Number Crunching With An F1 Fan: How F1 Is Facing An Uncertain Future

I’d just like to say that, for the sake of the world, I am never going on holiday again. Don’t get me wrong, Mrs. S and I had a great time at our villa in the Greek islands last month, but every time we go away the economy goes to pot. No, really. Last year while we were away, Northern Rock ran out of funds, collapsed and went cap in hand to Mr G.B. Taxpayer for a big wodge of government cash.

This year, the day after we arrive in Crete, XL Airlines goes to the wall. Followed by another in France. And another. And another.

This was just the start, though. With all the inevitability of a house of cards, an angry ten-year-old and a cricket bat, the world banking system came crashing down.

You see? It’s all my fault. That’s why I can never go away again. Who knows what might happen next time.

You may call it superstition; David Coulthard has his lucky underpants (after 14 years in F1, they must be getting a bit ripe) and Alex Wurz has his mismatched boots, but nobody laughs at them. Okay, they do, but I just can’t take the risk.

So how is this global economic meltdown that I’ve caused affecting Formula 1?

Let’s pretend you’ve got a nice shiny new F1 team, all pristine and ready to go. The only problem you’ve got is a distinct lack of the folding stuff (cash, readies, wonga, spondulicks). What are your options? Well, sponsorship is the most obvious source of income, those garish logos that adorn all the other shiny cars.

During prosperous times, major global brands are only too pleased to subsidise these 200mph billboards. But during leaner periods these high profile benefactors tend to evaporate, and with them their capital investments. Most teams use this method of funding, the only exceptions being the two Red Bull Teams.

The Williams team is currently in the most precarious position. With no billionaire owner and no engine partner, the Grove outfit relies largely on its sponsors to fund its operations.

The problem that Williams has is that two of its major sponsors are Royal Bank of Scotland (RBS) and the Icelandic company Baugar Group (owner of Hamley’s). RBS has recently been partially nationalised as part of a rescue package, and it is likely that it will soon seriously curtail its sports sponsorship, and F1 will probably be the first to go. Remember, Bernie Ecclestone and the Labour Party "have history."

And as for Baugar, the near complete collapse of the Icelandic economy makes the support of any company that uses the krona slightly less dependable than a Spanish Rolex.

Another tried and tested way of funding your team is to be a billionaire owner who uses his car to raise the profile of his own brand (Dietrich Mateschitz of Red Bull and Toro Rosso, and Vijay Mallya of Force India). The only problem with this method is that it follows the law of diminishing returns.

These uber-rich individuals aren’t in F1 for the love of the sport; to them, F1 is simply another form of advertising their products. During a recession, when their sales dip below the point where the team becomes a burden, they’ll be off faster than you can say “a pint of Red Bull and Kingfisher, please.”

TV rights represent another significant source of revenue, which is shared among the teams through Bernie Ecclestone’s Formula One Management company. The details of these deals are a closely-guarded secret, but do generate a significant percentage of the smaller teams’ revenue.

If you’re a team owner who wants a generous and fairly stable source of income, find yourself an engine partner in the form of a major motor manufacturer (i.e. McLaren/Mercedes). Better still, get one of these manufacturers to buy your team outright (Renault, Toyota, Honda, BMW).

Manufacturers are generally happy to pump in tens of millions of dollars every year to ensure their brand is represented at the pinnacle of motor sport. But again, during a recession, as car sales drop, F1 becomes an unnecessary luxury. They can achieve just the same level of brand awareness through conventional advertising or sponsoring less ridiculously expensive sports.

As evidence of this, when Ford fell on hard times a few years back, it lost no time in dropping the Jaguar F1 team. Now Toyota has been heavily hinting that it is ready to pull out of Formula One and move over to the Le Mans series instead. This was precipitated by Max Mosley’s standard engine plan. More on that in a bit.

A year ago, everyone in F1 was getting caught up in the global warming frenzy. But now, with all these revenue sources drying up, cost-cutting is the new buzzword, and hang the ruddy environment.

Max Mosley was busy for most of the year with his own problems, but now he’s back to crack the whip (hmmm). His latest plan is…

Standard engines.

Suffice to say, this hasn’t gone down terribly well with the manufacturer teams. Have you ever taken an ice cream away from a toddler? Even if you haven’t, you can imagine the reaction.

Well, that’s pretty much how the manufacturers have reacted to standard engines. Toyota threatened to quit; BMW, Mercedes and Honda have publicly stated their displeasure at the proposal. Even Ferrari, historically the FIA’s greatest ally on the grid, has said it will abandon F1 if this is pushed through.

For now, a compromise has been reached. The teams have agreed to an extension of an engine’s life from two races to three, and they have grudgingly agreed to a standardised KERS (kinetic energy recovery system) device from 2010. The reason they are grumpy about this is that the teams have already spent $15 - $20 million each on developing KERS—at the very time that they have been trying to save money.

Max can’t be a happy man—unless the compromise was what he wanted all along and standard engines were simply an opening gambit.

All this gloom and bad feeling has had one positive upshot, though: the F1 teams are now cooperating as they never have before, and FOTA (the Formula One Teams Association) is finally speaking with one voice.

How long this will last is anybody’s guess, but I wouldn’t go betting the family silver on it surviving until Christmas.

The other option is for the teams to break from the FIA altogether and start their own series. This idea crops up every few years—last time it was scuppered by Ferrari—but with so many teams, not to mention the viewing public, dissatisfied with Max Mosley and the FIA, perhaps this time it’s not that far-fetched.

There’s no contractual or legal reason why they could not create a new motor sport world championship, they just wouldn’t be able to call it Formula One.

So, to sum up, Formula One is going through turbulent times. Sponsors are as rare as worms’ teeth, and those that are already in the sport may not be around for much longer. Billionaire owners may choose to invest their money elsewhere. Manufacturers are already looking to cut their costs, and single engines give them an excuse to leave F1 altogether.

So if you are looking to start your own F1 team, I’d give it a couple of years and allow the dust to settle.

Me, I’m doing my bit by not going on holiday again. It’s for the best.

Don’t miss my next article: An F1 Fan’s Guide to Day Trips Around the Home Counties.

Whoopee-doo.