The Formula One Competitive Advantages

Topics: Formula One, Max Mosley, Scuderia Ferrari Pages: 14 (4944 words) Published: March 18, 2013
Formula One
In May 2009 Max Mosley, then President of the Federation Internationale de l’Automobile (FIA), declared that “the sport could survive without Ferrari.”1 Incensed by such brazen disregard of the team’s influence and further angered by proposed changes to the competition’s format, Ferrari announced that it did not intend “to enter its cars in the next Formula One world championship.”1 By June, eight of the ten F1 teams had declared their intention to join Ferrari’s breakaway championship.2 Was this to be the end of F1 as we knew it?

The Rise of Ecclestone
I am the CEO of Formula One Management and Formula One Administration, which runs the business in F1. From this point of view, I own F1. —Bernie Ecclestone The 2009 showdown with Ferrari was not the first time a schism threatened Formula One (a.k.a. F1). The competition has a long history: it is the oldest of the various events supervised by the International Automobile Federation (or FIA, for the French “Federation Internationale de l’Automobile”). However, for decades F1 was a very loose organization.3 Particularly disrupting was the fact that, until 1981, each team’s participation was negotiated on a race by race basis when the team arrived at the next track! In such an uncertain environment, Formula One’s collapse was constantly lurking over the horizon; only through the machinations of one Bernie Ecclestone did the sport become a stable, multi-billion dollar industry. Ecclestone entered F1 as a team owner and quickly emerged as a leader of the Formula One Constructors Association (FOCA).3 Under his guidance and with the aid of team owner Max Mosley, FOCA attempted to seize control of F1 from the FIA’s sport branch, FISA (which was dissolved in 1988). This move nearly ended F1 as FOCA teams boycotted races and prepared to start a rival championship. However, instead of a collapse, in 1981 Ecclestone managed to bring the FIA and FOCA to sign an agreement. Later known as the first Concord Agreement, it was designed to clarify the terms by which teams competed. In particular, the agreement required constructors to participate in all of each season’s races, thus giving the competition some much needed stability. The Concord Agreement was a watershed in the history of F1. Prior to Ecclestone’s involvement, F1 primarily existed as “one huge, if rather louche, party” dominated by “rich businessmen, minor aristocrats and hangers-on.”4 Run by amateurs with little interest in developing the professionalism of the sport, F1 was dangerous, chaotic and unprofitable. The Concorde Agreement helped Ecclestone transform F1 into a successful business. Teams agreed to limit their involvement to championships sponsored by the FIA, pledged to compete in all races during each season, and recognized the FIA’s commercial and property rights over F1.5 The first Concorde Agreement lasted for 6 years and a series of similar Portions of this chapter were written by Clare Finnegan under the supervision of Lu´ Cabral. Forthcoming ıs in The Economics of Entertainment and Sports: Concepts and Cases. c Lu´ Cabral. ıs

Formula One
Bernie Ecclestone, the CEO of FOM and FOA, is also known as the “F1 Supremo.”


Figure 1 Television audiences, selected sports events. Event [1pt] F1 2008 season (total) F1 2008 season (per race) [0pt] Super Bowl XLIII (2009) 2006 soccer world cup final 2002 soccer world cup (total) [1pt] agreements followed; in 2009, F1 teams agreed to the sixth Concorde agreement. For Ecclestone the most important element of the Concord Agreement was the teams’ acknowledgement that FIA owned the commercial rights to F1. Given that, FIA could now loan its rights to FOCA (which it did for a four year period). As designated spokesperson for FOCA, Ecclestone thus received the responsibility of managing F1’s commercial interests. Moreover, recognizing his rapidly increasing influence, Ecclestone was appointed FIA Vice President.3 By most accounts, Ecclestone’s first stab at...
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