A first assessment of the financial distribution by the FOM and performance in Formula 1

Abstract

Formula 1 is known to be an exclusive and expensive sport where only the best of the best in motorsport is competing. There are currently ten constructors competing, but the Formula 1 faces financial difficulties where more and more teams find it hard to finance their participation in the sport. The Formula 1 uses an extremely uneven distribution of the prize money between the teams and this thesis aims to assess the relation between the financial distribution and the performance of the Formula 1. The research question used is: To what extent is the prize money distributed by FOM affecting the teams and their performance? There is furthermore a discussion of potential correlations between the money distributed by the Formula One Management (FOM), and the teams’ performances the next year. To answer the research question, this thesis uses a multiple case study of three teams in particular. An interview has furthermore been conducted to establish the main problems the sport is facing with the current financial system. What the study found was that there indeed is a big gap between the best payed and the worst payed team within Formula 1 and that it is not always the winning team that receive most payment due to additional bonuses. The study furthermore found that there is a strong correlation between the pay-outs and the teams position at the end of the year. Moreover, the study concludes that there must be an incentive to compete, and win, for the sport to be sustainable as well as entertaining for the fans to watch. The current situation is feared to be unsustainable for the sport and that the management must find a new solution to the financial difficulties within the sport. Tournament theory is suggested as a possible solution if implemented correctly but the Formula 1 must choose whether they should support a few particular teams or intensify the competition and thereby try to create closer racing and an even more exciting sport.