Securing Formula 1’s Future: The Pivotal Concorde Agreement Negotiations

Formula 1 finds itself at a critical juncture as the sport’s foundational commercial agreements with its teams, controversially known as the “Concorde Agreement,” are set to expire on 31 December 2020. This complex document, historically a source of contention due to its often inequitable financial and governance provisions, has long shaped the landscape of Formula 1, dictating how prize money is distributed, how the sport is governed, and how teams commit to the championship.

The quest for a new, more balanced framework has been ongoing. A draft replacement for the existing deal, designed to secure the commitment of F1’s ten competitors for the 2021-2025 seasons, was circulated earlier this year. Teams were reportedly on the verge of signing, requiring only minor clarifications, when the unprecedented global impact of the Covid-19 pandemic brought the world, and Formula 1, to a standstill.

The urgent need to minimise the pandemic’s financial and logistical impact forced final negotiations for the Concorde Agreement to be put on hold. However, with racing now successfully resumed and the immediate crisis management largely handled, signing all ten teams to the new 2021-25 agreement has swiftly returned to the top of Liberty Media’s off-track agenda. The stability and long-term vision offered by a universally agreed Concorde Agreement are paramount for the sport’s future health and market confidence.

A New Era of F1: Aims for Equity and Sustainability

The proposed new Concorde Agreement represents a significant shift in philosophy for Formula 1. It seeks to create a more level playing field, ensuring the sport’s sustainability and growth for all stakeholders, not just the historically dominant few. This includes a more equitable distribution of prize money and significant changes to governance structures, moving towards a future where competitive balance is prioritised.

Several prominent teams have publicly indicated their readiness to embrace this new direction. McLaren, for instance, has been a vocal proponent of the agreement, recognising its importance for the sport’s future. McLaren Racing CEO Zak Brown recently affirmed the team’s commitment, stating, “The new Concorde Agreement complements the financial, technical and sporting regulations and secures a strong basis for the sustainability, growth and success of Formula 1 and all its stakeholders.”

Brown further elaborated on the collaborative effort behind the deal: “Liberty Media, F1 and the FIA, together with the teams, have worked diligently to protect the sport through the Covid-19 crisis, our return to racing and into the long term. McLaren Racing is fully committed to Formula 1 and we are ready to sign this new agreement imminently.” This sentiment underscores a desire for collective stability and a belief that the new terms will foster a healthier competitive environment.

Historically, Ferrari has often been the most staunch objector to changes in the Concorde Agreement, largely because the team stood to lose the most from any restructuring of the sport’s financial incentives. The Scuderia has long enjoyed unique benefits, including substantial non-performance bonuses. For example, Ferrari received an impressive $110 million in such bonuses last year alone, a figure poised for substantial reduction under the new agreement.

However, in a significant shift, Ferrari team principal Mattia Binotto conveyed from Hungary that the iconic Italian team is now prepared to commit for the next five years. Binotto explained, “With the Concorde Agreement, where we are today, it is the output of long discussions between the teams and certainly with the F1. As far as Ferrari, we are ready to sign.”

Binotto further emphasised the importance of swift action: “We would like to sign it a given time even quite soon. I think that’s important for the future, for clarity, so we can all know where we are, and I think it’s important also for the small teams as its part of the entire package.” This demonstrates a recognition by Ferrari that long-term stability and a clear pathway for all teams, including the smaller outfits, ultimately benefits the sport as a whole. Binotto concluded, “So looking ahead with clarity is important, so we are ready to sign. We are happy because F1 has understood the importance of Ferrari within F1, and we are satisfied with that.” This suggests that while Ferrari’s bonuses may decrease, assurances regarding their unique historical standing within the sport have been made.

Other teams, particularly those who felt demonstrably marginalised under the old agreement’s structure, are also keen to commit. Renault and Racing Point, for example, have expressed strong support for the new terms, viewing them as crucial for a more balanced and competitive future for Formula 1.

Marcin Budkowski, executive director of Renault F1, highlighted the positive changes: “It’s a step forward for the sport, certainly the sport looking forward from ’21 and especially from ’22 with the introduction of the cost cap, fairer price fund distribution, it’s going in the right direction. It’s certainly things that we are supporting right now. A fairer, more sustainable Formula 1. So really, it’s looking positive from our side as well.” The introduction of a budget cap, set at $145 million for 2021, coupled with a more equitable distribution of prize money, is designed to bring teams closer together, making the championship more exciting and less predictable.

