Formula 1 teams economic situation - Revision history

Xzasj00: /* Code */

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‎Code

Xzasj00: /* Conclusion */

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‎Conclusion

Xzasj00: /* Results */

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‎Results

Xzasj00: /* Results */

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‎Results

Xzasj00: /* Current state of Formula 1 */

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‎Current state of Formula 1

Xzasj00: /* Current state of Formula 1 */

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‎Current state of Formula 1

Xzasj00: /* Results */

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‎Results

Xzasj00: /* Equal account balance at the beginning */

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‎Equal account balance at the beginning

Xzasj00: /* Results */

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‎Results

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‎Results

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 =Code=
-For complete code please see attached excel file.
+For complete code please see attached excel file: [[File:Simulation-f1-jan-zaskolny-xzasj00.xlsx]].
 =References=

← Older revision		Revision as of 22:44, 17 January 2015
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	=Conclusion=		=Conclusion=
		+	Formula 1 is prestigious racing series with long tradition. But it is also a business. The aim of this simulation is to predict possible future of this championship and to present options how to improve this business's outlook to the future.
		+
		+	As can be seen in chapter 4.1 Current state of Formula 1 there is a serious trouble right now. The risk of many teams going bankrupt is pretty high, according to simulation 3-4 teams will go bankrupt during next ten seasons. That is unacceptable because Formula 1 needs 8 teams at minimum. If 4 teams end, the Formula 1 will end as well.
		+
		+	Following chapters show what changes could be done and what the result could be. The last chapter of Results' part of this document 4.6 Creating better reasonable setup present what could be done to lower the mentioned risk to a minimum. That is: increasing the competition income and income from advertising by 20 % each, increasing share of the competition budget for teams to 75 % up from 63,8889 % and changing distribution model for splitting money among teams (for details please see respective chapter).
		+
		+	Although this simulation might not cover all possible situations, like entering of new teams (which happens rarely anyway) or gradual changes of variables etc., it provides useful insight into this topic and valuable environment for simulating changes and their possible outcomes in long term.

	=Code=		=Code=

← Older revision		Revision as of 22:23, 17 January 2015
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	Let's make one final attempt.		Let's make one final attempt.
		+
		+	==Creating better reasonable setup==

	In this setup an increase of 20 % in ''competition budget'' is achieved while share of budget for teams is set up to 75%. Also an increase of ''total advertising income'' by 20 % is accomplished.		In this setup an increase of 20 % in ''competition budget'' is achieved while share of budget for teams is set up to 75%. Also an increase of ''total advertising income'' by 20 % is accomplished.

← Older revision		Revision as of 22:22, 17 January 2015
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	Ha! Can you see what happened? No matter how much many we pour into companies at the beginning, someone always goes bankrupt! Increasing their money supply at the beginning makes teams to burn money faster in chase for winning the championship.		Ha! Can you see what happened? No matter how much many we pour into companies at the beginning, someone always goes bankrupt! Increasing their money supply at the beginning makes teams to burn money faster in chase for winning the championship.
		+
		+	==Higher total advertising income==
		+
		+	What would happen if the prestige of Formula 1 increases dramatically and more advertisers come to support teams? The graph below shows what happens when total advertising income doubles to 2400.
		+
		+	[[File:Formula-1-increased-advertising-income.jpg]]
		+
		+	Wow, not bad! Not bad at all!
		+
		+	What happened here? Unlike in situation with high equal starting account balance, increase in advertising income improves situation a lot. This is probably because teams do not start burning all their cash quickly. Instead they spend reasonably while they have some secure steady income.
		+
		+	Especially when combined with a change in distribution model this change produces sustainable model. Only issue here is that it requires immediate action leading to big increase of total advertising income.
		+
		+	==Creating a reasonable setup==
		+	Now, let's try to make a reasonable setup that will achieve low number of teams going bankrupt. See image below.
		+
		+	[[File:Formula-1-creating-reasonable-setup.jpg]]
		+
		+	Special annual team bonuses were removed and distribution of budget by place was also slightly revamped. Please see results of the simulation on the graph below.
		+
		+	[[File:Formula-1-creating-reasonable-setup-graph.jpg]]
		+
		+	Not bad, but maybe you did expected even better results? Sorry, but this is economy, not a perpetuum mobile.
		+
		+	What happens here? What is being done is purely redistributing money in a slightly diffent way. While removing ''special annual bonuses'' and change in distribution by place achieved helps minor teams, it takes the money from major ones. And if you have a big team with a big budget it is difficult to adapt to new conditions so rapidly. So now the setting is better for the minor but worse for the major teams which can sometimes go bankrupt.
		+
		+
		+	Let's make one final attempt.
		+
		+	In this setup an increase of 20 % in ''competition budget'' is achieved while share of budget for teams is set up to 75%. Also an increase of ''total advertising income'' by 20 % is accomplished.
		+
		+	[[File:Formula-1-creating-reasonable-setup-2.jpg]]
		+
		+	Now the situation will look according to the simulation like in the graph below.
		+
		+	[[File:Formula-1-creating-reasonable-setup-graph-2.jpg]]
		+
		+	This is fairly nice result, isn't it?
		+
		+	With ''share of budget split according to results'' set to 50 % there will be likely only one team going bankrupt which is much better and safer than estimate made in the first setup corresponding to current situation (3,5 teams).

