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How can Formula 1 Teams cut their costs in order to ease the problem of the current economic recession?
By Gergo Sram
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The current recession, which has begun in 2008, has had a big impact on everybody all over the world, on both householders and businesses, with a numerous amount of bankruptcies and credit crunches as a result. The recession has also left its mark on many things, including on the highest class of single seater auto racing in motorsport, which is known as Formula 1. 1 Recession is best defined as “2 successive quarters of negative economic growth”. When this happens, the macroeconomic theory shows that Aggregate Demand falls and as a consequence of the Real GDP (negative economic growth) falling as well and when Real GDP falls, it has a direct effect on the components of aggregate demand as well: Consumption and Investment.
During a recession, a business will have less confidence to invest into a certain project and banks will decline lending money to other firms, so automatically they will have less money available.2 For example, a company that wants to invest into a Formula 1 Team during a recession will be very cautious about the amount they invest (as they do not want overinvest because of the possible losses in the future) and they will be looking for solutions how they
will be able save as much money as possible and what methods they can use in order to cut their costs, but still be able to carry out their project(s) successfully.3 Cutting costs also mean that some people would loose their jobs and unemployment would increase, as a result of for example a team is trying to save costs by carrying out less research and development, so less people would be needed to carry out jobs therefore they would be relieved of their duties, which would free up more money as well.4 My main objective is to look at methods of how Formula 1 Teams can stay in the business during a recession and how effective they are in terms of saving money. There are a lot of methods in action at the moment and the teams are coming up with different solutions every year to reduce costs, such as limiting the number
1 Tim Webb. (2008). Is Formula One on the skids?. Available: http://www.guardian.co.uk/business/2008/dec/07/formula-‐one-‐recession. Last accessed 19th July 2012. 2 Keith Collantine. (2008). F1 sponsors hit by global recession. Available: http://www.f1fanatic.co.uk/2008/11/08/f1-‐sponsors-‐hit-‐by-‐global-‐recession/. Last accessed 20th July 2012. 3 Andrew Benson. (2012). Ferrari president Luca Di Montezemolo urges F1 cost-‐cutting. Available: http://www.bbc.co.uk/sport/0/formula1/18421007. Last accessed 26th July 2012. 4 Guy Logan. (2009). Mercedes-‐Benz job cuts triggered by Formula 1 rule changes. Available: http://www.personneltoday.com/articles/09/06/2009/51004/mercedes-‐benz-‐job-‐cuts-‐triggered-‐by-‐formula-‐1-‐rule-‐changes.htm. Last accessed 26th July 2012.
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of engines and gearboxes per season, or the ban of mid season testing. 5As the economic situation is not likely to improve in the near future, the teams and the FIA (Fédération Internationale de l'Automobile) most likely need to come up with new and efficient regulations for the future to improve the situation even more. When the recession hit the sport in 2008, it was evident that it hit the sport very hard, as alarmingly, three manufacturers quit the sport within a year: Toyota, BMW and Honda.6 Honda said they decided to pull out because of the “quickly deteriorating operating environment facing the global auto industry... and the sudden contraction of the world economies”. 