There are some who say that the increasing need for pay-drivers in Grand Prix racing, typified by the decision last week to replace Jarno Trulli with Vitaly Petrov, is a sign that the recession is finally beginning to bite in the Formula 1 world. I am not so sure. The thing that I find significant is that the three car manufacturers that deserted Formula 1 when the crisis began – Toyota, Honda and BMW – have now all announced their returns to racing, but none of them has chosen F1. Toyota is building a hybrid for Le Mans; Honda has decided on the World Touring Car Championship and BMW is powering into DTM. These projects will all (probably) cost less than previous F1 involvements, but they will also garner a great deal less publicity. Thus one can argue that if F1 cost less money but had the same level of exposure then it would be logical for such companies to be in F1.
Some people believe that the squeeze on money in F1 is because big companies do not have money, but that is not true either. As some of the corporate results in recent months have shown, there is a lot of money being made at the moment, despite the financials shenanigans at government levels. F1 remains terrific value for money for companies that can afford the investment and so it would be logical to assume that if the cost of sponsorship reduced, more sponsors would step forward. All this points to the need for F1 to concentrate more on cost-cutting measures so that money that teams need is not wasted on irrelevant technologies, which has all too often been the case. If the technology is relevant then there is a logical reason to invest in the sport.
Similarly if teams continue to allow half the revenues of the sport to go directly to financiers, who give the sport nothing in return, then they are making life difficult for themselves. If they had twice the money they get now from the commercial rights there would be no pay-drivers. However they seem incapable of addressing this problem because they are too busy bickering amongst themselves.
The other question that F1 never seems to ask itself is why sponsors do not want the be involved in F1, if it is clear that the sport is a very good way to deliver a message in the world’s developing markets. It is easier to say that these are difficult times, rather than perhaps have to face up to the reality that F1 could present a better image to the world. There is not enough work done on improving F1 demographics to make the sport attractive to mass market consumer companies that one sees in other racing championships. The brands involved are often global but F1 is not chosen by the likes of McDonald’s, Burger King, Subway or M&Ms. Why are chains such as Office Depot, Target and Walmart not using the sport? Or UPS, Black & Decker and other such products that one might expect to see with F1’s demographic?
In the circumstances, one ought to ask whether it might be a problem of perception as the sport has an unusual idea about morality, as defined by such things as the Singapore Scandal or the decision to go to Bahrain.
Whatever the causes it is clear that some of the F1 teams are really struggling for cash this year. They pretend not to be (because that is what you do) but taking on drivers who are not as good as the ones you cannot afford is a sure sign that books need to be balanced. The danger is that those with big debts are vulnerable to wheelers and dealers who will buy up debt in order to acquire businesses. Hostile takeovers have not happened (much) in F1 but there are examples. The HRT team is a good one. The previous hapless ownership built up so much debt that in the end the bank grabbed the team and put in people it thought would get some money back for them. I can see more of that coming. Debt guarantees are dangerous things if they fall into the wrong hands.
There are suggestions in India that the Sahara investment in Force India last year was just such a deal, with Subrata Roy Sahara grabbing part of the team rather than coming in as an investor. When Sahara talked to the Indian media after the deal he gave a clear picture of his understanding of, and interest in, F1. He had no idea. It was just business. The word from India is that Sahara is moving in on the whole of Vijay Mallya’s empire. This week Forbes of India has published an article which states that the published results for the six listed companies in Mallya’s empire add up to 14,231 crore in debt for Kingfisher Airlines, United Spirits (USL), UB Holding, Mangalore Chemicals, UB Engineering and United Breweries (UB). Mallya responded rather oddly by saying that the numbers are “grossly overstated”, which makes little sense given that they are public companies and their financial dealings are public information. He also argues that the debts should not be added up. However as parts of his empire are dependent on guarantees from other parts, Forbes feels this is acceptable. The word “crore” means nothing to Westerners but it translates to 10 million rupees. There are around 50 rupees to the dollar. If you do some sums you will see that 14,231 crore equals 142,310,000,000 rupees, which translates to a rather shocking $ 2.8 billion.
I write these things only because I am alarmed when I see such things because in the past we have all too often seen financial jugglers drop all the balls. It is the teams (and the people in them) who suffer.
Formula 1 debts are small in comparison to such vast numbers, but teams still need to make sure that they continue to generate enough money to service any loans that they need to take. Most importantly, however, the sport needs to make sure that it understands why things are happening.