Formula One Teams to Set Up Rival Championship

Posted by: Mark Scott on June 19

What has happened to the normally genteel world of Formula One? The world’s most popular motorsport, with annual revenues of almost $4 billion and marquee Grand Prix in über-luxury hotspots like Monaco, is careening towards trouble. On June 18, some of the largest names in the business, including Ferrari, McLaren, and Renault, announced plans to set up a rival championship. Their gripe? That Formula One’s governing body has placed too many restrictions on how they go about their business.

Like so many things in life, the stand-off revolves around money. With the global recession in full swing, the Federation Internationale de l’Automobile (FIA), which regulates the sport, wants to set a $65 million annual spending cap on teams. The logic goes that if you stick to the $65 million limit, the FIA will give you more leeway to tinker with your car. If you exceed the cap, then you have to stick to a more stringent set of technical rules. With Formula One’s heavy-hitters easily forking out $300 million each year on their cars, you can see why some aren’t best pleased.

So why are teams griping about not being allowed to spend mega money?

You would think that Formula One would be falling over itself to save cash. Its major sponsors -- financial services companies and automakers -- are slashing funding. The new rules also would allow more people to join the motor sport. Already, three new teams, including one from the U.S., have signed up for next year's championship.

The answer gets complicated. For one, the largest teams who can still afford multi-million annual budgets don't want the FIA to clip their wings. If everyone cuts their budget, so the theory goes, then teams like Ferrari and McLaren -- which incidentally aren't doing too well this season -- could face more competition from the up-and-comers.

But the broader reason behind the June 18 announcement could have to do with who runs the sport -- and how Formula One revenue is divided between the teams and Bernie Ecclestone who owns the sport's commercial rights. In a telling line from their press release, the teams complain that "tens of millions of dollars have been withheld from many teams by the commercial rights holder, going back as far as 2006." By setting up a rival championship, teams could get hold of more of the total revenue.

A lot of this may be posturing. Many still believe the FIA, Ecclestone, and the teams will reach an agreement before next season. Complicating matters, Ferrari, Red Bull Racing, and Scuderia Toro Rosso all have contracts that commit them to the existing Formula One championship. Getting out of those deals could prove extremely costly.

More details are expected before Britain's Silverstone Grand Prix on June 21. No matter the outcome, the squabbling has somewhat tarnished Formula One's reputation as the world's most glamorous motorsport.