7Motor racing had to be sacrificed for these companies in order to have the financial ability to keep carrying on working on their road car manufacturing industry. If cost cutting methods are not introduced in the near future it is likely that more manufacturers will leave the sport, with Mercedes rumoured to be the latest team to abandon their F1 project at the end of 20148, which could potentially leave permanent scars on the sport with fans becoming uninterested in the sport as a result of fading competition between world famous manufacturers. One of the first methods over the past couple of years to deal with the finance situation; that was introduced in the sport was limiting the number of engines and gearboxes allowed to be used throughout the season. From 2009, one driver is only allowed to use 8 engines and 5 gearboxes per season, and if the teams exceed these numbers, they are facing a penalty, which motivates the team to try to stick to these numbers, in order to not to loose out against other teams and as a result reducing the costs. Up until 2008, each car could use a new engine every two Grand Prixes and a new gearbox at every grand prix. 9However, it is clear that the rules that were introduced in 2009 had a good effect on the sport in terms of saving as this table shows below:
5 N/A. (2010). In-‐season F1 testing ban amended. Available: http://www.crash.net/f1/news/156870/1/in-‐season_f1_testing_ban_amended.html. Last accessed 28th July 2012. 6 John Greene . (2009). Recession forces Toyota off Formula One race track. Available: http://www.independent.ie/incoming/recession-‐forces-‐toyota-‐off-‐formula-‐one-‐race-‐track-‐26579230.html. Last accessed 10th July 2012. 7 Andrew Benson. (2008). Global crisis ends Honda F1 era. Available: http://news.bbc.co.uk/sport1/hi/motorsport/formula_one/7766092.stm. Last accessed 6th July 2012. 8 Kash Kahn. (2012). MERCEDES AMG LOOKING TO WITHDRAW FROM THE SPORT – FORMULA 1 NEWS. Available: http://blogs.bettor.com/Mercedes-‐AMG-‐looking-‐to-‐withdraw-‐from-‐the-‐sport-‐Formula-‐1-‐news-‐a180460. Last accessed 9th July 2012. 9 Keith Collantine. (2010). Five-‐race gearboxes among other rules changes. Available: http://www.f1fanatic.co.uk/2010/12/10/five-‐race-‐gearboxes-‐among-‐other-‐rules-‐changes/. Last accessed 15th July 2012.
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The engine is the most expensive component in a Formula 1 car, costing approximately £150,000 and it takes 80 hours to assemble 5000 parts. Nowadays, there are not as many engine failures as in the past, however this part of the car can still be a weak point. Prior to the cost cutting measures that were introduced in 2009, the drivers used usually 10 engines (however this also depended on how many races there were in a season, but on average a season is 18 races long, and an engine failure at a weekend is common for everyone) which was enough for the whole season and this number was not exceeded by any team. Because the team operates two drivers, they needed to supply 20 engines. This amount was just for the Grand Prixes, testing required more engines to be supplied, however the number of this varied from team to team, depending on how much each team decided to test (A team with a small budget usually cannot allow itself to spend a lot on testing). The 2009 regulations meant that the teams would be supplied four less engines than before, and it meant that one team would save around £600,000 per season. 10 However, the restrictions on the use of the gearbox has had bigger impact than the engine, mainly because the drivers were allowed to use a brand new gearbox every race, which meant a driver used around 18 gearboxes per season, and the team 36 in total, and as a result, this component of the car was a very expensive part to provide, costing around £3,240,000 per season. It can be concluded from the table that reducing the number of gearboxes for the season to five per driver was very effective, as the teams need 26 gearboxes less, and it would mean a team is likely to save around £2,340,000 in a single season. In some cases, this number can vary, as some teams might use more than 10 gearboxes a season, which depends on how many gearbox failures a team has, and even today, this component of the car tends to be the most vulnerable mechanical part, and teams have to deal with gearbox failures quite often. In the worst cases, a team might only save around between £2,000,000 and £2,100,000, which are still a large amount and a very important figure during a recession. 11 10 Jake Simpson. (2011). In the Pits: Formula 1 technology. Available: http://www.netcars.com/_client/images/infographics/Formula1IG-‐Euro.jpg. Last accessed 28th August 2012. 11 James Roberts. (2008). Cost of an F1 Car. Available: http://www.f1-‐country.com/f1cost.html. . Last accessed 25th August 2012.
