November 30, 2023

News Collective

Complete New Zealand News World

How much money will Formula 1 teams lose if Andretti arrives?

How much money will Formula 1 teams lose if Andretti arrives?

Andretti’s candidacy to enter Formula 1 in 2025 remains one of the most controversial topics in the paddock at the moment.

On one side of the debate is International Automobile FederationWhich seeks to expand the starting grid to include more than the current ten teams, as it sees only positive aspects in the arrival of the Andretti-Cadillac project.

On the contrary, the teams oppose this initiative, as they consider that the formation of an eleventh team will not provide any tangible benefit.

In addition, they fear that sharing the prize money with another team would risk financial uncertainty for racing programs that just three years ago were on the brink during the COVID-19 pandemic.

At an intermediate point, but obviously closer to the equipment, there is FoamIt is clear that it will not offer a commercial agreement to Andretti unless its analysis shows that it will be beneficial for Formula 1 as a whole.

Although the current teams have no official say in the FOM committee’s final decision, their resistance is likely to be a major factor in influencing the F1 CEO’s final opinion. Stefano DomenicaliIn this regard.

In addition to Negativity towards AndrettiSome teams fear that adding an 11-team squad to the network could jeopardize their future.

Williams team manager James FowlesHe explained at the recent Qatar Grand Prix that teams like his are still on a knife-edge when it comes to financing, so losing out on prizes and value would not be a good thing.

“My responsibility is towards the 900 employees in my company,” he said. “If you consult the commercial registry, you can do it for Williams, which we have already filed, and you will see that we have losses. We have a lot of losses.”

“In fact, compare it from 201 to 2022, you will see that the losses increase by tens of millions. Compare it to 2023, which you will not see, but I guarantee you it is many times that.”

But could Andretti’s arrival and subsequent shake-up of commercial rights revenues have that much of an impact and make matters worse, especially if he first withdraws the $200 million mitigation fund?

Let’s look at the numbers to get a better idea of ​​what’s at stake.

See also  The controversy against Kokkinakis was overshadowed by Munnar's injury

Cash prizes for Formula 1 teams

The exact distribution of Formula 1 prize money is confidential, with its details set out in the commercial element of the two Concorde Agreements that govern the series.

However, based on information in the public domain – including published accounts of teams and Media freedomF1 Owner – It is possible to get a fairly rough idea of ​​how the commercial pot is distributed.

The best estimate is that under the terms of the Concord Pact, the teams’ prize pool consists of 50% of the gross profit from commercial rights generated by the sport.

But it is known that after a certain income point, the FOM participation rate increases, remaining more than half below this number. This means that teams do not always receive 50% of the funds directly.

In 2022, for example, when Formula 1 generated revenues of $2.57 billion, payments to teams amounted to $1.157 billion (€1.091 billion), equivalent to about 45% of total revenues.

However, these payments are not distributed equally among all teams.

Firstly, Ferrari still has a bonus for its historical significance, which is believed to be 5% of the total jackpot.

Teams that have been successful in the Constructors’ Championship in recent years can also opt for a small bonus (for winning one title) or a larger payout (for winning two or more titles).

There is also thought to be a separate pot based on bonuses for teams that have finished in the top three in the Constructors’ Championship in the last ten years.

This currently includes Mercedes, Red Bull, Williams, Ferrari and McLaren.

Esteban Ocon, Alpine A523, Daniel Ricciardo, Alfa Tauri AT04, Fernando Alonso, Aston Martin AMR23, Lance Stroll, Aston Martin AMR23, Zhou Guanyu, Alfa Romeo C43, start

It is estimated that all of these bonus payments represent approximately 25% of the total prize pool distributed to the teams.

Once these payments are made, the rest of the money is distributed between the teams according to a sliding scale, with the first team receiving 14% and the last 6%.

Formula 1 revenues are expected to rise by 8% to 10% annually, meaning payments to teams will range between $1.25 billion and $1.3 billion (€1.18 billion to €1.227 billion) in the coming years.

The economic impact of the current 11th Formula 1 team

If Andretti makes it to the grid, the effect will only affect the pool of money distributed after bonuses to the leading teams.

