F1’s cost crisis
Much has been written recently about the difficulties surrounding the desire by some Formula One teams to secure a cost-cap, reducing budgets to a level which will enable them to achieve what Eddie Jordan used to refer to as the ‘three S’s” ; survival, stability and success. When the survival of several teams remains in doubt, certainly in the medium to long term, its no wonder they are unable to stabilise their businesses let alone dream of succeeding.
One could argue that it has always been this way, and indeed I agree that there has never been a time when competing in Formula One has been easy, but a number of factors have contributed to making this a uniquely difficult time. The major teams along with the F1 Group and the FIA have together helped to a create a perfect storm for the bottom half of the grid.
Sponsorship is more difficult to find, especially in a world where the kinds of companies who can afford to use Formula One want to associate themselves with winners; a rather narrow group of top teams. Not many international brands aspire to a sports marketing programme where success is measured by whether or not you progress beyond Q3 in qualifying, or wish to spend USD$5,000 per ticket on corporate guests so that they can watch their cars being lapped.
Formula One has never fully recovered from the end of Big Tobacco in 2006; sectors like telecommunications and banking have gone some way towards filling that gap, but they seldom have either the staying power or the sheer volume of cash. The European economic crisis of 2008 didn’t help matters, driving banking companies The Royal Bank of Scotland, Credit Suisse and ING out of the sport. That BMW, Toyota and Honda opted to quit didn’t help matters. Interesting to recall that it was Max Mosley’s initiative, supported by Bernie Ecclestone, that resolved F1’s lack of entries by creating the mechanism for Marussia, Caterham and HRT to enter the World Championship.
New revenues have flowed primarily into the Formula One Group, and the revenue split from that favours the large teams over the small ones. Bernie Ecclestone’s huge success in making Formula One a truly global sport in the last 15 years, starting with Malaysia in 1999 before adding China, Bahrain, Singapore, Abu Dhabi and so on, has seen revenues from rights fees soar. But not much of that finds it ways to the corridors of the smaller teams in Banbury, Leafield, Hinwil or Silverstone. Similarly, the sponsorship deals from Rolex, DHL and Emirates go into the central pot; the old system whereby the World Championship did not itself have sponsors has gone.
While team revenues have dipped, costs have risen. The FIA has done well to limit the spend on technologies in certain areas, but the decision not to place a budget cap on the development of the 2014 power units was a mistake, and one which the smaller teams are paying a very high price for. My argument at Cosworth was that the new power units, including the six primary components of engine, turbo, energy store, MGU-K, MGU-H and control unit, needed to be priced in the range of €8-10m per season. That would have been possible had the OEM automotive manufacturers not spent a vast amount and then sought to recoup their investment as quickly as possible from the customer teams. It also helped to take Cosworth out of the equation; a mistake in a sport which was abandoned by Ford, Honda, BMW and Toyota in the last decade.
The decision making about Formula One’s rules and regulations remains too engineering-centric, and not commercially driven. Recent comment’s by Mercedes’ Paddy Lowe that computer controlled suspension could be reintroduced, and by Renault’s Rob White to the effect that too much has been made of the lack of engine noise, illustrates the problem. Formula One’s engineers are amazingly skilled, innovative and free-thinking; but they seldom put themselves in the position of the fans or sponsors, let alone those who have to raise the money to pay for unfettered technological advancement.
It is a fact that the media and diehard fans could probably name every single technical director, chief designer or head of aerodynamics in Formula One. I challenge anyone to name the commercial bosses of all the teams, without whose combined efforts the sport would fall on its knees. This speaks volumes about where the emphasis lies in the minds of those who love the sport; the cars and the technology. Fair enough; but the real issue facing the teams is how they pay for it.
I am a huge fan of what Bernie Ecclestone has achieved for Formula One, and never found him anything but pragmatic and supportive to deal with. But when he is quoted as saying that the smallest teams are not committed to the sport until 2020, and thus don’t deserve the same position within the F1 Strategy Group that has been afforded to McLaren, Williams, Mercedes, Lotus, Ferrari and Red Bull (including Toro Rosso), I have to disagree. In relative terms – relative to their budget, financial capability of shareholders, and spend to date – I would suggest that Marussia, Caterham, Force India and Sauber are just as committed to Formula One as anyone. Even if you callously ignore Marussia and Caterham as being ‘new’ (half a decade in…), Sauber and Force India (nee Jordan) have contributed very significantly to Formula one these past twenty years or so. There has been no lack of commitment.
I understand why the likes of Ferrari, Red Bull and Mercedes find it impossible to countenance voting to reduce their own ability to win by reducing budgets to a level which would create a level playing field. Why would they ever agree to such a thing?
The solution lies in solving the conundrum of the divided responsibilities and lack of alignment between the FIA and FOM. The rules and the commercial model of the sport need to go hand in hand. The rules need to prescribe what you can spend your money on, and proscribe the areas where the cash gets flushed away. Instead of the CEO of F1 being unhappy with the cost of the new engines, and their muted sound, he – or she – should in future be working with the FIA to support rule changes, and ensuring that the commercial model within the industry will sustain their introduction.
It may be fascinating to some to report on every flick, tweak, adjustment and slot in the front and rear wings of Formula One cars, but for me the relentless spend on an unending quest for some unreachable aerodynamic nirvana makes absolutely no sense at all. The new power units, though expensive, are at least revolutionary and road relevant. But the bottomless pit of monies spent on blowing air over rapid prototype winglets proposed by hours of computational fluid dynamics, adds nothing to the spectacle, benefits the fans and sponsors not one iota, and is one of the primary reasons why team owners on the bottom half of the grid enjoy sleepless nights.
Only when the FIA, FOM and all the teams wrap their arms around curtailing the endless spend on road-irrelevant technologies such as this, will Formula One move into a new era. Only then will all the teams be abler to focus their efforts on the stability and success that EJ outlined all those years ago.