Why Liberty Media Should Change F1 Prize Money Distribution

Finally—finally!—some common sense in the world of Formula One finances.

Greg Maffei, chief executive of the series’ incoming new owner, Liberty Media, told Forbes‘ Christian Sylt last week that Liberty is considering making changes to the way F1’s $900-million prize fund is distributed among the teams.

With Mercedes winning the last three world championships and 51 of the 59 races in that span, much of the talk around the sport lately has been about closing the performance gap between teams. There have been engine freezes and engine thaws, ridiculously revised qualifying formats and double points fiascos, but none of the regulation changes have addressed the biggest issue in the sport: the financial disparity between teams.

The example cited in the Forbes‘ piece is Ferrari’s $100-million bonus, which the Italian team receives just for showing up at the races, but they are not the only team to plunder the prize-money chest before the performance-based payouts even begin.

While teams like McLaren, Williams and Red Bull collect millions whether they perform well or not, smaller teams like Sauber and Manor are often struggling to pay their employees on time with the scraps that fall from the big boys’ table.

A more equitable distribution of the prize money would allow the smaller teams to compete at a reasonable level (or at least avoid bankruptcy), while doing minimal damage to the teams currently collecting bonus payments. Ferrari, McLaren and Mercedes will still be able to draw more sponsors at higher rates (OK, maybe not McLaren) than their less-prestigious counterparts, plus many of the big teams have the backing of massive car (or drink) companies behind them—their F1 budgets are just another line under marketing in the annual financial report.

The National Football League (NFL) is renowned for its parity—something the league actively pursues and celebrates. Because all 32 teams split the league’s television, licensing and merchandising revenue equally, franchise values have skyrocketed. Some teams still enjoy certain advantages in location or prestige, but they all compete on a relatively equal financial playing field.

One other method the NFL uses to enforce parity is a salary cap. Teams can only spend a certain amount each year on player salaries (the specific number each year is linked with the league’s income).

F1 has toyed with the idea of a spending cap for years. When Lotus, HRT and Virgin (later Manor) entered the sport in 2010, it was with the promise of a £40-million cap on team expenditures. That promise was never fulfilled—and £40 million is a bit light, considering a $900-million prize fund could pay each team approximately $82 million (£65 million) if it was distributed equally.

Of course, no one is calling for a completely flat distribution of the prize money—teams still need to be rewarded for their success. They just shouldn’t be rewarded for success that occurred 50 years ago.

A budget cap somewhere in the $150- to $200-million (£120- to £ 160-million) range would still allow the big teams to spend more than their smaller rivals (which should quell some of their fears), but not five times as much, thus reducing the performance discrepancy between teams.

And, as an added bonus, imagine how team values would jump if owners and prospective buyers knew they were guaranteed a fair share of the prize money to go along with a spending cap. F1 teams could actually become profit centres, rather than bottomless money pits.

Ferrari and Red Bull and the other rich teams will whine, as usual, but the response from Liberty and the FIA should be, “Too bad.” Yes, the big teams will lose some of their revenue, but that change should result in a better (and therefore more popular) product, leading to increased revenues for the series as a whole and for individual teams.

(Image credit: Scuderia Ferrari via Twitter)


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