Formula One is in crisis as it faces up to a $2bn (£1.32bn) bill that it cannot afford to pay and which could spell the end for a number of teams.
The warning has come from one of the sport's biggest players, Martin Whitmarsh, the McLaren team principal who is also chairman of the Formula One Teams' Association, on the eve of the Monaco Grand Prix.
The teams, who are absorbing the terms of the next Concorde Agreement, are already angry that the private equity firm CVC Capital, who hold a controlling stake in F1, take out more than half of the sport's $1.5bn income. With so much money going out, the teams cannot cope with rising costs and Bob Fernley, Force India's deputy team principal, claimed that CVC are "the worst thing that had happened to the sport."
The 11 teams pay a fortune to be involved in Formula One. The smallest, Marussia, has an estimated budget of $65m and that goes up to about $250m for Red Bull, who won last year's constructors' championship.
Now they have to come to terms with rocketing costs to cover new engines that will be introduced next year, a hike in entry fees to the FIA, the sport's governing body, and a new in-season testing initiative that is due to be approved next month.
Whitmarsh said the situation "really is a threat to the sport," and added: "Formula One works best in a crisis but it is a shame that we have to create a crisis to deal with. This sport needs 10 or 11 teams and we should fight to keep the 11 teams we have now. But we are not good at doing these things. We seem to drop the ball. I fear that we will have a crisis and then we will have to get real and sort it out. I cannot see in their shoes [the seven smaller teams] how you can construct a sustainable business model."
These seven teams are already incensed that most of the money goes to the four biggest operations, Ferrari, Red Bull, Mercedes and McLaren. CVC are scheduled to increase payments to the teams from 47.5% to 60% of the sport's income – but the extra money will go to the big four. Fernley said: "There should be a more equitable distribution. It's quite right that Ferrari, McLaren and Mercedes get recognition. I would like to see Red Bull recognised in 20 years' time but not after five years of pumping money into the sport."
To make matters worse, teams complain that there is a lack of leadership from the FIA while Bernie Ecclestone, the sport's chief executive and commercial rights holder, faces the possibility of prosecution over allegations that he paid a $44m (£29m) bribe to a German banker. Ecclestone, who will be 83 in October, already faced an uncertain future and CVC are believed to have drawn up a short list of names to succeed him. If he is charged, it could potentially jeopardise the planned $12bn (£7.9bn) flotation on the Singapore stock exchange later this year.
But it is the spiralling costs which have focused the teams' attention. Between them, them will have to find $2bn over the seven years of the three-cornered Concorde Agreement, which will tie them to Formula One chief Bernie Ecclestone and the international racing authority, the FIA. The biggest bill is for engines, as Formula One moves from the 2.4-litre V8s to 1.6-litre V6 units in 2014. It is understood that each team will have to find an extra $15m per season. Over seven seasons, and multiplied by the 11 teams, that comes to $1.155bn.
Whitmarsh said: "What is frightening is that we have adopted important new engine regulations. They are the right thing to do in many regards. They are technologically interesting and relevant to society. But F1 badly mismanaged the cost of the development and supply of those new power plants. We allowed the engineers to be unfettered in dreaming up the regulations, which means teams are now facing big bills. We got costs down to £10m and now we are talking about double that. That is with all the other cost challenges we have."
Those challenges include the FIA's move to permit in-season testing, which would cost the teams $770m over the new agreement. The FIA are also putting up their team entry and driver super licence fees by $7m a year – or $49m over seven years.
Whitmarsh said: "In addition, under the new agreement, the teams will to pay Pirelli $105m over the seven years." Fernley added: "Everything we're doing at the moment is about increasing costs. There is no initiative at all about reducing costs. If we don't sit down and address it very carefully we're going to lose teams.
"I think all teams are struggling. You would be surprised by how high up they are. We should never underestimate the resolve of Formula One teams. But it will be tougher and tougher.
"If we do in-season testing that will be a massive increase. But look at our basic operations. Do we really need to be running wind tunnels 24/7?" He reserved his most scathing remarks for CVC. "I think CVC have done an absolutely awful job. In my view they are the worst thing that has ever happened to Formula One."
Inevitably, the smaller teams are most vulnerable. Graeme Lowdon, the chief executive of Marussia, said: "Sharp fluctuations in revenues and increasing costs is a recipe for serious trouble. If there are no constraints, it becomes an exercise in profligate spending."
CVC refused to comment on Fernley's claims but a FIA spokesman said of the concerns over costs: "The FIA has supported the resource restriction agreement but that failed because the teams could not agree. The FIA would still like to help teams to cut their costs. However, it cannot intervene in the discussion on the costs of the new engines. That is between the constructors and their customers. On entry fees, any organisation charges a fee that helps pay for the event. Entry fees had not risen in a long time and they have been revised to keep pace."
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