How the Law of Supply & Demand is Growing MotoGP

06/11/2013 @ 3:34 pm, by David Emmett7 COMMENTS

How the Law of Supply & Demand is Growing MotoGP apple orange freakonomics 635x642

Dorna took Suzuki’s departure from MotoGP at the end of the 2011 season badly. After bending over backwards to accommodate the Japanese factory during their final few years in the class, Suzuki finally pulled out of the series altogether, though they promised to return at a later date.

This of course was after Dorna gave Suzuki an exemption from the (now defunct) Rookie Rule, allowed the factory a larger engine allocation, and finally accepted the reduction from a two-rider effort to just a single entry, that of Alvaro Bautista.

Coming on top of Kawasaki’s withdrawal ahead of the 2009 season, Suzuki were the second Japanese factory to depart the class after a string of broken promises.

So unsurprisingly, when Suzuki opened talks about a return to MotoGP, Dorna was hesitant. Their entry was to be subject to a number of restrictions; Suzuki would be made to pay penance for their initial abandoning of the series. Initially Suzuki were told that they would only be allowed to enter through an existing team, rather than creating their own infrastructure.

The idea behind this was that none of the teams who had remained in the series should lose out just because Suzuki wanted to return. When it became clear that the teams which were candidates to aid Suzuki weren’t really up to supporting a full factory effort, that idea was quietly dropped.

Instead, Suzuki was informed that it could enter the series as a separate factory team, with its own staff and equipment, but that it would have to buy out an existing team and purchase its grid slots.

Dorna and Suzuki agreed that a fair price for two MotoGP grid slots would be around 1.6 million euros, and Davide Brivio, hired by Suzuki to run their MotoGP effort, started assembling a factory team at a workshop in Italy.

At that point, Suzuki and Dorna ran into a basic law of economics. When a commodity is limited, and demand outstrips supply, then economic theory says that prices rise to reflect that increasing demand. Precisely this appears to have happened to Suzuki.

According to reports last week in the Spanish newspaper El Periodico, none of the existing teams were inclined to sell Suzuki a grid slot for a mere 1.6 million euros. Prices being asked by existing teams went through the roof, settling somewhere between 5 and 6 million euros for a pair of slots.

That is way too much money for Suzuki – probably between 10 and 20 percent of their total MotoGP budget – and an amount that even Dorna was unwilling to countenance. Dorna had felt that the teams deserved adequate recompense, but this looked like outright price gouging. Dorna should not have been surprised, of course.

One of the very first lessons in any economics class is the law of supply and demand, that prices rise when demand is greater than supply, and fall when supply is greater than demand. By insisting that grid size would remain unchanged at 24 grid slots, and by allowing Suzuki to enter, they had increased demand, with the inevitable consequence that prices would rise.

Dorna was forced to look for a solution, and that solution is to alter the other variable in the equation. It now looks as if Suzuki is to be admitted as a new entry, with the grid size increasing to 26 slots. That leaves the teams who, in the eyes of Dorna, had tried to make money off the back of Suzuki’s entry with empty hands, and also opens the door to further teams entering into MotoGP.

The two most successful Moto2 teams are known to be considering moving up to MotoGP, with the Marc VDS Racing team looking at an entry for Scott Redding, and Sito Pons hoping to make a return to the premier class after being forced to abandon it back in 2006.

The entry of Marc VDS and the return of Sito Pons has been made more attractive by the prospect of more competitive machinery being available. Marc VDS has been in talks with Kalex and Yamaha over leasing a Yamaha M1 engine for Scott Redding, to be housed in a Kalex chassis. Pons, meanwhile, has a long history with Honda, and is reported by El Periodico to be looking at entering Honda’s production racer in 2014.

The Kalex Yamaha option is not the only one for Marc VDS, as Redding’s outstanding 2013 Moto2 season has generated a lot of factory interest in the young Englishman, and Redding is still in the frame for a satellite machine for next season.