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From an economic point of view, saving this amount of money is very positive, especially when the costs saved of the engine and gearbox limit is added together: With these methods, one team saves almost £3million, however some teams could argue from a racing point of view that it is hard not to exceed these limits and because of the penalties they could receive, as a result of pushing throughout the race weekends with full commitment in order to extract the most of the car and to have a competitive edge over their rivals and they would have, ironically, a disadvantage throughout the championship, but overall, if the sport is looking for a way in which it can deal with the current financial situation, it is a very effective way to save money and a method that should be definitely kept until the sport is struggling with the problem of recession and until the manufactures are looking to cut back in investing into Formula 1. Up until 2009, mid season testing was allowed in Formula 1, where teams could run their car to collect more information and improve the performance of their cars for future races.12 This meant that the team had supply more car parts, in order to take part in a testing event, had to increase the wages of the mechanics and cover their travelling costs as well. This took up a very big part of a team’s budget, and when the recession hit the sport in 2009, it was inevitable that mid season testing would be banned by the FIA, as overall, it is a very expensive process and it would become a method in order to cut costs and try to ease the problem of recession. A Formula 1 car has many components, which need to be supplied in large quantities (for example spare parts, in case the original part gets damaged). A team could only use one car for testing, however, still it was very expensive. The table below that I put together shows how much each component costs:13
12 Pat Symonds (2012). F1 Racing Magazine (Issue 206). London: Haymarket. p26-‐27. 13 James Roberts. (2008). Cost of an F1 Car. Available: http://www.f1-‐country.com/f1cost.html. . Last accessed 25th August 2012.
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By adding up all the costs of the different parts that enables a Formula 1 team to run a car, it can be concluded that it is very expensive just to assemble a car for a Formula 1 testing event, especially with the fact that one part of each component is not enough; spare parts are needed as well, because if for example, the first engine fails, the team will need another one to be able to continue the work, therefore instead of spending £150,000 on an engine, they will have to supply two engines (in very rare cases three) which would usually last three days of testing, bringing it to a total of £300,000 or even £450,000. It is true that today a Formula 1 car is more reliable than in the past, however mechanical failures are still very likely, and any parts listed above can break easily, especially the parts that are responsible for the car’s down force. The front wing creates about 25% of the car’s total down force, so it is a very important part for the teams to perform successfully, but it is the most vulnerable component on an F1 car.14 The teams supply a lot of these “weak” body parts as this can be broken by the smallest of mistakes by the driver, and if there is no replacement, the team cannot progress if a mistake is made. A team usually takes four pieces of front wings to a testing session just in case, which is very expensive, considering how small the part is. A front wing costs approximately £15,000 and the teams usually spend £60,000 just on this part of the car to go and test and maximise the performance. Overall, the most expensive part of this business was the supplement of the Telemetry Softwares, which gives feedback to the mechanics and engineers about the car and its performance. A team usually takes around 25-‐35 mechanics to a test session (depending on the size of the team) and more telemetry data means more data can be analysed quicker and more efficiently, and thus the car performance could be potentially improved better, therefore a team takes (minimum) ten of these to an event. One unit of this type of technology is expensive already; costing £75,000 (due to the complexity of these systems and how much information it can provide in no time) let alone ten of these, equalling the cost to £750,000. This amount of money is only spent on technology that would only be used for testing and not for the races, so the teams usually buy an extra 20-‐25 Softwares just for the races. The tyres come out expensive as well as a single Formula 1 tyre manufactured by Pirelli is £450, which is a big amount for a single tyre. The teams get 10 sets for each test, and it is a very important element of the sport, as teams test different compounds to understand how they can maximise their performance from them and as a result, they used demand a lot of sets from the tyre manufacturers, as more tyres meant more data could be collected. Overall the tyres cost £18,000 for a single, three to four day session. Usually there were five mid season tests, so overall, just for testing, financing the tires could have cost £90,000. 15 14 David Barnes. (2011). Front wing aerodynamics. Available: http://www.f1technical.net/articles/8. Last accessed 22nd August 2012. 15 Jake Simpson. (2011). In the Pits: Formula 1 technology. Available: http://www.netcars.com/_client/images/infographics/Formula1IG-‐Euro.jpg. Last accessed 28th August 2012.
