F1 negotiations regarding the commercial arrangements for 2021

Although the word is that we will soon have all the details of the new Formula 1 technical regulations for 2021, the negotiations regarding the commercial arrangements for 2021 and beyond do not seem to have been making much progress. Most of the F1 teams are happy to settle for what is on offer, but there are a number of problems that need to be resolved: Ferrari, Mercedes and Renault are all understood to have reservations about the deals on offer in the presentation made in Bahrain. The proposal was for a cost cap of $150 million from the start of 2021, giving all the teams "a glide path" of three years. 

This would not include the costs of the drivers, the marketing nor the highest paid employee, but would include specific rules in relation to capital expenditure, shared costs, bonuses, fair value and currency differences. There would be a restriction of what new entrants could spend and an independent verification process plus significant penalties to deter cheating and personal responsibility for directors, with consequences for individuals in addition to the teams. This all make sense. 

The revenue distribution would be based on the two column system used today with each of the 10 teams getting 10 percent Column 1 money, and a new percentage scale for Column 2 money of 18 - 16.2 - 14.4 - 12.6 - 10.8 - 9.2 - 7.4 - 5.6 - 3.8 - 2.0. Thus the top team would get 14 percent of all prize money and the least successful would get six percent. There would be a fixed annual payment of $40 million to Ferrari and annual payments of $10 million to each power unit manufacturer.

Ferrari and Mercedes are opposed to the cuts as they have the most to lose in comparison to the current system, which gave the bigger teams bonus payments for a number of fairly nebulous reasons, leaving the smaller operations without enough to compete. The impact of this is that the smaller teams have been struggling and dying out. It is fair to say that the big teams taking a bigger share played a significant role in the smaller teams that have failed in recent years. They do not like to hear that, but it is hard to avoid that conclusion.

 

The problem with Renault is different in that a commitment was made to Renault by the Formula One group when the French firm agreed to enter F1 for 10 years, back in 2015. The agreement included heritage payments of around $140 million, which are due to be paid between 2021 and 2025. Using this commitment, Renault borrowed money secured with its future revenues. This money still needs to be paid, or a settlement needs to be negotiated to get rid of the problem. Obviously, Renault is not keen to get less than promised. 

Talks have been taking place quietly but it is clear that if there are to be new players in F1 in 2021 (and even buyers for the existing teams in trouble), there must be a financial settlement sooner rather than later. It seems that Liberty Media has loaned Force India money (presumably by advancing prize money payments) to keep the team ticking over, but many other potential players are waiting because they don't know what the budget cap will be, and they need to know the length of the glide path.

Getting to these answers in a hurry may involve taking the bull by the horns and forcing the issue if Liberty Media is to avoid missing the boat on the much-needed new entrants and engine suppliers.

Source: JSBL