F1’s electrically charged cost explosion

It’s always been expensive. That’s the argument from one side of the coin and the other is the desire to drastically reduce the cost of Formula 1 that saw HRT, Marussia and Caterham enter the sport only to wilt on the vine as those cost reductions never came. Still, the desire to reduce cost is continually offered as one of three trump cards played in any F1 discussion of regulation changes—Safety, green, cost.

It’s an interesting concept to continually want to reduce the cost of F1 and yet bullishly demand that it contain technology that does the exact opposite. Formula 1’s hybrid system is incredibly complex and a real astounding piece of technology but it isn’t cheap. It was the harbinger of death for HRT, Marussian and Caterham and it is still buckling the knees of Sauber, Manor and Force India.

It’s interesting in that the FIA have an all-electric series where this technology can be ultimately proven and yet the engine supply costs in that series are nowhere near F1’s cost. FIA president Jean Todt is a big fan of electric cars and Formula E:

“We talk a lot about pollution, CO2, climate change, and we have to take that into consideration when we discuss regulations for ongoing championships,” Todt told CNN.
“I thought it was important to create a specific series that could be adapted to the needs of the cities because we need to increase the use of electric cars in our cities. “That’s why it was a great combination to find the biggest cities in the world, who are climbing on to the use of electric cars, and to implement a single-seater category with electric power.”

Perhaps that makes sense and is an interesting concept for sure but how is Formula E doing?

“We have iconic cities and iconic locations within the cities,” added Todt. “Paris is now part of that. “It’s hard to believe we can host a race in Paris in this location. The track is just 50 meters from the National Assembly, it’s one of the city’s best locations. In Formula E, we have the names of cities but also the locations inside the cities.”

Sounds like things are going swimmingly then. If that’s the case, then what is the issue with F1 and its runaway costs? For that I offer the words of long-time F1 marketing deal maker, Zak Brown:

“We have an industry that is exploding in cost and collectively between them, they are not able to gather and get those costs under control,” says Brown.

“How it trickles down is because the teams have such a thirst for money, they need to get as much money as they can so F1 Management does an unbelievable job getting massive sanctioning fees. They in return then have to charge a disproportionate amount of money to the spectators.

“Why are you or I paying more money to go to Silverstone? Because of where it starts, we’re feeding the teams and if the teams didn’t have such a big appetite to spend, everyone’s ratios could stay the same but you’d actually make it more accessible. To me, the biggest problem that Formula 1 needs to solve is the expense to put on the circus. That is the starting point. Everything starts to become fixable and manageable from there.”

F1 will always be expensive and I don’t envy the balancing act the FIA and Formula One Management (FOM) have to manage. How to ensure Todt’s earth-saving engine format that prompts tingling feelings amongst Mercedes, Renault and Honda and yet reduce costs so Sauber can participate. It’s not easy.

One of the head-scratching concerns for me is the lack of sponsors and no one understands that situation better than Brown. The total sponsor investment in F1 has continued to drop and Brown said:

“From about $950 [million], to $750 and I think that number knocks on about $700 this year. Now there are two ways to address that: build the value up, but the biggest problem Formula 1 has is amount the teams spend.

“You would think most sports would live very healthily on $700 million in sponsor revenue in addition to the FOM [prize money] and in addition to the manufacturers. The costs are, to me, the single largest issue and the one that then drives many of the other issues.”

As the sport begins to make drastic regulation changes for 2017, Williams is already suggesting that their costs will increase for next season and this is typical when you have a major regulation change. The introduction of hybrid engines in 2014 was a massive increase in cost and this was at a time when all public discussions about the series was centered on radically reducing costs. It flew in the face of logic at the time and we called that out but were clearly the sound of one hand clapping at the time.

It’s a tough situation as the series have self-interests and possibly group think going on with regards to hybrid engines, manufacturer allure, lopsided prize distribution, and a path of least resistance to millions through prize money without the hard work of finding new sponsors. Couple this with hybrid engine technology and you have a very complex issue to sort out.

Hat Tip: CNN and JAonF!

