When the the major carmakers involved in Formula One first announced their intentions to form a rivalling Grand Prix series, few took them seriously. But now, after they announced last week the formation of their own company, the plan is starting to look real. This is not good news to Formula One. It's not even good news for the carmakers, in fact. Roger Horton reflects on a bomb waiting to explode

Playing a game of bluff in a business dispute can be dangerous. You make a move and your opponent doesn't flinch. You raise the stakes, talk to the media, threaten a little and still your opponent appears unconcerned. With every move you make the more of your credibility has been invested in the outcome and the harder it is to find an easy way out. As the dispute escalates it becomes harder and harder to find common ground as the stakes are raised.

This is the way it is starting to look for the carmakers, which back in April, on the eve of the San Marino Grand Prix, first threatened to set up their own series to take over from what we currently called Formula One racing. Back then, despite the obvious signs of some economic slowdown, F1 finances looked to be in rude health, and a bit of brinkmanship would surely be enough to rattle the cage of F1's new rights holder, the media group Kirch.

"As a result of recent developments and in the best interests of motor sport, it has been unanimously agreed to set up a joint company, the purpose of which will be to establish, as soon as possible, a new open-wheels single-seat racing car series," said Paolo Cantarella back in April. Cantarella is the boss of the Italian car giant Fiat and chairman of the European Automobile Manufacturers Association (ACEA) which includes Fiat, Ford, BMW, Renault and DaimlerChrysler.

The dispute is, of course, all about money. The carmakers want the teams to get more than the current 47 percent of the highly lucrative TV revenues. The Kirch group, which bought a controlling interest in Bernie Ecclestone's Formula One holding company SLEC in a series of complicated deals, doesn't see the need to give away a portion of its income to a bunch of mega rich multinational car companies, especially after spending so much for the rights in the first place. So if the carmakers couldn't get a bigger slice of the action by negotiation, they would simply take back their ball and go and play in their very own series.

Where would this leave Kirch? Obviously not in an enviable position one would have to surmise, having paid millions for the rights to a series that no longer exist, at least in the form in which they bought it. But nothing could stop them continuing to promote F1 racing in whatever form they desire, and hence the possibility that we could have two rival series.

Back when Canterarella made his original announcement, many in the paddock didn't take his comments very seriously. For some two decades, the F1 bandwagon had been running along smoothly, with the sport growing year by year, and everyone involved benefiting. Talk of a major split, a rival series, F1 in disarray; it all seemed all too far-fetched.

Now though, it is starting to look a lot more like reality. The carmakers last week announced the formation of their company GPWC as a vehicle to run their new series, which is scheduled to commence in 2008, the year after the current Concorde agreement ends, and the ripple effects from this announcement have already started.

Just days after the carmakers' original announcement, Formula One boss Bernie Ecclestone warned that they could wreck his life's work in just a few months. Speaking to the Financial Times, Ecclestone said: "It has taken me 30 years to build up Formula One into what it is today and it could take just six months to destroy it."

Ecclestone is now warning that some of the sport's major sponsors are unhappy at the prospect of any apparent split that could threaten the well-oiled way that F1 is currently run. "The sponsors are not happy, they want to reconsider," he told the Sunday Times newspaper last weekend. "I have told them to wait and see what happens. They became involved because they liked the stability of F1 and knew these things were done properly. Once these companies leave, it is hard to get them back."

Indeed it will be, and in the current economic climate the last thing F1 teams need is any money leaving the sport. Ecclestone also made the point that even if the carmakers can pay themselves a higher percentage of the income from their own series, if the overall income is lower, their individual take may well be less than they are getting now. Last time anyone did the math, 100 percent of nothing is still nothing.

Just last month Prost Grand Prix was placed in receivership with debts of around $30 million. Prost's financial troubles were well known in the Paddock, and as far back as June there had been speculations that the team would not make it through the season. Now its future looks decidedly shaky, with a court appointed receiver Maitre Franck Michel calling the shots, and he can dispose of the team's assets to pay off the creditors should he think fit.

So is the demise of Prost just a one off, or a sign that the weaker teams do indeed require more money just to survive in F1, let alone compete with the manufacturer-supported outfits?

