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Todt is right to fear for the future of F1

NEWS STORY
10/04/2020

On the same day that Jean Todt told Motorsport.com, that he is "sure that a lot of teams, suppliers, manufacturers, they may have to review their programmes", subsequently admitting that they "may be constrained to stop", Groupe Renault was announcing the cancellation of the dividend for the 2019 financial year.

Indeed, his words come at a time that, according to Forbes, Mercedes, Ferrari, Renault and Honda have lost a combined $29.9bn of market value since the start of the year.

As Moody's reports that global car sales are set to fall by 14% this year - with a 21% drop forecast for Western Europe alone - Daimler's market value has plummeted by $13.1bn, Honda by $9bn, Renault by $3bn and Ferrari by $4.8bn.

As if the increasing move towards hybrid and fully electric vehicles wasn't bad enough, the coronavirus has merely further twisted the screw.

In the face of these staggering losses, how do bosses justify the 'luxury' of F1 to their shareholders?

"I don't think that the priority number one now for a manufacturer is to secure continuity in motor racing," admits Todt. "I was just reading a UN report today on the Sustainable Development Goal, which is planning 25 million people losing their job. So in a way that's why I do respect the program of each company.

"But if a company is losing a few dozens of people in a racing team, I don't think it is dramatic," he adds. "The thing that would be dramatic will be to lose four teams in F1 for example.

"I really hope that everybody will take the full picture, but not one individual picture. And that's what we tried to do with the Formula One Group."

In the UK, McLaren, Williams and Racing Point have put the majority of their workers on furlough.

Seven of the current F1 teams are based in the UK and consequently have to file their accounts so that they are publicly available. Ferrari's F1 team is 'merely' a department of the Italian company, while Swiss-based Sauber (Alfa Romeo) is exempt.

According to Forbes, excluding Ferrari and Sauber, the latest filings for the remaining eight reveal that the average cost of running an F1 team is 189.4m, while each employs an average of 573 staff.

The UK government's recently introduced furlough scheme guarantees to pay workers up to a maximum of 2,500.00 a month for three months and currently ends in June.

For most this will help pay the bills, for according to the Office of National Statistics, the average salary in the UK was 30,353 (2,529.00 a month).

However, across the seven F1 teams based in the UK the average was 87,000, meaning that only around 35% of their pay will be covered whilst on the scheme.

Of course, some will claim that the average is driven up by the salaries of top level staff and drivers - all of which would be exempt under the proposed budget cap - but the reality is that almost all the leading drivers are not actually on the payroll and instead have offshore companies for such matters.

Team revenue comes from three sources; sponsorship, prize money and payments from team owners, Red Bull and AlphaTauri being prime examples of the latter. The prize money, which represents 68% of F1's underlying profits will fall sharply this year whatever happens, as will sponsorship money. Indeed, even team owners may struggle to invest more... with pubs, restaurants and bars shut due to lockdown, sales of Red Bull will be hit considerably hard.

Yet in the midst of all this, the arguments of the budget cap continue, with Zak Brown looking for a $100m limit - though he'll accept $125m - while Ferrari and Red Bull are pushing for much more.

Of course, we've been here before, not just in terms of losing manufacturers and teams, but the whole sorry budget cap nonsense.

Most recently we saw new teams enticed into F1 by the promised of cheaper engines and a more level playing field... ask Manor, Caterham, HRT and Cosworth how that worked out.

Back in 2003, under Max Mosley, the FIA came up with a blueprint for the sport's future which would still be workable.

Amongst the proposals were the banning of all driver aids, standard rear wings, the banning of radio communications between drivers and the pits and the banning of engine telemetry allowing adjustments during races.

"Severe constraints will be placed upon electronic control of throttles, clutches, differentials and actuators (electronic mechanisms to engage a gear)," said Mosley.

All-in-all, it was calculated that the changes planned for 2003 would bring costs down to $50m.

One of the biggest opponents of the plan was - surprise, surprise - Ferrari, under the leadership of a certain Mr Todt.

"I was calculating this morning that with what we want to impose on the teams, together with the F1 group, the budget will be with a new figure between $150m for a small team up to over $300m for a big one, which does not include the cost of the development of the engine for manufacturers," says Todt as we fast forward to 2020.

"This is still crazy," he admits. "So can you even imagine where we were? And still we face resistance from some of them.

"I hope a few team owners or team sponsors will keep the motivation," he adds. "That's why we must make sure we don't discourage them, because they may say 'OK, after all of that, what is the purpose? Do I still like it? Do I still need it?'

"So we must encourage them to make sure they still like it and they still need it. On that, we have a responsibility.

"But honestly, I cannot speak on their behalf. I don't know into detail their business and the way they are. That has been in Formula 1 since the existence of Formula 1, people coming and leaving. I hope at this present time they will stay."