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It is not just the car part costs that needs to be considered, but the mechanics’ wages and the travel costs as well, which both contribute to the costs of mid season testing. On average a mechanic is paid £2000 for working at a three-‐day test. The salary could depend on the position of the person. A normal mechanic could be paid around £1500 a month, but a chief engineer could earn as much as £3500 a month. A large team normally takes around 35 members of its staff to an event, so approximately between £70,000 and £80,000 is spent on the salary of the staff. The travelling cost of the team varies, depending on the length of the flight and the airline, but on average it is calculated to be around £4000-‐£4500. Up until mid season testing was banned, there used to be at least five mid season tests, which would mean the expenditure of salary and travelling costs would have been around £370,000-‐£380,000. To this amount comes the cost of the car parts as well. 16 In the future, if mid season testing was re-‐introduced, it could become cheaper, as technology improves every year and better capital would become available, therefore the parts of the car could be assembled more efficiently, hence reducing the costs, however for now, during this economic recession, from an economic point of view, it is a very good method to cut the costs and a lot of money could be saved, but from a pure sporting point of view, people from smaller teams would argue that they cannot close the gap to the top teams, if testing is not allowed, because they do not have time to develop their cars. However at the moment, teams should carry out their testing duties during the Practice Sessions of a Grand Prix weekend.
As a result of the uncertain of the future of the economic situation, it is very likely that new solutions must be introduced. However it is very hard to find methods that would guarantee that it would work and that it would reduce the costs by a large amount. A lot of teams would argue, especially smaller teams, that cost cutting would not be a good idea, if they look it from the
competition point of view, because they would not have a proper chance to close the gap to the other teams, if, for example, mid season testing is banned in order to cut costs and no development work could be carried out on the car. Therefore, a method would be to re-‐introduce tobacco advertisement in Formula 117, which could, however be controversial and some people might be against the
16 Amrita Chuasiri. (2010). The Average Salary of an F1 Racing Mechanic Read more: The Average Salary of an F1 Racing Mechanic Available: http://www.ehow.com/info_12027198_average-‐salary-‐f1-‐racing-‐mechanic.html. Last accessed 28th August 2012. 17 CNN World. (2005). F1 to ban cigarette ads. Available: http://articles.cnn.com/2001-‐11-‐22/world/fia.tobacco_1_tobacco-‐advertising-‐tobacco-‐promotion-‐ban-‐tobacco?_s=PM:WORLD. Last accessed 20th August 2012.
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idea. Tobacco advertisement started in the sport in the early 1970s, and by the end of the 1990s, most of the teams relied heavily on these companies to provide them enough revenue to be able to keep the team running and competing. The table below shows the teams that had a tobacco company that sponsored them in 1999 (the period when this type of advertisement was at its pinnacle):
It can be seen that many tobacco companies invested in the sport, in 1999 particular, when seven out of the eleven teams were sponsored by various companies,
which was the most companies present in the sport at the same time. 18 In most of the cases, these tobacco companies were the “title sponsors” of the teams, which meant it provided the most money out of all the sponsors that support a team and took up the biggest spot on a car. Sometimes tobacco companies were so influential, they demanded the team to change their team livery matching it to the colours of their product.19 Tobacco advertising was banned initially as a result of many people campaigning against advertisement of smoking and the “anti-‐smoking legislation” was introduced.20 However, even in an economic crisis, like the one we are in today, it would be a sensible idea as these companies would have the confidence to invest into the sport once again as they would have the revenue, and thus the opportunity cost would not be high for them. In terms of economics, tobacco counts as an “addictive good”, therefore whatever the economic situation is, consumers are still likely to use part of their real disposable income on these goods. As a result, tobacco companies can
increase their profits if they want to, by simply increasing their prices. Such as tobacco, they are relatively inelastic in demand, which means that quantity changes less than price does. So, if a company, like Marlboro decided to increase the price of their products, their total revenue will
18 Brad Spurgeon. (2011). The End of Tobacco Sponsorship Led to the Beginning of Other Sponsors in F1. Available: http://formula1.about.com/od/historyofsponsorship/a/The-‐End-‐Of-‐Tobacco-‐Sponsorship-‐Led-‐To-‐The-‐Beginning-‐Of-‐Other-‐Sponsors-‐In-‐F1.htm. Last accessed 28th August 2012. 19 Tamerlane, B. (2008). The Drag Strips: Tobacco Liveries in F1. Available: http://karakullake.blogspot.co.uk/2008/05/drag-‐strips-‐tobacco-‐liveries-‐in-‐f1.html. Last accessed 27th August 2012. 20 N/A. (2005). The history of anti-‐tobacco legislation. Available: http://www.grandprix.com/ft/ft14769.html. Last accessed 30th August 2012.
