On the surface, running an F1 team is a dream job. You actually get paid to build and maintain two of the fastest cars in the world. You are encouraged to innovate, push the limits of the current technology and build a team to compete with like-minded professionals. Also, you get to travel the world, showcasing your cars and running them on some of the prettiest locations.
By now, you must know that this ain’t the full picture. Building and running an F1 team is an expensive job. It’s a constant battle to keep the incomings above the outgoings to ensure the team survives to compete another year. It might sound counter-intuitive, but winning the F1 world championship might not even be enough for survival.
Most F1 teams earn a majority of their earnings thanks to a Concorde agreement, which was re-signed in 2020 for a period of 5 years. This agreement now ensures that the 10 F1 teams currently competing will continue to do so till 2025. This is because the teams have agreed to the financial payouts structured as a part of the Concorde agreement. This article will focus heavily on the Concorde agreement and how it incentivizes teams to stay and compete in Formula 1.
The Concorde agreement is a contract which fixes the terms and financial structure of the prize money and TV revenues shared among the teams. It is signed between the Federation Internationale de l’Automobile (FIA), Formula One group and the teams. This agreement also specifies the bonuses paid to certain F1 teams as royalty for competing in F1. In total, there have been 8 separate Concorde agreements signed, since 1981.
One key aspect of the Concorde agreement was a guarantee provided by the teams to participate in each and every Formula 1 race scheduled. This made F1 more reliable commercially, thus helping Formula One group sell the broadcasting rights at a premium and sharing the revenue with the teams. It also ensures employees at these teams are provided with some job security as well.
The latest Concorde agreement, which comes into effect from the 2021 season, runs for a period of five years, till 2025. This is also the first agreement completed by the F1’s new owners, Liberty Media. Some of the key points from this agreement are:
- Major overhaul in the technical specifications of the car from 2022.
- Introduction of a new budget cap to reduce the impact of financial disparity between teams.
- Ensuring fairer distribution of money between team to reduce the humungous gap in financial windfall received by teams like Ferrari, Mercedes and teams like Haas, Racing Point.
- A new $200M buy-in has been introduced for entities looking to compete in F1. This entry fee will be distributed amongst the teams currently on the grid.
- Unanimity has been scrapped for 80% acceptance of any ideas, regulations or changes proposed.
- No team principal can move into F1 roles immediately after their stint with a team. This was introduced into the agreement after Toto Wolff was linked with the top job at F1.
The technical overhaul was set to be introduced in 2021, when the new Concorde agreement began its tenure. But due to Covid-19, this has now been pushed to 2022. According to the new rules, cars will produce more downforce from under the vehicle, which will lead to less dirty air. Reduction in dirty air is conducive to close car racing and overtaking. The dimensions of some parts of the car are also set to change, with Pirelli advised to test 18-inch tyres with reduced sensitivity to heat.
A budget cap has also been introduced to bring more parity on the grid. This budget cap will come into effect from 2021, with teams not allowed to spend more than $145M throughout the year. This figure is set to become $140M in 2022, finally settling down to $135M in 2023. The long term impact of this could push team profits into the green by enforcing financial discipline. This budget cap does not include driver salaries, marketing expenses and the salaries of the top three executives.
Thus, the latest Concorde agreement is a key step taken by Liberty Media and the teams to ensure a sustainable future for Formula 1. The value of teams will increase while a strict financial ceiling will bring in much needed regulation. The new car will also bring the field closer, ensuring a more competitive and entertaining product for the viewers.