In Theory, Formula One Teams Could be Run on Peanuts

The majority of articles on B/R are focusing on the impending demise of Formula One, and rightly so. With Honda pulling out of F1 due to money problems, I will take a look back at my Money, Money, Money series and see where costs could be saved, and how much, in theory a team could be run on.

Five months ago, I wrote three articles which focused on how much money was spent, where it was spent and how teams made money in F1.

Part One: Budgets.

Part Two: Making money.

Part Three: Component costs.

Lets take a quick look at how competitive each teams was in terms of how much each point cost them this season (figures are estimates based on 2007, and 2008 reports).

Price Per Point Analysis:

Force India spent £80 million in 2008, and scored Zero points, therefore they paid the most in F1 and got the least reward. This is expected, due to the nature of the team they took over.

Honda are by far the team who spent the most, but got the least reward. In 2008 Honda spent £200 million, however they scored just 14 points which meant they spent an astonishing £14.2 million per point in '08.

Now do we see why they bowed out of F1?

In third place is Red Bull, but the difference between how much they spent per point is vast compared to Honda, at just £4.6 million. Budget—£135 million, points—29.

So already we can see how far behind the other teams Honda were, and the huge gap between last (not including Force India) and second to last.

Williams spent £110 million, but were only three points behind Red Bull with 26, this gave them a PPP (Price Per Point) of £4.23 million. Could this mean Williams are the next team to bow out of F1? They may have spent less per point that Red Bull, but they have no major manufacturer backing, nor a billionaire owner.

Lets quickly take a look at the rest of the field;

Toyota spent £220 million, scored 59 points which means the PPP is £3.9 million.

Renault spent £175 million, scored 80 points which means the PPP is £2.2 million.

BMW Sauber spent £200 million, scored 135 points which means the PPP is £1.4 million.

McLaren spent £210 million, scored 151 points which means the PPP is £1.23 million.

Ferrari spent £212 million, scored 172 points which means the PPP is £1.23 million.

Last but not least, and a bit of a shock is Toro Rosso who only spent £45 million which gives them the lowest cost per point at just £1.15 million.

This quick analysis points toward Williams being the weakest team on the grid, and the likeliest to fold next.

Nonetheless, this doesn't tell us anything about how much a successful team can be run on, so lets look at where costs could be saved, by taking Ferrari as an example:

Wage decrease:

Michael Griffin proposed all drivers accept a £5 million wage. This would cut costs dramatically within a team. Ferrari currently pay Raikkonen £25 million and Massa £7 million, a total of £32 million, with the MG system, Ferrari would save £22 million.

So already we have cut Ferrari's budget from £212 million to £190 million.

Engine costs:

Most teams on the grid spent 45-50% of their budget on engine development and production. This includes teams like Toro Rosso who bought Ferrari engines for the 2007 season at a cost of £18 million, which is 40% of their budget. So Ferrari spend around £90 million on engine's and engine development.

With the proposed standardized engine proposal, engine costs would be dramatically reduced from £90 million to just £10 million. Already reducing Ferrari's budget from £190 million to £110 million, a 52% reduction.

Sponsorship:

With sponsorship opportunities dropping, teams are having to look at lowering sponsorship costs to attract new business.

With lower running costs in F1, teams could easily afford to do this.

McLaren are paid £40 million a year from Vodafone, and an extra £12 million each fromSantander, Johnnie Walker, Hugo Boss, TAG, Aigo, Mobil 1 etc. Sponsorship at McLarentotals £160 million, this is similar for Ferrari who are paid almost double for the title sponsor, but have less minor sponsors.

If top teams dropped sponsorship prices by 30%, they would still be able to turn a profit using the standard engines and lower wages. 

On top of this, drivers would still get promotional deals to top up their earnings, teams would make money through merchandise and their share of the FOM profits which are under negotiation. Teams are looking for at least £33 million a year.

This article only touches the tip of the iceberg which are Formula One costs, but there is definitely room for savings, whilst still being competitive.