Formula 1 must change “unsustainable” business model

Marussia, the second team in just four days to announce that they have entered into administration prompts fresh questions as to why F1 are operating such an unsustainable business model.

With both Caterham and Marussia missing the American Grand Prix it leaves around a fifth of the grid in administration.

Dr Paola Aversa, from London’s Cass Business School said: “Formula 1 is not only a sport and an entertainment circus, but an industry which provides cutting-edge technology to a variety of other sectors, as well employing thousands of people around the world (with a major concentration in UK).

“In every industry, successful companies stay in the market, and less successful ones disappear. However, if we consider that in F1 on average one company goes under every year (which corresponds to around 8% of firms, given such a small population of teams) and that even the successful firms struggle to break-even, we must wonder whether the business model of this industry is actually sustainable.

In sports which undergo high budget spending, business models are in place which allow even small teams both remain in the competition and to compete at the top level. These solutions are not only fair, but also enhance the entertainment value of the sport and its visibility, and thus enlarge the returns from media broadcasting and advertising.

“In other words, we should ask whether the distribution of wealth is proportionate to a point that allows all the players — both administrators and teams — to get a fair share of the pie and thus achieve a reasonable turnover.

“For years the regulatory body and the teams’ representatives have been making public statements regarding their intent to redefine the Concorde Agreement and introduce a budget cap (or equivalent solutions) in order solve this unfair situation. We are more likely have flying cars by the time the gatekeeper of the industry finds a way to sit down and work out a reasonable solution.

“As Formula 1 grew from being a sport to a multi-billion dollar global industry, new responsibilities have emerged for those who “run the show”. Still, if those shareholders are not able to agree on a sustainable redefinition of the business model, someone else should do something to guarantee the welfare of the thousands of stakeholders who contribute to its success.”

Image: Caterham via Shutterstock

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