The last of the big spenders?

07/12/2008

Following the bombshell of Honda's departure from F1 hitting the sport on Friday, bosses from the remaining teams have all been looking around nervously to see who would be next to fall.

There has been much speculation over precisely what caused Honda to make its decision. Although the answer isn't known, there is no doubt that two key factors were the gloomy economy coupled with the fact that Honda had recently posted the highest-ever costs for any UK-based F1 team. The former is still a very big risk factor for the remaining nine F1 teams but you would expect that the sport had seen the end of announcements of Honda-style lavish spending. You'd be wrong.

A report in today's Independent newspaper, written by Pitpass' business reporter Chris Sylt, reveals that in 2007 the total costs for Red Bull Technology, the company which ultimately owns Red Bull Racing and designs and builds the cars for both it and its sister team Toro Rosso, accelerated 22% to £130.3m. This is the third-highest amount ever spent on a UK-based F1 team and it piles yet more pressure on FIA president Max Mosley to ensure that teams cut costs through his implementation of a standard engine.

Several years ago Mosley pledged that freezing engines in 2007 to the previous year's specification would "avoid a great deal of unnecessary expenditure." Likewise, this was the reason for his introduction of the two-race engines in 2005. Yet these expected cost cuts did not transpire. In 2007 McLaren's total costs increased 5.5%, Honda's by 21.9% and Red Bull's by even more.

What's worse is that Red Bull's research and development spending rose by a massive 53% to £25.5m and its staff costs soared 32.5% as it took on 61 new employees in its racing and production departments. Red Bull even invested £10m in the team's office and workshop equipment during the year. It perhaps proves the point that as engine costs decreased, teams simply shifted the money gained from this into different areas.

According to F1 industry monitor Formula Money, Red Bull Racing made just £7.5m in sponsorship last year and although it supplemented this with prize money, Red Bull Technology's accounts show that the drinks company provided the lion's share of the budget by pouring in £89.3m to the company in 2007. All to finish fifth in the standings. Whether it will be prepared to continue like this is another matter.

If F1 doesn't make financial sense for a car manufacturer due to the recession then it is tough to see how it can be justified by a drinks company. If the economy was good other teams could be considered to have won one over Honda by staying in F1 when it failed to do so. However, with the downturn deepening, the criteria by which successful companies are measured is prudence so staying in F1 could actually devalue them.

It looked like Red Bull had thrown caution to the wind when it announced just last month that it had bought out its partner Gerhard Berger from Toro Rosso leaving it with two teams under its complete control. But now it is being speculated that it may have done this to amalgamate Toro Rosso's assets with those of its bigger brother in order to get a greater return on investment on selling the combined entity. It may be speculation but splashing money out on buying Toro Rosso doesn't otherwise fit with Red Bull's recent cost-saving strategy of closing its Red Bulletin magazine and even axing its Formula Una grid girls. Red Bull's boss Dietrich Mateschitz has done little to quash such speculation.

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