F1’s new regulatory structure: Is it a killer?

Here is a guest article from rpaco – a TJ13 reader.

In the last few years the rules have curtailed much of the primary development in F1, if you want to see innovation at it’s most spectacular and you are starting to look now, you were born too late, it happened and it was revolutionary in all sorts of exciting ways and then it was banned. Now what we have left is “aero effects” and electricity, oh and the new power units in 2014. There is some room for development there but if anyone makes a leap forward in design it will be banned. As the rules get tighter each year so innovation is stifled.

Thus the new “xyz” with 6 wheels, double chassis, or active suspension or ground effect or abs or anti dive will not be providing the interest and excitement for fans. We are now looking at innovation bringing a lap time advantage that cannot be measured with an analogue stopwatch any more, you need a digital one and a digital finger (a digital digit!)

So unless reasonable development of the new engines and ERS is (KERS and HERS) allowed, we cannot rely upon the technology to hook the mass audience, the devotees yes, but are there enough of them? Or does it matter?

The setup now is that the circuits and the tv companies pay FOM each year for the right to stage a race and put it on tv in some form or other. Bernie has tied up those deals for the next 8 years (I think, it may be 7 for some and much longer for others) so FOM is guaranteed that income. This was the package to be offered in the partial float last year, a viable guaranteed income for a given period. Just exactly what was to be floated was never revealed, whether it was Delta Topco or Delta Prefco or both or another new non voting holding instrument. But all that was postponed due to the poor state of the market.

We know that tv audiences have fallen In the UK with the BBC coverage cut by 50%, but the whole series now being on Sky. In 2013 the same move to Sky happens in Italy, land of the Tiffosi, I predict a strong reaction when it hits home there.The paltry Sky viewing figures can surely not be attractive to advertisers. 

The ruinous cost of entry and grandstands at the circuits, a necessity to help towards the gigantic FOM fees, is putting off a lot of the low to middle income fans who would love to go but simply cannot afford it. With F1 moving to countries further away, even the hardcore fans must have second thoughts about the cost.

Eventually the total audience will be permanently reduced. Will sponsors, who are themselves, tightening their belts, see any benefit in chucking vast amounts of promotional money at a reducing and ever more distant sport? A sport which is about to be brought into disrepute in the German courts and whose very ownership is about to be questioned. It could be a slow death, with sponsors gradually realising that their message is reaching a shrinking target. Unless something is done I would offer a guess at 5 years before teams have to withdraw for lack of sponsorship. 

Then there is the new F1 Strategy Group formed of 6 team representatives, 6 from the FIA and 6 from FOM. This, one could speculate, is the “Number of the Beast” (excepting QI fans, who know it is 616 and AE Van Vogt fans who know it is way different)

This new group which replaces both the technical and sporting working groups will decide, well, “everything” including the rules. not only that, but only a straight majority is required, looks like Ferrari have lost their rules veto.

The worrying thing about this is that as far as the rules are concerned it virtually gives Bernie a free hand, he needs only to persuade 4 FIA people and the teams are scuppered. We all know how good Bernie is at persuading people.  He has already said there will be no “electric only in the pit lane”  which was of course contrary to what was written in 5.19 of the 2014 technical regs. Until they were updated, now both “pit lane electric only” and “driver engine starting” have been removed in the 11/12/12 version!

So he has already brought about a rule change in the first meeting of the F1SG. This is stifling an interesting feature of the new era before it has been born.

The F1SG is very dangerous for F1 and for the teams in particular. It fundamentally changes the balance of power in Bernie’s favour, (which he no doubt sold as 3 way equality) and could it be contrary to one of the conditions imposed by the EU commission?

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17 responses to “F1’s new regulatory structure: Is it a killer?

  1. I think this is the 64,000 Dollar Question. (add noughts to taste) So why has no-one broached the subject?

    The subject has been buried, and I sensed a actual shift during last year, of all ttraditional journalists shying away from any central questioning of FOM etc soon after the abortive float.

    Rpaco, myself and a couple others were correctly adamant the float would never happen, despite even some high profile authors backtracking to allow possibilities to seep into their prose, which had earlier been more sceptical, and allow that miracles might be worked, when it got hairy. Various publications drifted lock – sync, no blame pinned on anyone, it just was a trend that made me think twice as to anyone’s independence..

    • I think you’ll find TJ13 has been tracking down since launching mid-September theses dealings for some time.

      Including the Singapore sovereign fund deal and the hiving off to North American Teachers and Pensioners – not reported in any other F1 media – a sale of 9% of FOM’s shares.

      Some 40-45% of FOM has been ‘placed’ with various funds during 2012.

