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HindustanTimes Sun,31 Aug 2014
The 'bonkers' business logic of Formula 1 teams
Joe Saward
December 05, 2012
First Published: 00:21 IST(5/12/2012)
Last Updated: 00:31 IST(5/12/2012)
F1 teams spend astronomical sums of money to create facilities like McLaren’s Technology Centre (in pic). Getty images

The primary goals of any normal business are to be successful in its field; to add value to the company; and to make a profit. Other strategic goals include building a brand, becoming the market leader or expanding the business into new areas.

Formula 1 is sport on every other Sunday afternoon, but on a day-to-day basis it is pure business (a successful one too). A dog-eat-dog, survival of the fittest environment. Logic breaks down, however, when you look at the numbers involved in the sport.

The one thing everyone - with the exception of Red Bull Racing - seems to agree upon is that the Milton Keynes team is outspending everyone else.

What F1 teams spend
Officially the team has 525 people and a budget of $296 million, but its F1 operations are run through two separate, but connected, companies, Red Bull Racing Limited (the race team) and Red Bull Technologies Limited (the design and car build operation). RBT is the parent company of RBR and the accounts of RBT are filed on a consolidated group basis, incorporating the results of RBR. It is safe to assume is that the true spending total is somewhere between $344 million and $296 million. McLaren and Ferrari may both employ around 600 people apiece, but both seem to be spending no more than $240 million each on their racing teams. The Mercedes budget is growing fast, but this year is reckoned to be only $225 million, with 550 employees, while Williams and Lotus may both employ big team numbers of staff, but are running on much tighter budgets. I reckon that Lotus has been spending about $190 million this year and Williams's budget is down at around $145 million.

There is then a significant drop back to teams that are much more cost-effective. These are led by Scuderia Toro Rosso that has 300 employees, which spends about $110 million a year, some of that in capital expenditure as the team builds up. I believe that Sauber, which has 300 employees, spends around  $104 million, which is slightly more than Force India, which also has 300 employees, but has a budget of only $100 million, a good chunk of which goes to technology suppliers, as the team has less infrastructure than its rivals.

I reckon that Marussia is outspending both Caterham and Force India, with a budget of $105 million, but a staff of only 175, while Caterham has 260 employees but the budget is around $96 million.

HRT was running this year on a much smaller budget. If one adds up the budgets, you get to a total of around $1.9 billion that is being spent to build the F1 cars. That is bonkers.

Where's the sense?
It makes very little sense that teams can spend more than $200 million and achieve little more than teams that are spending $100 million. Given that a team with the right infrastructure can win races with a budget of $140 million, there is a sound case for a budget cap at around that level. That would reduce the need for money by around $400 million a year and some of the teams would be able to cover as much as 70 percent of their budgets using only their TV money.

It might be that Red Bull Racing, McLaren and Ferrari would not be able to sustain as many employees, but the smaller teams would be able to pick up most of the staff, as they still have potential to expand. Companies like McLaren and Ferrari would, in any case, be able to redeploy people in other divisions, particularly if there was money to invest in new businesses.

The truth is that the top teams know that money is a key weapon in finding the ultimate edge of competitiveness. It is shame that they cannot be confident enough in their own ability to go head to head with poor teams and prove that they have smarter, more efficient people.

The writer has covered every Grand Prix for the last 25 years


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