new entrants into Formula 1, only increases the vulnerability of the championship. What if a manufacturer (say, Mercedes) was forced to cut back due to a downturn in sales, or become embroiled in a scandal like Dieselgate? Worryingly for F1, the rumours won’t go away about Mercedes selling up. Ineos might pick up the tab for the team, but what about the engine supplies for the three other teams? That’s almost half the grid having the rug pulled from underneath them. Dieter Rencken wrote an excellent article on who holds the most power in F1 now that Bernie Ecclestone has left. No prizes for guessing who it might be.
Will the $200 million entry fee survive long-term?
Marussia (as Virgin) entered in 2010 under the promise of a budget cap, and no huge entry fee.
Liberty Media has made a significant investment to acquire Formula 1, so it’s understandable they want to protect that investment. The barrier of the entry fee turns each existing team into a much more valuable asset. Potential entrants could buy one instead of starting a new team. Comparisons have been drawn between Liberty’s plan for the teams becoming “franchises” with the similar concept in the NFL. Only, NFL teams don’t need to sink hundreds of millions of dollars each year on equipment alone to take part. The idea of an F1 team being sustainable and secure is mildly ludicrous. A quick glance at the list of defunct F1 teams tells all.
In conclusion then, having looked at history and how F1 finds itself at the mercy of four fickle boardrooms that could turn on the sport in an instant, why would Liberty deliberately throw into question the long-term sustainability of the sport by preventing new teams from entering? It appears to be incredibly short-sighted thinking from an organisation that says it’s building the sport into a sustainable future. If Liberty genuinely wants a reliable return on their investment to deliver to their shareholders, they’ll almost certainly need a steady stream of new entrants and suppliers eager to join in. And with a $200 million price tag on the door, there won’t be many interested parties ready to fill the gaps when one or more of the manufacturers walks away.
All photos in this article were taken by the author.
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