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Saving Formula 1 - collaboration could be key

The high cost of competing in Formula 1 has led to ever fewer teams entering the Championship; a sign of poor health for the sport. Cass research into business models highlights ways both large and small teams can work together to ensure benefits for themselves and Formula 1 as a whole.

Author(s): Dr Paolo Aversa - Cass Business School; Dr Santi Furnari - Cass Business School; Professor Stefan Haefliger - Cass Business School;

Formula 1 is in trouble. The high cost of competing and uneven returns mean that smaller teams are struggling, and as a result this year's championship sees only 10 teams participating. In comparison 20 teams competed in 1989. Maintaining a high level of competition in F1 is crucial if the slide in its audience is to be halted. Therefore one way of addressing the problem is to change the business model, so that teams collaborate more and share their resources.

This is quite a different proposition to the one commonly espoused by F1 commentators. Criticism is generally focused on the way that F1 distributes profits - the charge being that this needs to change - but major players such as Bernie Ecclestone have no interest in changing the way things are run, at least in the short term. So, in the meantime, it's important to focus on making F1 more sustainable.

Recent research on business models conducted by Paola Aversa, Santi Furnari and Stefan Haefliger, all of Cass Business School, shows how alliances between different companies can be built to successfully share some of the costs inherent in F1.

Driver training is one area where this is already being done to good effect. The big teams benefit from having their young drivers gain experience with smaller ones, and the smaller teams benefit from gaining free talent, which they are sometimes also paid for using.

Many of Red Bull Racing's recent top drivers, for example, have emerged from a successful programme that works with the smaller Italian F1 team Scuderia Toro Rosso to scout and train future drivers. Despite being a smaller outfit, Scuderia Toro Rosso has developed an excellent scouting and training capability funded by Red Bull Racing to make it financially viable. Starting this year, the Scuderia Toro Rosso car will also be powered by a Renault engine, which means that the drivers will be able to train with the same technology they will be using in Red Bull Racing - a steep increase in their learning curve.

Admittedly some might dismiss the significance of this because Red Bull Racing and Scuderia Toro Rosso are shared by the same owner, Dietrich Mateschitz. Yet other teams are developing relationships: Ferrari is strengthening its collaboration with both Sauber and Manor, for example. These two cars are also powered by Ferrari and provide their drivers with better exposure to the technology they will eventually use if they make it on to Ferrari. Mercedes has also benefited from sharing drivers with a smaller team that uses its engines, in this case Force India, which itself benefits financially.

These complementary business models could be the basis for future benefit for both top and minor teams. The top teams acquire better drivers, reduce the costs of failure if the team under-performs, save money, and can negotiate the bundling of drivers into the sale of engines or technology to the minor teams as an overall package. On the other hand, if minor teams prove to have distinctive capabilities in scouting and training drivers, they can become strategic partners for top teams, obtaining higher financial paybacks from their partners either in form of discounted engine prices or simply the revenue from the driver's training, loaning and trade.

This arrangement could be not only a winning strategy for top F1 teams, but also a way to make small teams financially viable, even with the poor level of revenue distribution at present. This kind of cooperation among competitors could be the most effective way for top teams to win races, and smaller teams to stay in the game.

A version of this article first appeared on The Conversation in March 2015.

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