SEPTEMBER 13, 2005

Why cost-cutting in Formula 1 is just not possible

The subject of cost-cutting in Formula 1 in trotted out whenever it is needed by one side or another in whatever F1 political battle is going on at that particular moment.

McLaren-Mercedes, Belgian GP 2005
© The Cahier Archive

The subject of cost-cutting in Formula 1 in trotted out whenever it is needed by one side or another in whatever F1 political battle is going on at that particular moment. Everyone has marvellous justifications of how money will be saved, but with the passage of time the budgets just keep on going up. If you cut money out of one area with the regulations, the investment is switched to another area. If you restrict the regulations, then the money is spent in the areas where there is freedom. Thus one can ban electronic management units but then intense development will go into mechanical systems to replace the defunct systems.

There are many examples of this over the years. If you reduce testing to save money, teams invest in expensive machines to do the testing on static rigs in their factories. No money is saved. If you reduce the number of days of testing, teams go along to the tests that are allowed with more cars and more people because they want to have cars running at all times and thus the cost of each test goes up, even if the number of tests goes down. No money is saved.

Making V8 engines is no cheaper than making V10s, indeed the research and development of a new engine formula costs much more than would be the case if an old and much-developed engine is worked on.

Tyre development is expensive and there must be a lot of tests but if the tests and the tyres do not matter the teams will use the money they have to develop other ways to get the most from the tyres.

This is the law of the F1 jungle and the only way that this changes is when the money supply dries up. That can be when a parent company, such as Ferrari's FIAT, cannot afford to pay any longer. Or when a team's poor results mean that no sponsors want to join them. And as McLaren is proving this summer, a winning car gets more sponsorship.

And one cannot legislate to cut costs unless you can create a budget-capping system. When the Ford Motor Company's Richard Parry-Jones tried to suggest that idea last year he was laughed out of the paddock because everyone knows that F1 teams would cheat on a rule like that, in order to gain an advantage.

So, the laws of the market must prevail and they will work because too much success by one team or another will lead to a drop in interest in the sport and thus a contraction of the money supply, even for the winning team. Budgets are highest when racing is closest because good races attract more viewers and more viewers attract more money.

The FIA argues that it is not fair that new teams cannot afford to get into F1. That is not a convincing argument. If they cannot afford to enter the sport they should not try. This, let us not forget, was the reason for the $48m bond which was introduced a few years back to stop time-wasters so it is a bit odd that now the FIA wants to protect the under-funded and help impoverished newcomers.

The other thing to note is that apart from Toyota, which had money to burn (and burned it!), all the other new teams in recent years have taken the much more logical route of buying an existing team, rather than starting from scratch. And it is a long list: BAR bought Tyrrell; Renault bought Benetton, Alain Prost bought Ligier, Paul Stoddart bought Minardi; Red Bull bought Jaguar (and now Minardi as well), Midland bought Jordan and BMW has bought Sauber. Thus the idea that new teams should be able to wander into F1 like in the good days is misconceived. It is obvious that it makes more sense to buy a "franchise" rather than try to do it all from scratch. With B teams allowed, getting into F1 will be easier but with only 12 "franchises" available the smaller teams are going to have learn quickly because TV money is paid only to the top 10. In other words the new teams will be at a huge disadvantage. In the circumstances it is unlikely that there will be many B teams or that they will do what Red Bull has done and buy a smaller team. If young team bosses want to get into the sport then they must be smart enough to find big backers and buy themselves a "franchise". Craig Pollock did that with BAR and Christian Horner has an alliance with Red Bull which means that he learning how to run an F1 team. Perhaps in the future he will be able to buy a franchise of his own.

By far the biggest source of discontent that exists in the sport is the fact that Ferrari gets more money than the other teams, even if it does not perform. And the bottom two teams do not get any prize money. If there is to be a workable "franchise" system in F1 then the basic payments must be the same for everyone, with moderate extra money for good results. There needs also to be a deal on engine supply so that manufacturers have to agree to supply more than one team. That works with tyres, it could work with engines.

This way all the franchise holders are able to survive and, to a lesser or greater extent, compete as well. Perhaps there should be a system of revoking franchises if the smaller teams do not perform on a long-term basis, but they should not be disadvantaged as they now are.

What is needed is for the rules to allow clever technology which could give smaller teams an advantage. Regenerative braking systems (which the FIA previously banned) is a good start, there may be a good argument in replacing expensive gearboxes and allowing teams to develop CVT (which is also banned). This would be useful for the industry. There are many other things which could be developed by the sport and make it more relevant to the motor manufacturers.

The big question when considers all of this is why the FIA is banging on about cost-cutting when it is clearly impossible and has been for many years.

One can only conclude that there must be other agendas behind today's announcement.