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increase, as they will not loose as many consumers. It was estimated that Marlboro, the largest selling brand of cigarettes in the world has paid Scuderia Ferrari £100 million a year during the years it sponsored the team. Because Marlboro sells most of the cigarettes worldwide, it has a very a big revenue, and therefore they have a lot of funds available to inject it into the team.21 Ferrari have been trying to cheat the rules by using subliminal advertising of Marlboro (until 2011) in order to not to loose a large amount of money, which they so heavily depended on for more than a decade after tobacco advertising was banned in the sport.22 As a result the team still received its £100 million a year and it stayed as a major sponsor of the team. The team itself does not have a lot of sponsors, therefore it was essential for them to rely on Philip Morris International, but luckily for them they managed to replace them by a Spanish Bank giant, “Santander”, but with the current economic and financial worry of Spain and the Spanish banks, the sponsorship of Ferrari could become unstable and could quit Formula 1 in the near future leaving Ferrari with £60million less a year, which could potentially hinder their F1 project and development. If the anti-‐smoking legislation were to be abandoned, it would encourage Formula 1 teams straight away to find tobacco companies and negotiate with them over sponsorship deals and it is likely that these companies would be open to the idea of returning to the sport as well. Both sides would benefit, as the teams would get a big amount of sponsorship, and arguably, less costs would have to be saved, therefore things such as mid season testing would not have to be abandoned, and it would keep a lot of teams satisfied. In return, the companies would get a lot of advertisement on the cars, and it could lead to even more revenue for them. However, the return of tobacco advertisement could be very controversial, as some people would believe that it would not be a good idea from an ethical point of view, due to the fact that advertisement would encourage more people to smoke and as a result increases the chance of more people dying from smoke related illnesses. I have carried out a survey on a Formula 1 website (www.gpro.se) asking people about the issue of tobacco advertisement, and whether it should be brought back in order to help the economic situation. The results of the survey can be seen here:
21 Tom Love. (2011). PMI to pay Ferrari US$480 million over three years. Available: http://www.sportspromedia.com/news/pmi_to_pay_ferrari_us480_million_over_three_years/. Last accessed 3rd September 2012. 22 Gemma Charles. (2010). Ferrari F1 comes under fire for Marlboro barcode logo. Available: http://www.marketingmagazine.co.uk/news/1000160/. Last accessed 3rd September 2012.
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It can be seen that the results were very close, however 51% (195 people) of the poll agreed that tobacco advertising should be allowed in Formula1, because they would bring crucial revenue to the sport: “Yes it should be allowed with a compromise that the teams should be allowed to have tobacco sponsors but not the circuits or anything else. I think it's hypocritical that alcohol and junky energy drinks are allowed in but not tobacco. Budget is crucial to the teams and they should be allowed to raise finance by using tobacco sponsors.”23 Meanwhile on the other hand, 49% (187 people) said that it should not be allowed, with views that it could tempt people to smoke and have a bad effect on younger generations as well as adults: “The worry is that advertising on cars is not aimed at the adults who are quite happily entrenched in their ways and routines -‐ it's aimed at kids and teens who are there for the moulding as future consumers”24 It was also suggested that companies like McDonald’s and Coca Cola should enter Formula 1, as nowadays “junk” products are very popular and these companies have plenty of revenue to invest into F1. As an example, in 2011, McDonald’s had a revenue of 27.006 billion dollars, however just like with tobacco advertisement, some people and organizations might not be in favour of this idea as these products are likely to have a bad effect on the viewers of the sport as they would be encouraged to consume these products that could make the issue of obesity even bigger in today’s society, therefore it is not likely that these companies would enter the sport because of the controversy that would follow this issue, but it is undeniable that if the sport wants to survive and the teams do not want to cut costs because they want to push their technical abilities to the limit, the best idea would be to allow these types of advertisements.
