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16/11/2010 by
5479 views

Why F1 Is A Ticking Financial Time Bomb?

The spectacular new F1 World Champion is Red Bull´s Sebastian Vettel. And a reason for us to talk about Formula One, and why it´s big, big, big business. F1 generates $4 billion annually and has an audience base of 600 million viewer’s world wide. Read along in this in this article, written by guest blogger Mark Martin…

F1 made household names of people like Ayrton Senna, Michael Schumacher, Lewis Hamilton and recently Sebastian Vettel.


Its high profile stars even manage to make money off its appeal years after retirement, as shown by Nigel Mansell appearing in car insurance advertisements for Moneysupermarket in the UK, 15 years after the last time he hung up his helmet.

However, Mclaren team principal Martin Whitmarsh recently joined his colleagues in criticising the way the sport has marketed itself and he led the way in crisis talks with other teams to curb their spending. Given that it is a $4 billion dollar industry with such a vast fan base, why is there a problem?

Well these statistics, which heads of other sporting categories would kill for, are simply a mask. Below the service there are numerous deeper problems which could damage the sport. For instance, the sport has been subject to numerous scandals in the past five years ranging from tabloid allegations about the head of its governing body Max Mosley, to allegations of race fixing and spying.

This has damaged the image of a sport, which on the surface is all about money, speed and glamour. These scandals coupled with the frustration of teams with formula one management and the global financial crisis has put off sponsors and led to the loss of ten teams in the past ten years. Suddenly, the Formula One economy doesn’t look so stable.

However, there is a new spirit of co-operation between the team principals and the sports governing body, the FIA, which can give the sport reason to be optimistic. In 2009, the FIA started a new campaign to encourage new entrants into the sport which resulted in three new teams starting the 2010 season.

The existing teams have also agreed a resource restriction pack, which commits them to significantly reducing in their spending in the coming years, which will reduce the likelihood of the smaller teams being forced to withdraw as has been the case in the past.

The fact that action is being taken to curb the sports financial decline is great, but is it sustainable? F1 is fundamentally a competition, and the teams competitive instincts will always be there trying to outsmart the others. There have already been allegations of some teams finding loopholes in the resource restriction agreement, and ensuring that they manage to spend more than their rivals on improving their car.

Closer examination of the new teams also questions whether F1 is truly on its way to recovery, with two of the three being funded by massive multi-national companies (Virgin and Air Asia). How, are these truly any different from the car manufacturers who are blamed as the cause of the sports previous crisis?

Both are dependant on the global economy like the car manufacturers, and should there be another financial crisis, you can bet your last dollar that they would get rid of non essential activities (which F1 will be classed as).

Frankly, for teams like Renault, Mercedes, Red Bull, Renault, Force India, Toro Rosso, Lotus, Hispania and Virgin, Formula One is not their core activity, it is simply a way to market their products.

The FIA’s aim to encourage more teams like Williams, whose main purpose of existence is F1 as was the case for all the teams in the 1950s and 1960s, has failed. What will make the effects of the next financial crisis on the sport any different?

Written by guest blogger Mark Martin.