Why small teams can’t afford F1…redux

Well kids, this is what I warned you about. As I’ve said here and here, Formula 1’s elephant in the room is the new hybrid engine that the FIA ushered in for 2014 that has more than doubled the cost of running a team. While the media and F1 pundits have played lip service to the new “green” engine, it has become the single most expensive element in running a team.

A letter from Caterham, Marussia, Sauber and Force India has been seen by the folks at AUTOSPORT and they ran an article which can be seen here with a headline of: “Analysis: Why small teams can’t afford F1 amid Caterham/Marussia woe”. Here is what the teams listed as their average expenses excluding driver salaries (this doesn’t matter because most are paying drivers), building leases, hospitality, marketing and media:

Hybrid power system $28 million
Gearbox and hydraulics $5 million
Fuel and lubricants $1.5 million
Tyres $1.8 million
Electronics $1.95 million
IT $3 million
Salaries $20 million
Travel and trackside facilities $12 million
Chassis production/manufacturing $20 million
Windtunnel/CFD facilities $18.5 million
Utilities and factory maintenance $2 million
HR and professional services $1.5 million
Freight $5 million
TOTAL $120.25 million

AUTOSPORT’s analysis is that the economics of F1 don’t work and that the expense levels outweigh their income levels. Wow, really? I do like Mr. Noble a lot but that’s hardly “analysis” is it? That’s the most basic concept of business—revenue must exceed expenses. Then again, I think I understand what they are doing by not commenting but simply throwing it out there as revelatory and not making a “political” statement. I appreciate that and respect their move on that front, they’re good cookies over there.

Unlike AUTOSPORT, I will call out the elephant in the room. The FIA’s green engine is the death knell of F1. Before you get animated over my comments as you feel F1 may be contributing to road relevancy, lowering carbon emissions and saving the planet one race at a time, let me say this: ignoring a fact does not make the agenda and political narrative true or successful.

Regardless of if F1 is emitting less carbon, it can’t afford it. Regardless of how successful you may feel the new hybrid engines are, they are simply too expensive for F1’s current format which consists of medium and small teams.

Either you get all manufacturers who can spend $300 million per year to enter the sport or you make changes so small and medium market teams can participate. For those new to F1, in 2010 then president, Max Mosley, brought Cosworth into F1 to provide an engine supply of V8’s to small teams for $4 million. That’s FOUR million dollars!! Not $28 million. Look at the list, which is the single highest cost?

You could parse the list and try to blame things like salaries and wind tunnel but trust me, you’re not doing yourself any favors by criticizing the elements that design the car chassis. You could reduce some of the aero regulations and that might reduce the wind tunnel expense so there are savings to be made there but not as much as the hybrid engine.

Maybe the elephant will get smaller or the room bigger

This would be a laugh if it were not so tragic in scope. One possible saving grace might be the initial cost of hybrid development will reduce over time making these new power units more affordable. Could we see the cost of the engines reduce to $10-11 million over time? Maybe. That is if the race for development—which Renault and Ferrari are strongly advocating—doesn’t continue the hybrid software and technical advancement costs.

The continued cry for an even distribution of the prize money is a red herring. If the small teams were to get more prize money, it would be in the range of $30-40 million and most of that would be used to pay for engines. The point is moot because they still have a team to run and expenses to cover. If the engine supply was $8 million, that would be a big help but as it is, it will not make a big impact and it will only turn F1’s milk sour for the big teams. They may do this, regardless, just to help offset the debacle they’ve created with engine costs so I don’t count this option out. That would be a concession on the big teams part and F1’s part to save them. It would be a stop-gap measure at best but not a long-term solution.

F1 has serious questions for itself and the most pressing question is how to create a format that is inclusive of small teams or can revenue be increased to cover the costs. I doubt F1 wants to have to get into the balance sheets of small and medium-sized teams in order to try and help but at this point, I see no big manufacturers announcing their arrival in F1 so they will have to figure out a way of keeping the minnows.

Congratulations to Renault and Mercedes for threatening to leave the sport unless it went “green” and for annihilating the small and medium teams. The sport might be damaged—possibly irreparably—but the world now believes that the series is emitting less carbon and that the car companies are finally capable of providing hybrid engines for our road cars where once they were stymied as F1 had not offered this cutting-edge technology for them. Pragmatism at its finest moment.

One last thing, remember when the press and other big team bosses stood, mouths agape, denigrating Bernie Ecclestone and Luca di Montezemolo for criticizing the new engines and the sound of the new engines? Oh how they were admonished for doing so. I tend to think they knew it all along and were right to do so. They recognize a bad elephant in the room when they see one.

Hat Tip: AUTOSPORT

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