Not if FIA chief Max Mosley is to be believed. "Prost had a different problem. It has enough small sponsors but no main sponsor," Mosley recently stated. He added that the current economic slowdown was no threat to the health of Formula One. "Something serious would have to happen to change the situation. Nothing like that is a threat at this point, Formula One is financially secure. Sponsors who join it want to support it for the long term, not just for a few years."

There are those who wonder whether Mosley was being entirely serious with these comments, or just whistling to keep his spirits up. It is obvious to all that there are a number of factors currently in play that do indeed raise some serious concerns over the future financing of the F1 grid. Remember, it was less than a year ago the Minardi was saved from extinction by a White Knight with deep pockets and a passion for Grand Prix racing in the shape of Paul Stoddart.

Perennial struggler Arrows recently released its financial figures for the 2000 season, showing that it had debts on its books of around $95 million at the end of that year. No wonder team boss Tom Walkinshaw dumped the talented Pedro de La Rosa for Enrique Benoldi's money at the start of this season, but Arrows is going to need some serious income in the near future if it is going to prosper, let alone survive.

Even well funded outfits like BAR are facing something of a financial crunch if team boss Craig Pollock's recent comments to Autosport magazine are to be believed. "I'd say that the surface area of the car is no longer sufficient to fully fund a team," Pollock told the British weekly. "Therefore you need to be linked to an engine manufacturer who is willing to financially invest in the team, over and above just supplying engines. To be able to compete with Jaguar, Renault and especially Toyota - companies that fully own F1 teams - the way they are going to invest money, there is no independent F1 team that can do that. You cannot compete against a manufacturer long term."

Pollock, of course, has his own agenda, which includes trying to convince Honda that they would be well advised to support his team and not the other Honda powered outfit, Jordan. But he also confirmed in the same interview that recent events had hurt his team's sponsorship efforts. "The September 11th incidents have had a huge effect on the commercial side of the team. Therefore it has to have an effect on the sport. We've had certain sponsors who were going to commit, sending letters out very, very quickly after the terrorist attack, saying due to this incident they are not going to commit the company's money in the sport of F1. It's not just the teams; it's the sport in general, such as means the on-circuit signage. The TV side could also be affected, which means the overall income coming in is going to be hit."

If all this wasn't enough bad news, the sport has just five more seasons before it must entirely wean itself off the tobacco funding that has been central to the sponsorship of Formula One since the day the cars stopped running in their national colours. Heavy hitters like Ferrari and McLaren will no doubt survive, but they will certainly be the first in line to sign up with the premium big spenders. The teams at the back of the grid can only pray that by the time the 2007 season rolls around the world economy is booming along, and the idea of spending millions to be associated with F1 racing is one that pleases the shareholders.

In reality, it's pretty much always been the case that there are only two or three teams that will ever win F1 races on a regular basis at any one time. Whatever the funding situation, that is never likely to change. No matter how much money they have, teams like Jordan, BAR, Sauber and Arrows are always going to be essentially making up the numbers, but a serious cash crunch can only make the gaps between the teams even bigger and that can only hurt the overall quality of the racing.

When the manufactures started to move into F1 racing in a big way, there were many concerns raised that they would use the sport for their own interest and leave when it suited them. It is the way of big corporations, and they don't come much bigger that the current car companies now involved in the F1 business. Against the budgets of these companies the amounts involved in the dispute with Kirch are miniscule, and yet, if we are to believe their stated intentions, they are prepared to create a rival series that threatens to split F1 down the middle. If that happens it will make the CART/IRL split in American open wheel racing look like a bust up between some small town little leaguers.

Many observers still believe that Ecclestone will do what he has always done: bang some heads together and make a deal that everyone can live with. Just talking about a new series, with all the attendant bad publicity that is bound to follow, is already bad enough, and could well push a few of the struggling teams closer to the brink if some of their potential sponsors get cold feet.

Right now, 2008 still seems like a long way away, and there is no way to tell just how this dispute will work itself out. But one thing is for sure: the longer it goes on, the worse it will be for all concerned.