DECEMBER 5, 2008

An illustration of F1's problems

There are many people in the world who would like to be given a Formula 1 team to run, but there are not many people who can afford to do that, particularly in the current economic climate. There are plenty of large businesses in the world that would like to use F1 to promote their products, but very few of them want to get tangled up in the ownership of a team that might cause them considerable financial losses. If the sport paid out more money, it would obviously be more attractive, but CVC, the owners of the commercial rights to F1, is up to its neck in debt, having borrowed large sums secured on the future profits of the sport. They are now trying to build up more revenues but in the current economic conditions that is going to hard.

The best hope for Honda and any other team that loses manufacturer backing is for a buyer to be found in parts of the world where money is easier to come by and where there are ambitions to compete on the world stage. This basically means in the Middle East and Asia as American business has been in freefall for last six weeks. Europe was slow even before the slowdown and there are not many Dietrich Mateschitzes and Vijay Mallyas out there.

However the global financial crisis does offer the opportunity for ambitious team owners to grab a chance of entering F1. It is really just a question of money as the teams that become available (if indeed any more do), will be at nominal prices. One man who has the ambition is David Richards of Prodrive, who is well-connected in the Middle East and who has done two recent deals with a Kuwait company called Investment Dar for Aston Martin and Prodrive.

The bad news is that even Kuwait is vulnerable to the global credit problems. Investment Dar says it is looking for loans after newspaper reports that it is under pressure from banks to sell some of its assets. The aim is to find local finance to replace foreign loans. Despite this Aston Martin has just announced that it is cutting 600 jobs because of falling sales and it is prolonging the Christmas break by two weeks to reduce production.

It seems that even the luxury markets are being hurt in this crisis.