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F1 and the Credit Crunch

With the global economic downturn at the forefront of everyone’s minds, I thought it would be worth taking a look at how it might affect Formula 1.

Cost-Cutting

The FIA have been advocating dramatic cost-cutting for a long time now, but it has suddenly become of prime concern. In the last few months, we’ve seen FOTA organised to come up with some measures that Max Mosley would approve of, whilst the FIA President has come up with standard engines and standard KERS as possible solutions. Personally, it feels like a knee-jerk reaction. We’ve long been saying that if you restrict spending in one area, teams will invest those funds on another area of the car. If serious cost-cutting is the way to go, perhaps they need to rethink that budget caps idea.

Sponsorship

One of the main worries with the current financial crisis is that sponsorship may falter. When money becomes tight, one of the first things that suffers is the advertising department, and that is where a lot of teams money comes from. More and more, we’re seeing big sponsors coming in and getting heavily involved – ING, for example, are the title sponsor of Renault, and also have a lot of hoardings around various circuits. If they decided to pull out of the sport, it would be a big financial hit across many of the different factions.

Independent Teams

With that in mind, it’s the independent teams who will suffer first. The manufacturers have the infrastructure to keep their teams going. The Formula 1 team can act as a great research and development department, and is a high profile output for their brand. For an independent team, such as Williams, sponsorship is a much bigger part of their day to day income. As a team who solely exist to race in Formula 1, theirs is the most worrying position.

Formula 1 is an extravagant sport but that doesn’t mean it is unnecessary or that it won’t survive the credit crunch. It’s been going for well over 50 years already, and I don’t see it stopping anytime soon.

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