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Formula One Seeks `Radical' Cost-Cutting as Global Crisis Hits 2008-10-20 05:19:48.100 GMT


By Wing-Gar Cheng
Oct. 20 (Bloomberg) -- Formula One will shed teams and manufacturers in the next two years unless it ``radically'' cuts costs, officials said on the eve of a meeting to address the future of the most-watched motor sport.
The 10 teams, who spend an average $160 million annually, will meet the sport's ruling body tomorrow in Geneva to discuss measures proposed by Max Mosley, head of the Federation Internationale de L'Automobile, such as bigger teams supplying low-cost engines to smaller outfits.
With the global economy slowing amid the worst financial crisis since the Great Depression, Formula One will struggle unless costs are reduced, said Adam Parr, Williams team chief executive officer. The U.K. government bailed out his team's major sponsor, Royal Bank of Scotland Group Plc, this month.
``Action is essential, it has to be radical,'' Parr said in an interview at the Chinese Grand Prix in Shanghai. ``I regret the fact that it takes the world financial crisis and potentially a recession to get some action.''
Formula One owners will table proposals such as cutting the number of employees for each team to a maximum 300, as much as 700 below some of the bigger teams' rosters, said Vijay Mallya, the billionaire owner of Force India.
The most significant breakthrough may have been getting teams to present a united front, Mallya said. They formed the Formula One Teams' Association and will be represented in Geneva by Luca di Montezemolo, Fiat SpA chairman, and John Howett, president of Toyota Motorsport.

`Closer Than Before'

``This economic crisis or meltdown has brought Formula One teams closer than ever before,'' Mallya, who controls India's UB Group, said in an interview in Shanghai. ``A lot of discretionary expenditure can be chopped off without affecting the competitiveness and excitement.''
Ron Dennis, team principal for McLaren, said the global crisis had ``tempered'' people who were ``intransigent'' and encouraged more flexible attitudes.
Formula One is enjoying record broadcasting and sponsorship revenue this year, yet the economic outlook has changed, with some sponsorships in question and new backers harder to find.
``Sponsors are not coming into Formula One at the moment, not at all,'' Gerhard Berger, co-owner of Toro Rosso, said in Shanghai. ``The numbers you are asking are much too high.''

`Uncertainty'

The plight of sponsors such as RBS, which agreed to cede control to the U.K. for a 20 billion-pound ($34.6 billion) bailout, is ``unsettling,'' Parr said. ING Groep NV, a Renault team sponsor, was bailed out by the Dutch government yesterday.
Williams is ``actively'' courting new sponsors though for now isn't seeking to replace existing ones, Parr said.
``It's too early to predict what's going to happen in particular cases like that,'' Parr said. ``We obviously have to live with the uncertainty for a little bit of time yet.''
Next year's French Grand Prix, staged annually since 1955, was canceled this month after the French Motorsport Federation withdrew financing, citing the economic crisis.
The Canadian race was also dropped after contractual disputes, leaving the 58-year-old series without a North American Grand Prix. Teams are pushing to reinstate the race because of the importance of the North American market, said Martin Whitmarsh, McLaren's chief executive officer.
Mosley proposed the cost-cutting measures in July after saying the sport had become ``unsustainable.'' To stem costs, the F-1 ruling body wants to develop standardized engines and transmissions for use by all teams for the 2010, 2011 and 2012 seasons. Mallya said teams have ``accepted the concept.''
``The more you share, the less are the costs,'' he said.

`Differentiate'

Dennis said on the issue of engines that he appreciated the need to address costs but that manufacturers ``must differentiate their products and capabilities.'' Still, closer collaboration with independent teams is on the agenda and is in the interest of bigger teams, Whitmarsh said. The Super Aguri team already folded this year.
``More teams will topple if the top teams don't aid them,''
Whitmarsh said in an interview in Shanghai. ``If three or four disappear, it won't increase our market share because the audience will, for two hours, be only staring at our cars.''
McLaren remains ``open'' to an agreement with Force India on engines and technical support for 2009, Dennis said. Mallya said a decision will be made next month at the season-closing race in Brazil.