23 Quote by Lee Ifans (Accessed Jun 16th 2012) on www.gpro.se (Topic: Tobacco advertisement in Formula 1) 24 Quote by Chris O`Sullivan (Accessed Jun 16th 2012) on www.gpro.se (Topic: Tobacco advertisement in Formula 1)
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Another idea that could potentially cut the costs in Formula1 is introducing “Development Zones”.25 Because the competition is so intense and everyone wants to win, teams are pumping a lot of money into their Research and Development section and usually big teams, such as McLaren, Red Bull and Ferrari bring new parts to every race and try them on the Fridays if they work or not. However, usually only half of these developments work and the other half is thrown out, which is a big waste of money of one of the biggest expenses nowadays. It is estimated that an average Formula 1 team spends around $35-‐$40million26 just on researching and developing new parts for their car, and usually $20million goes down the drain, just because the parts that have been developed did not make the car go faster, which is, in an economic recession like today is not acceptable and has to be dealt with. Therefore the teams should not be allowed to change their car specifications for five races, only the set ups, and as a result, research and development is restricted until the 5th race of the season, where the teams will be able to modify their cars and bring new parts to try out, and the same would apply for the 10th and 15th race of the season. This method has never been used, however it would definitely work as the teams would carry out less R&D and wouldn’t spend $35-‐$40million. A team like McLaren-‐Mercedes brings new parts to every race as they are a team who are a top team and fight for the championship every year, spend approximately ($40million a year divided by 20 race season) $2million a race just for developments, however if “Development Zones” would be introduced it is likely that a team would only spend around $9-‐$12million for R&D mid season, saving a significant amount, around $30million a year. With these regulations, it is likely that a team would carry out more developments for a race that they can use for the next five races until the next “zone” so a team could bring updates worth up to $4million, because they are restricted but it would still cost far less than what it was before when Research and Development was not controlled and was not regulated by the FIA. A last idea would be use of a “Budget Cap” would also be a method to cut the costs, however it would be very hard to implement this because of the different sizes of the teams. A £40million budget cap was proposed at the start of the financial crisis in 2009, however it was rejected by the bigger teams as they found the figure too low. Big teams, such as Ferrari and McLaren spend approximately £300m a year on their team, therefore a jump from that figure to £40million is huge and it is very hard to achieve. A budget cap would be beneficial for teams with small budgets and they could close the gap while the big teams would need to reduce their costs significantly and therefore, a lot of money could be saved. With a budget cap it is definitely possible to reduce costs, however the £40million figure that was proposed three years ago is too low and if it was to be implemented it needs to be increased. Team Principals of top teams, such as Martin Whitmarsh of McLaren Mercedes said that it is ”impossible 25 Gary Anderson. (2012). Keeping Formula 1 costs down. Available: http://www.bbc.co.uk/sport/0/formula1/18464273. Last accessed 5th September 2012. 26 Jake Simpson. (2011). In the Pits: Formula 1 technology. Available: http://www.netcars.com/_client/images/infographics/Formula1IG-‐Euro.jpg. Last accessed 28th August 2012.
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to work with such a low figure”,27 which is not surprising as teams like McLaren employ high calibre drivers who tend to earn a lot of money during a season. As an example, in 2011, the McLaren drivers employed two world champions, Lewis Hamilton and Jenson Button, therefore the team offered them a salary of $20million each for a year, bringing it to the cost of the proposed budget cap, and this is only the salary of the drivers.28 These high profile drivers are not willing to accept salaries of for example around $2million (which is still a lot comparing it to the earnings of other people), therefore the budget cap line needs to be raised.