See also  Lance Stroll denies rumours: he will race in Japan

So, for simplicity’s sake, if we judge the final payout pot to be $1 billion with the bonuses discounted, this is how the payouts would change with the 11th team on the grid.

Based on a grid of 10 teams distributing $1,000 million, the payouts will be as follows depending on position in the Constructors’ Championship.

Prize money for 10 teams totaling $1 billion

position percent Prize money (in dollars)
the first 14% 136 million
the second 13.1% 124 million
the third 12.2% 115 million
the fourth 11.3% 107 million
Fifth 10.4% 98 million
VI 9.5% 90 million
Seventh 8.7% 82 million
VIII 7.8% 74 million
Ninth 6.9% 65 million
The tenth 6% 57 million

If the team reaches 11th, the numbers will change slightly, reducing the pot percentage for everyone. This means that those who get a larger share of the pie will be the ones who stand to lose the most.

Projection for 11 teams based on a $1,000 million distribution

position percent Prize money (in euros)
the first 13.3% 126 million
the second 12.5% 118 million
the third 11.6% 109.5 million
the fourth 10.8% 102 million
Fifth 9.9% 93.5 million
VI 9.1% 86 million
Seventh 8.3% 78 million
VIII 7.4% 70 million
Ninth 6.5% 61 million
The tenth 5.7% 54 million
eleventh 4.9% 46 million

Comparing the two tables, it is noted that Andretti’s arrival – if the prize pool does not increase – will cause a loss of $7 million to Red Bull Racing (6.6 million euros), the constructors’ champion.

The team in fifth place will lose approximately 5 million euros, while the team in tenth place will lose from 60 to 57 million, a decrease of three million dollars annually (2.8 million euros).

The loss of trading income for everyone is why the 2021-2025 Concorde charter included the famous $200 million dilution rate (i.e. what a new team must pay to enter), which was intended to cover any such loss in the award. Income over several years.

Cars of Lando Norris, McLaren, Polar Man Max Verstappen, Red Bull Racing RB19, Oscar Piastri, McLaren MCL 60, at Parc Ferme after qualifying

At the most basic level, distributed as a direct down payment of $20 million each, the relief fund will offset medium-term TV losses for some time.

And that’s before taking into account potential revenue increases, which could rise by 8% each year depending on FOM’s success.

See also  Jose Mourinho has resigned from the UEFA Council

Plus, financially, a $20 million down payment is worth more than spreading it out over several years.

This is especially true when talking about what is known as the discount rate, which accountants use to balance the value of income now against income that comes later.

Why do Formula 1 teams continue to oppose Andretti?

But while the teams’ annual losses don’t seem very large, what they don’t take into account is the bigger element of concern, which has to do with the impact Andretti’s arrival could have on the teams’ value.

With the current price of a Formula 1 team at around $1,000 million (about 944 million euros), Andretti entering Formula 1 for just 200 million could set a precedent in the devaluation of current teams.

It is not surprising, then, that there is talk of mitigation fees rising to $600 million or more in 2026, when the New Entente Agreement enters into force.

Mike Crack, Team Principal, Aston Martin Formula 1 Team, Zak Brown, CEO, McLaren Racing, Toto Wolff, Team Principal and CEO, Mercedes-AMG, Günter Steiner, Team Principal, Haas Formula 1 Team, at the Team Principals' press conference.

This may seem exaggerated in terms of the impact of the financial prizes. But for existing teams, it makes sense to lock in the value of those involved in Formula 1 at the moment.

As the president of the Red Bull team. Christian Hornerwas recently defended in Sky F1: “I think if you look at how Audi got into the sport, they acquired an existing team and an existing franchise, should it be different for others?”

“I think this is where Liberty and the FIA ​​have to come together and come to a collective position. Because you can’t have one rule for some and another for others.”

“Obviously money makes the world go round. That’s what every team is going to take into account, and the value of the franchise gets diluted. Suddenly you go from 10 to 11. So, of course, the parties involved, the shareholders of each individual team are going to have to worry about that.”

The key for Andretti is whether these concerns are enough to convince FOM not to give him the deal he wants…

You can also read: