Formula 1: The Premier Class of Motorsports Needs an Overhaul

Urdorf, December 27, 2020.  The Formula 1 season is over. The pandemic has certainly taken its toll on the Formula 1 circus. Formula 1 is particularly exposed to the coronavirus as its entire business is based on hosting mass gatherings. 38% of the turnover from Formula 1 comes from broadcasters and media fees. 

Formula 1 cars are the fastest regulated road-course racing cars in the world, owing to very high cornering speeds achieved through the generation of large amounts of aerodynamic downforce. The cars underwent major changes in 2017, allowing wider front and rear wings and wider tires, resulting in peak cornering forces near 6.5 lateral g and top speeds of around 350 km/h. As of 2019, the hybrid engines are limited in performance to a maximum of 15,00= rpm;  the cars are very dependent on electronics and areodynamcis, suspension and tires. 

In August 2020, a new Concorde Agreement was signed by all ten F1 teams committing them to the sport until 2025, including a $145M budget cap for car development to support equal competition. Bear in mind that this budget cap does not include all costs.

Since we have arrived at the end of the year, I would like to share a few thoughts on some trends and on the future of Formula 1.

Formula 1 urgently needs new impulses and better access to the American market

Weeks ago, Lewis Hamilton’s win at the Turkish Grand Prix secured him a place in history with a record-equalling seventh world championship. Such predictable dominance is one one of the aspects that Stefano Domenicali, the sport’s new F1 chief executive, wants to challenge. He envisions sweeping changes that stimulate fiercer rivalries on the track, as well as attracting a new, younger audience. Domenicali, the Lamborghini chief executive and former Ferrari team boss, will take charge starting January 2021. He will need to lead a financial recovery following huge losses suffered during the pandemic, but also faces challenges that precede coronavirus.

Industry executives, team owners, managers and drivers say that under Mr Domenicali, F1 must reach new television viewers and sponsors. This should be achieved by becoming more exciting, more digital, more environmentally friendly and bigger in the US. Bernie Ecclestone, who led F1 for decades before being ousted by Liberty Media after its takeover, said that the new chief executive must be allowed to act without interference from the owners.

A major, currently missing component is the sport’s relatively weak profile in the US, where its only Grand Prix is in Texas. Mr Carey confirmed that long-running talks about staging a race in Miami, Florida had been pushed back because of the pandemic. It would only take one or two additional races to make a “big difference” in the US, according to Zak Brown, chief executive of McLaren Racing, a UK-based team.

The dominating Mercedes team: it wins because it always renews itself

In Abu Dhabi, Mercedes once again brought two freshly painted racing cars to the finish line. Seven titles in a row in the drivers' and constructors' championships - that's something to celebrate. Wreaths or stars, all in shining silver, would have been appropriate. But the German racing team based in central England chose a more elaborate presentation: on the cars of Lewis Hamilton and Valtteri Bottas were the names of all 2000 team members who contributed to the formidable winning streak. 

In a way, Mercedes also revealed part of its secrets of success with this acknowledgement. The team of the large German automotive giant, which, of all things, is often accused of coldness and facelessness, has an identity like few other teams in the pit lane. Something like this cannot simply be ordered or bought. It is the combination of unconventional methods, spirited structures and a high level of self-motivation. 

Everyone has become accustomed to Mercedes’ dominance. Yet, it is still a matter of wonder and puzzlement how the Mercedes system can be so successful.  According to Elmar Brümmer, a journalist of the Neue Zürcher Zeitung, it is a condensation of many factors that leads to the extraordinary. The search for clues begins in Brackley, a sleepy village near the Silverstone race track. A large black stone at the entrance is the only reminder that work here is sometimes done around the clock in order to rewrite the history of motorsport. It is tradition to immortalise every victory of the season there on a small sign. A proud list, even in 2020.

Toto Wolff is more than a racing team boss. The 48-year-old has beamed Formula 1, which until the new millennium was partly run according to almost antiquated methods, into a new management age. Never before has anyone in this royal class become so powerful so quickly. When Mercedes had almost failed with the self-proclaimed German dream team at the beginning of the last decade, Daimler pulled the emergency brake. Wolff, successful as an investor and known as a racing enthusiast, was initially only asked for an expert opinion. This opinion, however, was apparently so convincing that he not only became team boss but also co-owner with Niki Lauda.

Never has a team been more successful in Formula 1. But how long will this dominance last? Can the unique harmony be maintained? Wolff's and Hamilton's contracts expire at the end of the year. Wolff has confirmed that he will continue in the job as team boss next season, but he is already looking for a successor for 2022 so that he can retire to a supervisory role that has yet to be defined. 

Mercedes’ Group CEO Ola Källenius, who was responsible for racing engines early in his career, is sympathetic to such plans. The advertising value of Mercedes' involvement in Formula One is 4.5 billion dollars, compared to which the expenditure seems almost modest. Mercedes has subsidised its motorsport branch to the tune of $37 million. The race team even made a profit of $19 million in the 2019 financial year. This is a convincing cost-benefit calculation taking into consideration the 102 victories in 137 races of the hybrid era, 53 of which were double victories. 

The influence of Arab countries in Formula 1 is on the Rise

Formula 1 has only been able to manage the Corona-drained season so well and so extensively thanks to the European race tracks. Twelve World Championship races have been held on the old continent. But for the last three races of the season, the royal class of motor sport had gone back to where the big money flows, regardless of the pandemic - at least as long as oil still flows to some extent. Two races in a row were hosted in Bahrain, and the Abu Dhabi Grand Prix concluded the Arabian Series.

Next year's racing calendar will include a Saudi Arabian Grand Prix for the first time. This will be held on a temporary track in the port city of Jidda. In the near future, the Grand Prix will then have a permanent home in Quiddiya. This is the latest evidence of the Middle East’s and Saudi Arabia's desire to position itself as the strongest power of the region in motorsport as well. In 2018, Formula E held its season opener in Dirriya, of all places, while the Race of Champions was held in Riyadh the same year. In January, an edition of the Dakar desert rally over 8000 kilometres was held for the first time across Saudi Arabia.

A first sign of the Kingdom's ambitions to present itself to an even larger public as a modern country through Formula 1 was through the financial commitment of Saudi Aramco, the world's largest oil production company, as the top sponsor of Formula 1. 

What is piquant about this is that the Qataris had also repeatedly applied for a Formula 1 race, but Bahrain, which has a veto right against other events in the Middle East, apparently opposed this. In 2004, the desert island, which is connected to Saudi Arabia by a motorway bridge, was an important element in Bernie Ecclestone's strategy of awarding Formula 1 races to rich countries without a long motorsport history on the highest bid. When Abu Dhabi was added in 2009, the emirate bought a right to the final race of the season with the highest entry fees ever - it is said to be $40 million.

The power of money is also calling numerous human rights organisations to the scene in the case of the Saudi Grand Prix plans. They criticise the so-called "sports washing". Saudi Arabia has recently come under worldwide criticism for the murder of journalist Jamal Khashoggi. The officially advancing emancipation of women, who were not allowed to drive themselves until 2018, is put forward by the Saudi as a counter-argument for an increasing opening of society. Nevertheless, a race in Saudi Arabia may not really fit in with the equal rights campaign of the FIA, the automobile world association, which prohibits any discrimination on the grounds of race, skin colour, gender, origin, religion, political opinion or sexual orientation in the first paragraph of its statutes. Formula 1 takes this into account through corresponding slogans and public campaigns. 

Prince Khalid Bin Sultan al-Faisal, President of the Saudi Arabian Motor Sport Association, could even understand the first critical statements, but is counting on the power of persuasion through the racing events themselves. Those responsible for the Formula 1 teams, who profit proportionately from the entry fees, are holding back with evaluations or condemnations. In a deliberately apolitical manner, Ferrari's team boss Mattia Binotto even promoted a strained understanding between nations: "I think that sport, wherever it is held, is always positive and spreads a positive message”.

The Most Expensive Team-Building Exercise of the Year

One of the most iconic teams in Formula 1 and most popular drivers in the global motor racing series is parting ways: Sebastian Vettel, 32, left Ferrari at the end of this season.

Harmony sounds good. But what are the key success factors - besides the budget - in Formula 1? In my opinion, it can be boiled down to three main winning factors: leadership, talented drivers and team spirit.

The first success factor is obvious and all has been stated above, looking at Mercedes-Benz and Toto Wolff. This brings us to talent, the second of the three ingredients. The last Ferrari driver to win a world championship was Kimi Raikkonen, in 2007. The team last topped the constructors’ table, which is based on the aggregate points garnered by the team’s drivers in a single season, a year later. Considering that the red liveried F1 cars retain an almost unmatched allure and appeal for drivers, it is inconceivable that Ferrari is unable to attract the best talent. I would hazard a guess that every single driver on the F1 grid today would love to drive for Ferrari. When Vettel joined the team in 2015, he was a four-time champion. Mr. Vettel can’t be without any talent. 

Furthermore, the second Ferrari pilot, Charles Leclerc, is viewed by many as a top talent. He seems incredibly focused, grounded and mature for his age.  “He has everything it takes, an incredible talent”, according to one of the F1 team principals.

Let’s have a look at the third winning factor: team leadership. The value of a high-performing team has long been recognized. It’s why investors in start-ups often value the quality of the team and the interaction of the founding members more than the idea itself. Ferrari has had remarkably few changes of chief executive over its 70-year history. After the death of founder Enzo Ferrari in 1988, Luca di Montezemolo, Sergio Marchionne and now Louis Camilleri followed. But Louis Camilleri stepped down as Chairman und CEO of Ferrari on December 10, 2020.

Whoever his successor will be: building a team within his Formula 1 operation will certainly be a top priority.

It would be not enough for the new CEO to simply hope that the new team composition and chemistry between Leclerc and the new driver, Carlos Sainz, is better than that with Seb. Carlos, 25, is the son of the two-times Rallye World champion Carlos Sainz from Spain. Mr. Binotto had words of praise for the 25-year-old. This is Ferrari’s youngest driver pairing in 50 years. Neither driver has a World Championship yet but it is clear the Scuderia is backing a more aggressive approach. It’ll be interesting to see how Carlos can cope with Charles as a teammate.

Maybe it is much simpler and Mr. Binotto, who always has reminded me of Harry Potter, will use his time in lockdown to mix enough Felix Felicis (also called “liquid luck”,) the magical potion that makes the drinker lucky for a period of time, during which everything they attempt will be successful. However, it can cause dangerous overconfidence if taken in excess.

Time will tell. There is a lot of pressure on all of them. Frankly, I do not want to be in any of the shoes of the key persons involved. But in any case, Ferrari is key to Formula One, and Formula One is key to Ferrari. At this point, however, everyone has become accustomed to the dominance of Mercedes. 

The entertainment businesses would be happy with either of the two: Mercedes continuing to dominate and making the duo Lewis Hamilton and Toto Wolf immortal heroes, or Ferrari winning back the Championship with stories behind the rivalries of the top drivers comparable to gladiators in the Roman Republic and Roman Empire. By all means, the show must go on.