F1: What Exorbitant Costs?

It appears the global credit crisis has finally reached the world of F1.  Just this week, FFSA announced it will cancel next year’s French Grand Prix (ahem Mr. Mosley, Montreal?) due to the current economic climate.

But come on, the real issue is the remoteness of Magny-Cours.  It’s like having an American Grand Prix in North Dakota.

However the announcement did stir up more rumblings in regards to the exponential costs in F1 and in particular the costs of operating a team.

The general consensus is that top tier teams are spending upwards to $400 million a year to run their crews. Yes, that’s a lot of money, but let’s put that figure into perspective. 

Formula 1 is an advertiser’s dream.  With over 200 million viewers, F1 has a global presence comparable to the World Cup and even the Olympics.

From a public corporation’s point of view, that $400 million is an advertising campaign which lasts 10 months, and hits 20 different geographical markets. 

Microsoft this year is spending $300 million in an effort to market Windows Vista.  With that kind of money, Microsoft could have saved Super Aguri, signed Fernando Alonso and Sebastian Vettel, and still have money left over.  Can you imagine all those data monitors with large Vista logos all over them?

Although my days of looking at financial statements are hopefully forever over, I was curious to see where this $400 million figure fell within some ratio analysis.

I quickly picked three public automotive companies with strong ties to F1 (Daimler, Toyota and Honda) as well as two financial line items (SG&A and Cash and Equivalents) for my highly unscientific (yet awesome) analysis. 

SG&A F1 Cost ($400M/SGA):

Daimler – 2.2%

Toyota – 1.6%

Honda – 2.1%

Microsoft ($300M/SGA) – 1.8%

Cash F1 Cost ($400M/Cash)

Daimler – 1.9%

Toyota – 2.4%

Honda – 3.8%

Microsoft ($300M/Cash) – 2.9%

So what does this all mean?  Well, nothing really because the $400 million figure is not just the parent company’s burden.  Obviously, there are multiple advertisers that make up that figure. 

But what this is showing is that IF these parent companies were to foot the entire bill, they are not enormous chunks of costs, at least relative to Microsoft’s Vista advertising campaign.

Personally, a spending cap would diminish my enjoyment of F1.  I love reading about the new technologies and all the countless hours of wind tunnel testing to make these magnificent machines. 

I understand the plight of the little guy, but maybe this means the little guy needs to get smarter about their strategic partnerships.  How about Force India Google?  Just a thought.