The sport of Formula 1 has reached a point where team budgets for the top performers are so large that regardless of success, the long-term prospect of sustaining that budget level isn’t sustainable. It’s why many have been asking for a cost cap in F1 and that’s something new owners, Liberty Media, are trying to take very seriously.
According to Forbes, F1 boss Ross Brawn has suggested that the current budget levels for a team like Mercedes isn’t sustainable over the long run:
“If you take the current dominant team, Mercedes, they have the biggest resources in Formula One. They spend around half a billion dollars on their Formula One program a year to get the results they get on the track, and that’s a fantastic achievement. The problem is, they are four seconds quicker than the guys at the back of the grid, and that’s no good for the business. Also it’s not really sustainable.
“What happens is, when they are winning, those budgets have grown. During their period of domination, they spend more to stay dominant. When that domination fades away, the budgets become awkward because they are not succeeding, yet they are spending a huge amount of money.
“Those teams, particularly the boards of those teams, have come to us and said: ‘Please save us from ourselves because we have to get in that loop of achieving success. We want a regulatory authority. We want control over what we can and can’t do and to make the business more sustainable. To bring the budgets down to a level that, even if we are not winning, we can still justify it.’
As we’ve argued many times here at FBC, the hybrid power units are impressive but they are a bridge too far and have bankrupted three teams and placed all other customer teams on life support. Technology is fine but there are two distinct issues that F1 are facing, the hybrid debacle and the reliance on aero that prevents close racing. On the engines, Brawn said:
“The powertrain of these cars really is very impressive but it is inordinately expensive and for the manufacturers who are running their own teams that’s fine. It’s all part of the package. But if you’re a customer team, because a number of teams in the pitlane have to buy their engines from the suppliers, the costs are extortionate.
“The cost of an engine these days is about twice what it used to cost before these engines were introduced. That was never a factor that was considered when the regulations were introduced. There was a feel that we needed to get a more relevant engine – we have got a hybrid engine now – but the commercial side of it, particularly for the independent teams, was never considered properly.”
I am still confused as to what control F1 has over these technical regulations and where the FIA come into the equation as this is actually their turf that Brawn is walking on. Getting the engine costs under control is part of the issue while reducing the aerodynamic impact on racing is another. Then there is the entire concept of more races and the cost that implies.
“The teams have logistical issues the more races we add,” Brawn said yesterday. However, he added: “One of the things we are doing is looking at the format of a race weekend to see if we need to change that to make it logistically easier for them to do more races. So we have got a very open mind about how we go forward.
“I think the core race is still, for me personally, very important. We are not looking at changing the core event, but open question, do we need Friday running? Because if we didn’t have Friday running, we could do more races because logistically it is better for the teams. But Friday running is important for the promoters and the broadcasters. How do we find the right solution?”
Saving money by not running on Friday may be true but I can’t imagine that the teams would favor doing away with Friday Free Practice session as this is a very important part of setup for the race. Perhaps as the season moves along, they become less critical as the car is developed and relatively stable but adding more races would surely be more expensive than running on a Friday? It is an interesting read here at Forbes about the costs and how F1 may look to invest in its future.
If race sanctioning fees represent 36% of F1’s revenue, then you can see how adding more races at lower prices for hosting would had a negative net effect on the team’s revenue stream as well as F1 via reduced prize money intake. Lower sanctioning fees have been offered in the minds of fans as the single biggest reason for high ticket prices and yet as I explained in last week’s podcast, a 3-day ticket General Admission (GA) to the US Grand Prix in 1973 was $15 and adjusted for inflation, this year’s 3-day GA ticket was less money.
Ultimately it is a balancing act and F1 has a lot of work to do and perhaps one potential reduce revenue offset could be a fully produced digital streaming feed for 2018…we’ll see.
Hat Tip: Forbes