Marc VDS owner Marc van der Straten has backed Redding personally since Redding joined the team, and is keen to remain associated with the Gloucestershire rider. Pons, meanwhile, would be able to take Tito Rabat up to MotoGP, and perhaps also Pol Espargaro, if Yamaha lose interest in the former 2013 title favorite.

So the MotoGP grid could grow as large as 28 entries, and this in turn creates a problem for Dorna. The reason to limit the grid to 24 entries was to act as a quality control, and to restrict payouts to the teams. A total of 24 entries was a way of keeping out the weaker teams in the paddock, and ensuring a certain level of quality in the field.

In previous years, with unlimited grids, riders were often present who were many seconds a lap slower than the top riders, and ended up acting as rolling chicanes, increasing the danger to both front runners and back markers. Having only 24 riders on the grid also meant a cost saving for Dorna, who still pay out sizable sums to the teams in the form of transportation expenses, start money, and prize purses.

Dorna appears to have found a way to address this issue as well. According to a report on the MCN website, Dorna is currently looking at cutting support for the teams that finish last in the championship. The new entries in 2014 would not receive any support for next year, and the teams which finish at the bottom of the standings in 2014 would be offered little or no support for the 2015 season.

That would mean that any entries in 2014 would need to be strong enough and have sufficient sponsorship backing to survive the season with assistance from Dorna, and the teams which finish last would either have to drop down a category, where they may still be eligible to receive support at a reduced level, or go out and raise enough sponsorship to stand on their own two feet.

The Grand Prix Commission, MotoGP’s rule-making body, is set to meet this weekend at Barcelona, and according to MCN, this is one of the subjects under discussion.

Source: MCNEl Periodico

This article was originally published on MotoMatters, and is republished here on Asphalt & Rubber with permission by the author.

Comment:

  1. Interesting issue. The problem of competitiveness within a larger grid would easily be solved by tightening the so-called “107% rule” to, say, 105% or so. Of course, if you were to have 30 bikes on the grid all highly competitive, there’d be a lot of money for Dorna to pay the teams. That said, one should think that the spectacle of the show would increase attendance/viewers such that the whole enterprise were more profitable.

    Who wouldn’t want to see 30+ bikes — all extremely competitive — with whom a large number could win on any given day? Oh, snap. Moto2 already does that. Carry on. ;-)

  2. Chaz Michael Michaels says:

    Exactly. Moto2 is the benchmark. WSB isn’t far behind it, it’s exciting too. MotoGP-I’m having a blast watching this season unfold but if they could capture the moto2 lightning in a bottle they’d really have something for sure.

  3. Singletrack says:

    I’m all for a larger grid in MotoGP, and I do agree tighter competition is needed. But this proposition almost seems reasonable.

    “That would mean that any entries in 2014 would need to be strong enough and have sufficient sponsorship backing to survive the season with assistance from Dorna, and the teams which finish last would either have to drop down a category, where they may still be eligible to receive support at a reduced level, or go out and raise enough sponsorship to stand on their own two feet.”

    This should get rid of perennial backmarkers, and professional last place teams. They need to keep new blood coming into the premier class.

  4. Norm G. says:

    re: “Prices being asked by existing teams went through the roof, settling somewhere between 5 and 6 million euros for a pair of slots. That is way too much money for Suzuki”

    truth be told, the 1.6 is way too much money for Suzuki.

  5. Norm G. says:

    re: “So the MotoGP grid could grow as large as 28 entries, and this in turn creates a problem for Dorna. The reason to limit the grid to 24 entries was to act as a quality control, and to restrict payouts to the teams. A total of 24 entries was a way of keeping out the weaker teams in the paddock, and ensuring a certain level of quality in the field.”

    exactly, this is grandprix. just because you have a “want” or a “desire” to be here…? doesn’t mean you get to be here.

    to paraphrase casey… ambition exceeds your talent.

  6. Westward says:

    That’s why I didn’t mind there only being 17 bikes on the grid. Only the best of the best where on the grid. Now it seem if you can afford it you have a place, ie. Cardion AB…

  7. mxs says:

    That’s a nice looking orapple … :-)