	=Conclusion=		=Conclusion=

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 On the other hand, some might say that it would cause teams to stop competing. This could really happen but there is one important rule saying that driver must finish his qualification lap for the race not slower than for 103,5% of the winner's time - otherwise he would not be allowed to start in the race. This rule means that for such a situation to happen it would be neccessary that all teams make an agreement. And, based on observation of Formula 1 in past 20 years, that happens so rarely that it never really happened in previous decade.
-Other objection could be that it would be "weird" not to reward the winner. In that situation, model could be changed from 88% based on result to eg. 25% based on result. That would decrease number of bankruptcies approximately by 1 to around 2,5.
+Other objection could be that it would be "weird" not to reward the winner. In that situation, model could be changed from 88% based on result to eg. 25% based on result. That would decrease number of bankruptcies approximately by 1 to around 2,5 which would be bearable.
-But really, could there be some other way how to change the parameters so even better result is achieved. Let's see.
+But really, could there be some other way how to change the parameters so even better result is achieved? Let's see.
 ==Removed special annual team bonuses==

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 [[File:Simulation-result.jpg]]
-As we can see according to the simulation '''there are going to be approximately 3,5 bankruptcies in following 10 seasons''' unless there is a change.
+As we can see according to the simulation '''there are going to be approximately 3,5 bankruptcies in following 10 seasons''' unless there is a change. This presents a serious threat as Formula 1 must have at least 8 competing teams (due to contracts with racing circuits, televisions etc.).
 However, should distribution model of budget in Formula 1 change there could be only below 2 bankruptcies. That would be the case of ''share of budget split according to results'' being set to zero (now the value is 0,88). That would mean that teams would get money only for participation in the series and not for results achieved. While their revenues would be still affected by their position in the championship due to advertising income they would have a stable supply of money.

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 [[File:Formula-1-equal-account-balance-extra-rich.jpg]]
-Ha! Can you see what happened? No matter how much many we pour into companies at the beginning, someone always goes bankrupt! Increasing their money supply makes teams to burn money faster in chase for winning the championship.
+Ha! Can you see what happened? No matter how much many we pour into companies at the beginning, someone always goes bankrupt! Increasing their money supply at the beginning makes teams to burn money faster in chase for winning the championship.
 =Conclusion=

← Older revision		Revision as of 21:09, 17 January 2015
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	[[File:Simulation-no-special-annual-bonuses.jpg]]		[[File:Simulation-no-special-annual-bonuses.jpg]]
		+
		+	What happens here? Extra 150 saved on these special annual team bonuses is distributed among teams according to usual rules. Three teams lose their advantage while others can compete for more money.
		+
		+	==Equal account balance at the beginning==
		+
		+	Graph below shows what would happen in hypothethical case of all teams starting simulation with the same account balance 1000.
		+
		+	[[File:Formula-1-equal-account-balance.jpg]]
		+
		+	We can see that this equality helped in terms of decreasing number of bankruptcies but there are still many. Why is that? And what happens when we set companies extremely rich at the beginning? See graph below which shows what happens when every company starts with 5000.
		+
		+	[[File:Formula-1-equal-account-balance-extra-rich.jpg]]
		+
		+	Ha! Can you see what happened? No matter how much many we pour into companies at the beginning, someone always goes bankrupt!

	=Conclusion=		=Conclusion=

← Older revision		Revision as of 20:52, 17 January 2015
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	But really, could there be some other way how to change the parameters so even better result is achieved. Let's see.		But really, could there be some other way how to change the parameters so even better result is achieved. Let's see.
		+
		+	==Removed special annual team bonuses==
		+
		+	A simple change - removing special annual team bonuses (setting them to zero) - leads to a small improvement in terms of financial stability. See image below.
		+
		+	[[File:Simulation-no-special-annual-bonuses.jpg]]

	=Conclusion=		=Conclusion=