An average workforce of 573, an average salary of 87,000, four F1-involved car manufacturers losing a combined $29.9bn of market value, the increasing move to hybrid and electric, the ongoing pandemic... not to mention the cash issues facing F1 itself. No wonder the likes of Todt and Zak Brown are scared... they have every right to be.

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1. Posted by elsiebc, 12/04/2020 4:26

"@Bill Hopgood I don't believe that the car maker's markets has shrunk, at least not by a large amount. The recessionary time most nations are in is not due to underlying market forces this time. It is due to businesses being forcibly shuttered. If economies are allowed to reopen in a reasonable amount of time we are more likely to see pent up demand outpace lack of earnings. If governments continue to only weigh covid-19 health and ignore economic and emotional health and well being of everyone else, yes, things will look very grim, probably depressionary.

As an aside, I do not understand the popularity of MotoGP. In the early 2000's I was watching some MotoGP and other bike races and became quickly disillusioned. It seems that to win you needed to be in second place at the start of the last lap. Every bike and every rider was so equal that all you had to do was tuck under and take the draft off the predetermined corner for the win. Is F1 any less predictable? Probably not. But even when Schumacher would cross the line 40 seconds ahead of second place I still enjoyed it because I knew the 50-70 laps I just watched are just a small part of the race that's constantly being waged by the teams. (Also, back then engines routinely blew up on the last lap because teams were allowed to take risks in an attempt to make up for their shortfalls elsewhere. That is where the heavy thumb of the FIA has hurt us most.)"

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2. Posted by Bill Hopgood, 11/04/2020 21:40

"What F1 has to look at is the incentives for all the parties involved at the commercial and sporting level to participate and then let put some rules to allow reasonable opportunities for all the participants to win on track and off.
Then it will be up to the participants to take advantage of the opportunities.
For the manufacturers they have to weigh up being in a club that markets their brand vs. just being another car company. This goes for motorsport in general not just F1. I'm thinking WRC and touring cars is two other areas that come to mind, as the punters can see cars that look like what they can buy, competing against each other.
A number of items make F1 expensive:
Prototype series.
World Championship
Huge fees for circuits and promoters
and so on.
It isn't just a matter of saying to the teams that they have restrictions, the whole circus needs to be looked at.
Another incentive to look as is why we as fans watch the racing and pay attention to what is going on.
I know we've all been surveyed to death but surely the F1 folks can just look at what makes MotoGP successful and reverse engineer that to F1, F2 and F3 over a weekend?
Still, once COVID19 vaccines are available or the virus works its way through the world population and sport comes back, for motor racing it could mean a reset back to "gentleman racer / privateer" rather than manufacturer based.
Whatever the future holds it will take a long time before priorities change from getting by to spending hundreds of millions on racing and marketing.
Marketing may come back to save motorsport though in that even the big brands still advertise to keep their market share or try to grow it, that is their incentive to sponsor teams and drivers.
The problem is, their market(s) has dramatically shrunk."

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3. Posted by elsiebc, 11/04/2020 15:19

"@Spindoctor You are misinformed. Capitalism is based on supply and demand. When demand drops value drops. Buggy whip makers change their product line or close their doors. Since it is dependent on market forces it can never fail. Socialism is when self professed intelligent men intervene and design a society. When market forces change they keep making rules and regulations to prop up their design. These rules and regulations are made on either or both sides of the market. They frantically keep cranking the gramophone while more and more chairs go missing. Eventually the record ends and they reason that they just didn't play the right record this time. Don't worry. They'll pick the right tune next time. Trust them."

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4. Posted by Spindoctor, 11/04/2020 8:11

"Irrespective of "cost" - smart Accountants are good at turning this to fairy stories - Auto makers like Mercedes are realising that F1 is becoming less relevant to their core business: making & selling Road cars.
Capitalism only works as long as the 'music' goes round, and nobody wants to be left without a chair when it stops!
Even without C-19 many companies were struggling trying to sell obese ranges of over-priced vehicles out of tune with public sensibilities. I know that SUVs, hyper-luxury cars etc. sell well, but not everyone can afford upwards of 75k, and not all those who can want to anymore. There's only so many Internet "influencers" & Footballers in the market.
Factor-in C-19 and the huge disruption this will bring, and F1 simply looks like an indulgence that not even the richest Auto makers can afford."

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5. Posted by elsiebc, 11/04/2020 1:17

"As you point out, they have been trying to lower costs for years, yet everything they mandate costs more money. Now their plan to lower costs is a budget cap. It sounds like obamacare here in the US. The push was for everyone to have health insurance coverage. How did they do that? Basically passed a law that says you must buy health insurance. "

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