The budget difference between a top team (Mclaren) and a bottom team (HRT) is very big and with teams spending more and more, smaller teams cannot keep up financially and eventually they would withdraw from the sport and it would discourage new teams to enter and the sport could lose much needed revenue. Therefore a budget cap of around $150million could work, which would exclude Marketing and Promotion costs, in order to attract as many sponsors as possible, and Engine costs, in order to attract more manufactures to the sport, which as well, could lead to more revenue, but this is debatable as the Engine development usually takes up half of the budget of a team. However the rest of the components would come under the “budget cap” and the teams would not be allowed to exceed this amount. The budget cap could also be combined with the “Development Zones” as then Research and Development would only cost around $10-‐$12million per season (for the big teams) which means less money would have to be spent on capital, such as machinery which helps the R&D department and the teams could cut down at least $10million, in order to meet the requirements of a $150million budget cap. An example how a team like McLaren-‐Mercedes can spread out its cost with a budget cap:
27 Jonathan Noble. (2012). McLaren's Martin Whitmarsh says FIA 'has to make decision' on cost control in F1. Available: http://www.autosport.com/news/report.php/id/100901. Last accessed 9th September 2012. 28 N/A. (2012). F1 2012 driver salaries revealed -‐ but who earns most?. Available: http://www.crash.net/f1/news/180405/1/f1_2012_driver_salaries_revealed_-‐_but_who_earns_most.html. Last accessed 15th September 2012.
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It can be seen that with this budget cap top teams that usually spend around $200million a year (excluding engine and sponsorship cost) can save around $50million. However small teams might argue that a $150million budget cap is still too much, for example
HRT, who spent approximately $90million in 2011 and they would still not be able to compete, however then big teams would argue that it is impossible for them to cut costs down even further, because then, they would have to decrease their labour (staff salaries) and would leave a lot of people unemployed (which follows the macroeconomic theory that when there is a recession, unemployment tends to rise), so it would be very hard to come to an agreement if there was a talk of a budget cap being implemented (like in 2009, when the £40million cap was rejected by the big teams).29 In conclusion Formula 1 teams can cut their costs in order to ease the problem of the current economic recession by using various methods. Formula 1 teams are already working on how to cut costs efficiently during this tough economic period that hit the sport at the end of 2008, and the FIA has already introduced measures such as restriction of the use of technical parts like the gearboxes and engines and the restriction of mid season testing, which both turned out to be very effective, with the teams saving millions of pounds as a result. However, with today’s economy becoming very unpredictable, it is possible that Formula 1 will need to consider even more solutions to the problem in the future. There are many ideas that could benefit the sport that I have earlier discussed, such as bringing back tobacco sponsorship, which would bring a lot of revenue of the teams (but could be controversial, as it was already banned once), impose a budget cap, which would prevent teams spending hundreds of millions of pounds (and it would also make the competition closer) or implant new radical reforms such as my idea of introducing “development zones” which would also reduce costs significantly. Some methods would be easier to implement than others, for example it would be hard to bring back Tobacco advertising with many ethical issues surrounding it, or the budget cap, which would be hard to agree on where the line should be drawn. However things like “development zones” would be fairly easy as the idea is pretty simple and would be easy to agree on. But by looking at all the figures and numbers of the methods that have been calculated and how much could potentially can be saved, it can be concluded that all of these methods would allow the teams to achieve their aim of saving, and costs can be cut with all of these ideas. This would encourage teams to stay and come into the sport as it would be affordable and companies would have the confidence to invest in a team without making any losses. The
29 Formula 1 . (2009). FIA Q&A on Formula One cost capping. Available: http://www.formula1.com/news/interviews/2009/4/9291.html. Last accessed 20th September 2012.
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end of the current global economic crisis is not to end yet, therefore it is important for the sport to make contingency plans for the future, to make sure that the sport, the teams, the sponsors and the investors will have a stable and successful future.
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