Speaking at the same FIA press conference, Otmar Szafnauer, CEO of Racing Point, echoed these sentiments, expressing broadly similar optimism: “This was a logical incrementalism to get to, to this point. I think a lot of work has been has gone into it and I don’t think we’re that far off having something that we can all sign. But there’s still a few talking points, which I think will happen in the short term.” These views from historically less privileged teams underscore the perceived fairness and long-term benefits embedded within the new Concorde Agreement.

Mercedes’ Reservations: Protecting a Legacy of Dominance

Despite the widespread consensus among many teams, one crucial participant, Mercedes, appears to be pushing back on committing to the new agreement. Various F1 and rival team sources have indicated that the reigning constructors’ champions are advocating for a one-year extension of the current deal rather than risking racing into 2021 without a finalised agreement. This stance introduces a significant element of uncertainty into the negotiation process.

Both F1 CEO Chase Carey and Ross Brawn, Liberty Media’s managing director for motorsport, who is responsible for the sporting aspects of F1, have acknowledged that racing without a new agreement remains a distinct possibility if universal team consensus isn’t reached. Brawn previously told RaceFans in an exclusive interview in June, “We can go racing [without agreements] and we can implement commercial payments in good faith so teams aren’t deprived, as it were. But it’s our intent to get all this sewn up before we go into next year.”

A Mercedes spokesperson maintained a cautious approach, stating that the team “does not want to start live commenting [about] confidential negotiations” – a similar stance taken regarding Lewis Hamilton and Valtteri Bottas’s contract talks. By implication, Mercedes is not yet fully committed to signing the new Concorde Agreement. Logically, if all terms were agreed, there would be no reason to continue indulging in ‘live’ negotiations.

Rival team bosses are reportedly livid, viewing Mercedes’ reluctance as a strategic manoeuvre designed to prolong its dominant six-year hegemony at their expense. Under the proposed new agreement, Mercedes F1 stands to lose significantly, including a large part of its substantial $80 million annual bonuses and its privileged position on F1’s Strategy Group. This comes at a sensitive time for its parent company, Daimler, which is facing challenges such as laying off up to 15,000 workers and potentially closing or selling an assembly plant in France, making the retention of financial benefits even more critical.

The timing of these negotiations is crucial, especially with the 2021 financial regulations set to reduce direct racing budgets to $145 million. By successfully pushing for a delay, Mercedes would effectively benefit from continued, higher bonuses under the old agreement, combined with substantially reduced operating costs under the new regulations. This “double whammy,” as it’s been described, would give them a significant competitive advantage in the transitional period. In contrast, teams like Ferrari and, to a lesser degree McLaren (who receive less in bonuses), appear prepared to forego these immediate financial advantages in the greater interest of securing Formula 1’s long-term stability.

The Path Forward: Liberty Media’s Vision and Team Choices

For Liberty Media, a publicly listed company answerable to its shareholders, a united front for Formula 1 is highly desirable. A consensus on the Concorde Agreement, ideally sealed with a signing ceremony and widespread positive press, would send a powerful message of stability and future growth to the markets and investors. Consequently, Liberty is making every effort to ensure a full agreement is in place well before the 2021 season begins.

An F1 spokesperson confirmed this commitment on Friday, stating, “We are working closely with all the teams and making good progress on the future agreement.” This indicates ongoing dialogue and a sustained push towards resolution.

However, it is not entirely inconceivable that nine of the ten teams could commit to the new agreement, leaving Mercedes as the sole outlier. Such a scenario would not be unprecedented in Formula 1’s history. For example, in 2013, former F1 CEO Bernie Ecclestone initially did not offer terms to the now-defunct Marussia team, which for almost a year did not qualify for championship revenues despite actively competing.

Crucially, it is important to distinguish between complying with the FIA’s entry requirements to race in Formula 1 and fulfilling F1’s commercial terms. These are two vastly different issues, particularly in light of the EU Commission’s decree that F1’s administrative powers (governed by the FIA) and its commercial functions (managed by Liberty Media) must remain separated. While ideally, these two aspects align perfectly, teams can technically compete in the championship without commercial agreements being formally in place. However, racing without such an agreement means forfeiting any guarantees of receiving a share of the sport’s substantial revenues.

Ultimately, each team faces three clear and weighty choices: accept the commercial terms on offer within the new Concorde Agreement, reject them but continue to race without a formal commercial agreement (and thus without guarantees of revenue shares), or, as a final and most drastic option, to exit the sport entirely. The decision each team makes in the coming weeks will undeniably shape the competitive landscape and financial future of Formula 1 for years to come.

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