Budgets Questioned

Formula One manufacturers may come under the sort of pressure Ford Motor Co. experienced before dropping out of the series in 2004 because of the expense. Automakers that back teams include Fiat's Ferrari, Renault SA, Toyota Motor Corp., Honda Motor Co., Bayerische Motoren Werke AG and Daimler AG.
``Many manufacturers have lost 30 or 40 percent of their market capital,'' Mallya said. ``Their boards will question their budgets in F-1 as would the boards of many sponsors.''
Teams like Williams, which reported a 28 million-pound loss in 2006, may be fighting for survival.
``Unlike the banks, we don't have a sugar daddy that can just come in and pump hundreds of billions,'' Parr said. ``If we don't save ourselves, then no one is going to help us.''

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insite

all of that having been said, the one thing for certain is that the lawyers in the FIA have no experience or knowledge about the true economics of racing. the dumb crap they routinely pull in the name of cutting cost does nothing but run the costs UP. the first rule of cutting cost in ANY industry? STEADY STATE. if you keep changing crap, development costs run rampant.

wanna911

+1 Almost everything they have done has resulted in exactly the opposite in F1.

But it's not all their fault, half of it is teams circumventing the rules. the other half is stupidity. But I do agree that steady state is the way to go.

The movable aero devices next year is going to really blow the door open though, they may want to cancel that one.


Maybe F1 should employ an NCAA type deal where once a certain sponsorship level is reached, certain percentages of the access money are divided among the teams. This may end the era of big money teams like Ferrari or McLaren, but it sure would even the field out if everyone had similar budget constraints. Because we all know that a large part of racing is who has the most money. Heck if they drastically reduce the amount of money that CAN be put into F1, we may see someone like Porsche get into the mix.

insite

not as long as the FIA are running the show like in recent history. it's the haphazard BS with the rulebook that caused them to leave for good in the first place. if there were a rules freeze for a ten year period, THEN i would entertain the idea of porsche in F1. in fact, a ten year rules freeze would probably be the easisest way to bring the costs down.

chris walrod

They can start with hospitality -- no more elevators or escalators in the hospitality centers. In fact, how about a few EZ-Up's and plastic lawn chairs. There's ten million saved per team, right there.

insite

the hospitality is the reason the sponsors are into this; it's a business generator. pull the hospitality and you lose the sponsors.

FGL28

+1

They need to look at returning to the markets where the sponsors have a ready market. Like the USA. They have ignored the US market and I feel that they could generate more fans which will equal more $$$$$$$.

They need to show what innovations F1 has brought to the world of auto safety and innovation. It won't save a lot of money. But it can help justify the money spent.

Make Development changes ie motors etc last longer than one season. Having the motors last longer than 2 races might be one answer.

Make the rules and stewards more transparent. People do not like nameless /faceless Stewards who make rulings that make people wonder who is writing their paycheck.

1AS

Why not just restrict the budget? Kind of like campaign financing reform- oh ****, that didn't work. AS

insite

if the ultimate goal is to reduce the cost of running an F1 team, a budget cap would only affect the top teams. it wouldn't get any less expensive for the little guys. they need to reduce development costs. an engine at $250k is nothing compared with developing a new engine at $20M.

Ritter v4.0

Switch to spec Miatas and beer instead of champagne on the podium.

MDL

Max could lead by example if he would just cut down on the number of hookers per session.

chris walrod

Well, perhaps a perk of the backing, but not the sole reason. On air advertising it is. I get reports from each of our races where someone counts how many times a particular brand name was mentioned on air, then gives a full detailed report of how many seconds each brand was televised.

Kinda interesting to read, honestly.

Flying Finn

Well, FIA & FOTA made a deal today for 2009 & 2010 with the intention of FOTA quickly coming up with more proposals for 2010 & fwd.

No details yet what's included.

Veloce Raptor

If they wanna cut costs, perhaps they should start with driver salaries.

chris walrod

What, is 360G Eu per lap too much? Thats like, minimum wage these days...