Crash.Net F1 News
Financial worries still loom for F1 teams
27 August 2012
The ongoing downturn in the economy is affecting pretty much every everyone, and the longer it goes on the more of a strain it places on companies involved in all walks of sport - and F1 2012 in particular.
Despite ongoing attempts to cut costs in the sport over recent years, the 'burn rate' with which F1 teams go through their cash reserves is still legendary. One famous saying states that the only way to make a small fortune in motorsport is to start with a large one - unless you happen to be Bernie Ecclestone.
The Lotus team might be performing well on the track, but business media sources estimate that the team could now be in debt to something in the region of £55 million. Getting on for half of that was said to have been amassed in the last financial year alone, partly thanks to the money paid to Lotus Group for use of the team's iconic name, and the estimated six million euros being paid to main driver Kimi Raikkonen - who also gets performance-related pay according to how many championship points he wins.
Force India is another team with well known financial worries, with team founder Vijay Mallya under pressure from Indian state banks to sell off Kingfisher Airlines in recent months. Paddock rumours say that drivers Paul di Resta and Nico Hulkenberg still rely exclusively on income from sponsorship deals that bring money into the operation and get no salary at all from the team itself, which is increasingly looking set to undergo a management restructure in the coming months to stem the financial decline.
In contrast, even though shares in Williams F1 are still well below the value they were offered for in their initial flotation in March 2011, chief executive Alex Burns believes that the Oxfordshire-based company has at least got its approach right when it comes to making the company an ongoing viable proposition, mainly thanks to their focus on technology development.
"You adapt technology that's made in the white heat of competition for areas that are socially useful," offered Burns, pointing to the company's development of 'flywheel' energy storage systems that could soon be commonplace on the streets of London and may one day even be used in 'supersized' versions for metro trains.
“The technology, high-performance engineering, use of carbon-fibre composites, that's all like aerospace," he told the Daily Telegraph
newspaper. "What's different is the speed we do things here, the intensity of the competition."
Focussing on technological innovation is a fairly new way of trying to combine an F1 team's primary purpose - winning races - with potentially lucrative new ways of funding to keep them in business. In the past, F1 teams have often doubled as car manufacturers such as McLaren, Ferrari and Lotus to augment advertising sponsorship income; but the current climate and a particular downturn in the automotive and advertising markets has left that harder to sustain in 2012.
Although it is one of the few teams to make a healthy profit from its F1 activities, McLaren is also increasingly reliant in income from its Technology Centre to help fund the alleged 30 million euros it has been paying to both of its drivers, Lewis Hamilton and Jenson Button.
That's why company chief executive Ron Dennis has warned Hamilton not to expect the same sort of pay deal if he decides to re-sign with the team for 2013. Dennis also has concerns about finding a new headline sponsor for the team for 2014, and the future price of engines for the F1 cars as the current supply contract with Mercedes comes to an end next year.
The one team seemingly without any concerns over money is Red Bull, owned by Austrian billionaire Dietrich Mateschitz and funded by the income from the huge worldwide sales of the energy drink.
However, the situation at Red Bull might not be as headache-free as many assume: as its a private company, Red Bull does not have to disclose its accounts in the way that publicly traded companies on the stock exchange do, so the exact state of the Austrian company's finances are not known.
But Red Bull's shock decision to suddenly pull out of NASCAR in 2011 perhaps proves that even Mateschitz's pockets have their limits in the current economic climate, which could end up being potentially bad news indeed for their junior F1 team Toro Rosso.