      • Does the float put more money in the teams pocket? If it doesn’t it’s largely irrelevant.

        • What is relevant – is in the deal brokered by Max Mosely, then il presidente of the FIA, that only a proportion of the share of rights may be sold on.

          • As we can’t turn back the clock and undo what was clearly a bad deal for the teams, some anyway, the only thing that interests me is an equatable distribution of the teams percentage of revenue. Unless the teams collectively decide to buy all the shares and run that part of the commercial side of F1 there is nothing they can do.

      • Indeed, agreed you’ve been on the case. I wasn’t about these parts back then, mea culpa!

    • “were correctly adamant the float would never happen,”

      Whether the float occurs or not what impact does it have on F1? The answer is almost nothing. The teams may extract a few percentage points more in their cut from total revenue but other than that the overall effect is almost nil. Ecclestone may have some influence on the technology side but that domain belongs to the FIA. He didn’t get his way with the turbo engines.

      • Well I never argued I think it would make any difference to the sport directly, but if you look at my comments, I went from a kind of “doubt it” stance to “nope, not happening” with rather good timing. The whole discussion then was that a different idea was necessary for any float to benefit anybody.

        Now I look at it this way, at the time anyone paying medium term notes might have been much more concerted about a up rate environment, and it was roughly con-incidental with these events that “Queternity” became established, being eternal “quantitative easing” and so all the straight interest rate risk that might make one swap for equity subsided, at the same time anyone buying equity could be guaranteed their basic NPV calculations ensured by Zero Interest Rate Policy (ZIRP) so there were general economic factors as well as specifics to rely on and strengthen my call.

      • P.S. to Cavallino, I don’t like to reassert my past calls because it’s too easy to retrofit arguments to make oneself look more prescient. One has to look back at the flow of thought to see if anything turned out really how I predicted. E,G, Coca Cola becoming involved i simply thought couldn’t be ruled out, so I just ran with the non committal idea of that as a possibility. The Lotus trademark case was more complicated, because I was evaluating at least two sides to the argument, but I don’t think I was off on that either, but then I’m better informed as to the law and moreover practise of law that applied.

        I think I called a few other things plain wrong, but one is a sort of bet with myself, and I expect I shall owe someone a really good bottle of wine or their fancy when the time limit expires. So my batting average is about okay, just nothing I am trying to boast about, even if I confess to being rather pleased how close I got, from my very distant observation post. Rpaco is not alone in teasing me as to when I will explain what my job really is, but working out how companies behave is a large part of what I do, and I indulge in a lot of what might be called “character study”. At least I try to do my homework, and out in the open here, it’s for others’ to score, not me. Sometimes I even benefit myself from my cogitations. Picking up Williams GP Holding shares when they were being slagged off by what I suspect is very Bernie – sympathetic outlets, might have been a fluke, but I thought the argument made sense at the time. (In no way do I say one way or the other now if they’re a good punt, I’m not a adviser nor professional nor would I talk if I were). So swings and roundabouts. I missed many a obvious trend when younger, the whole internet boom of the 90’s, even when I was not far removed from it. So I can fill a book with my bad calls that would hurt anyone who listened to me at the time, as they did myself. Anyhow, not ready to make any new predictions, but might have a good think in a quiet place with a view and a nice malt whiskey and try some on in the near future. Sometimes it is not predictive ability, just being more sensitive to how the wind blows.

        = =End Of Disclaimer ! = =

  2. “In the last few years the rules have curtailed much of the primary development in F1”

    The current rules were designed to introduce stability into a sport that only 4 or 5 years ago had many teams spending $300 – $500m a year and Honda and Toyota spending close to $600m. None of that was sustainable.
    Had they not been introduced we’d probably be down to half a dozen teams. I’d like to know what technology you’d like to see and how it would make F1 better and how it would draw into the sport more fans.

    • I would like to see active suspension back, but with a minimum plank clearance height above track of say 50mm.

      ABS, electric regen braking as part of 4WD KERS (as per the budget cap proposed rules)
      Make KERS unlimited both in power transfer and in storage capacity, allow helium conductor cooling and/or super-conductors.

      I would reduce the total vertically projected area allowed for both front and rear wings by around 50% (multi wing elements counted twice or more as appropriate) End-plates to be flat and vertical.
      Allow smart surfaces.
      Allow front variable flaps as part of braking.
      In other words I would reduce aero downforce effect but allow mechanical grip devices to flourish.

      Exhaust to have the current last straight 100mm exposed protruding and above the body. (best of luck if you can coander with that)

      But I am sure we could argue about what is best until the cows come home, and all to no avail!

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