F1’s electrically charged cost explosion

It’s always been expensive. That’s the argument from one side of the coin and the other is the desire to drastically reduce the cost of Formula 1 that saw HRT, Marussia and Caterham enter the sport only to wilt on the vine as those cost reductions never came. Still, the desire to reduce cost is continually offered as one of three trump cards played in any F1 discussion of regulation changes—Safety, green, cost.

It’s an interesting concept to continually want to reduce the cost of F1 and yet bullishly demand that it contain technology that does the exact opposite. Formula 1’s hybrid system is incredibly complex and a real astounding piece of technology but it isn’t cheap. It was the harbinger of death for HRT, Marussian and Caterham and it is still buckling the knees of Sauber, Manor and Force India.

It’s interesting in that the FIA have an all-electric series where this technology can be ultimately proven and yet the engine supply costs in that series are nowhere near F1’s cost. FIA president Jean Todt is a big fan of electric cars and Formula E:

“We talk a lot about pollution, CO2, climate change, and we have to take that into consideration when we discuss regulations for ongoing championships,” Todt told CNN.
“I thought it was important to create a specific series that could be adapted to the needs of the cities because we need to increase the use of electric cars in our cities. “That’s why it was a great combination to find the biggest cities in the world, who are climbing on to the use of electric cars, and to implement a single-seater category with electric power.”

Perhaps that makes sense and is an interesting concept for sure but how is Formula E doing?

“We have iconic cities and iconic locations within the cities,” added Todt. “Paris is now part of that. “It’s hard to believe we can host a race in Paris in this location. The track is just 50 meters from the National Assembly, it’s one of the city’s best locations. In Formula E, we have the names of cities but also the locations inside the cities.”

Sounds like things are going swimmingly then. If that’s the case, then what is the issue with F1 and its runaway costs? For that I offer the words of long-time F1 marketing deal maker, Zak Brown:

“We have an industry that is exploding in cost and collectively between them, they are not able to gather and get those costs under control,” says Brown.

“How it trickles down is because the teams have such a thirst for money, they need to get as much money as they can so F1 Management does an unbelievable job getting massive sanctioning fees. They in return then have to charge a disproportionate amount of money to the spectators.

“Why are you or I paying more money to go to Silverstone? Because of where it starts, we’re feeding the teams and if the teams didn’t have such a big appetite to spend, everyone’s ratios could stay the same but you’d actually make it more accessible. To me, the biggest problem that Formula 1 needs to solve is the expense to put on the circus. That is the starting point. Everything starts to become fixable and manageable from there.”

F1 will always be expensive and I don’t envy the balancing act the FIA and Formula One Management (FOM) have to manage. How to ensure Todt’s earth-saving engine format that prompts tingling feelings amongst Mercedes, Renault and Honda and yet reduce costs so Sauber can participate. It’s not easy.

One of the head-scratching concerns for me is the lack of sponsors and no one understands that situation better than Brown. The total sponsor investment in F1 has continued to drop and Brown said:

“From about $950 [million], to $750 and I think that number knocks on about $700 this year. Now there are two ways to address that: build the value up, but the biggest problem Formula 1 has is amount the teams spend.

“You would think most sports would live very healthily on $700 million in sponsor revenue in addition to the FOM [prize money] and in addition to the manufacturers. The costs are, to me, the single largest issue and the one that then drives many of the other issues.”

As the sport begins to make drastic regulation changes for 2017, Williams is already suggesting that their costs will increase for next season and this is typical when you have a major regulation change. The introduction of hybrid engines in 2014 was a massive increase in cost and this was at a time when all public discussions about the series was centered on radically reducing costs. It flew in the face of logic at the time and we called that out but were clearly the sound of one hand clapping at the time.

It’s a tough situation as the series have self-interests and possibly group think going on with regards to hybrid engines, manufacturer allure, lopsided prize distribution, and a path of least resistance to millions through prize money without the hard work of finding new sponsors. Couple this with hybrid engine technology and you have a very complex issue to sort out.

Hat Tip: CNN and JAonF!