Page last updated at 14:29 GMT, Friday, 19 June 2009 15:29 UK

Why F1 future may spin out of control

By Theo Leggett
Business reporter, BBC News

Lewis Hamilton
Lewis Hamilton's McLaren team is among those that may break away

On the eve of the British Grand Prix, one of the oldest and best loved events on its calendar, the glamorous world of Formula One motor racing is in turmoil.

Eight of the 10 teams, including Ferrari and the Brawn GP team of championship leader Jenson Button, have announced plans to set up a rival championship.

Yet Formula One is as popular as it is ever been, attracting a huge television audience. So what has gone wrong?

Well, fundamentally, it is about business, not sport.

The catalyst has certainly been the global economic downturn with the Honda team's decision to leave Formula One last year sending shivers through the series.

It pulled out because its sales had fallen dramatically and it could no longer justify spending hundreds of millions of dollars a year on racing.

Bernie Ecclestone
The threat is a potentially expensive headache for Bernie Ecclestone

That prompted fears other carmakers could follow - leaving millions of television viewers watching just a handful of cars.

Revenue row

Motor racing's governing body, the FIA, responded with a package of proposals to cut costs dramatically. It included plans to limit F1 budgets to $60m (£36.6m).

This went down badly with teams who until recently were spending close to $500m a season. They also objected to plans to limit their technical freedom.

But while the row over how far costs need to be cut and how to do it may have triggered off the dispute, it is emphatically not the main issue.

Both parties will be weakened if this happens and someone else will gain
Chris Aylett
Motorsports Industry Association

The real argument, which has been simmering for years, is about how the sport is run and what happens to its commercial revenues.

While the teams compete in F1, and the governing body makes the rules, the commercial side is looked after by the Formula One Group.

These companies are run by Bernie Ecclestone and are majority owned by private equity group CVC Capital Partners.

The group makes close to $1bn a year from television rights, trackside advertising, and the large fees it charges racetracks for the right to host Grands Prix.

But only half of this money comes back into the sport as payments to the teams; the rest goes into the coffers of the F1 Group.

According to the independent F1 financial guide Formula Money, much of it is used to repay debts run up by CVC when it bought its stake in F1.

Mark Webber
Will the drivers be celebrating a breakaway group?

The teams are privately questioning why they are being asked to cut costs so dramatically when a great deal of revenue is going out of the sport.

They are also concerned at the way in which they say the FIA is trying to impose its will on them and ignoring their wishes.

Fan split

The FIA insists it has to act tough to prevent F1 turning into a "financial arms race".

So does their threat to create a new series hold water?

Yes it does, according to Chris Aylett, chief executive of the Motorsports Industry Association.

"These are companies of high repute. Some of them are large multinational organisations. And this is a pretty big card to play."

This is bad news for the debt holders. In fact it doesn't get any worse

Christian Sylt
Formula Money

If the teams do carry out their threat, viewers would be left to choose between two rival series - something that could prove highly damaging.

A similar situation arose in American Indycar racing - a close cousin of Formula One - which split in two in the mid 1990s.

The result was that neither series proved truly successful - as fans voted with their remote controls, and migrated to other sports.

"Both parties will be weakened if this happens," says Chris Aylett, "and someone else will gain."


Christian Sylt of Formula Money says it's a prospect which terrifies key investors in F1 - the banks who hold the Formula One Group's debt.

Jenson Button
Jenson Button is streaks ahead in the drivers championship.

"This is bad news for the debt holders. In fact it doesn't get any worse," he says.

So those influential investors could yet have a role to play.

In the weird, wonderful and highly political world of Formula One, of course, things can change very quickly.

It is far from certain that F1 will split. But insiders say the prospect is becoming alarmingly real.

A distraction, to say the least, as the teams gear up for the British Grand Prix.

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