Formula One and the economic downturn

I’m sure all of you are very familiar with how the current economic climate has been a plague to the very expensive Formula One sport. It’s not just teams that have folded (and resurrected), but some of F1’s biggest sponsors such as the RBS and ING have been shying away from the sport because they want to cut costs and disassociate themselves from F1’s image of lavish spending, which is seen as irresponsible in the current times. F1-related but not direct team-related expenditure by carmakers have also been cut, for example BMW used to host a party with its own grandstand, bar and restaurant area for up to 400 clients at the Australian GP that costs it over US$630,000 a year but this year there will be no such thing.

After Honda left, Toyota stayed on but had its budget cut over and over and over again. It is said that if Panasonic had not signed the sponsorship deal for 2009, they would have pulled out. To hopefully prevent even more teams from falling out of the race because of cost issues, the World Motor Sport Council recently announced an optional budget cap of £30m a season from the 2010 race season onwards.

Now that figure seems like nothing, considering some teams spend over 10 times that amount! Can you imagine, an F1 car’s wheel nut might cost US$ 1,200? Teams that accept the budget cap will receive incentives such as allowing them to have more aerodynamically efficient (but standard) underbody, movable wings, and a engine that is not rev-limited or not subjected to a development freeze. Even free or sponsored items will count towards this budget. These are not finalised yet of course, and may be adjusted before 2010.

Thus you can either spend your way to victory or innovate your way to victory. There is this saying by the late David Keith Duckworth, a mechanical engineer who designed the Cosworth Double Four Valve engine (once an F1 standard): an engineer is someone who can do for one dollar what any idiot can do for a hundred dollars.

It’s not just the teams and the sports itself. Venues are taking the hit as well. In Europe, F1 fans are deciding to stay at home and watch the race instead instead of buying tickets and experiencing the race first-hand. The Belgian GP back in September last year took a big loss hit of US$4.9 million, and it only had 52,000 spectators, which is 10,000 less than 2007 figures.

And of course on our local ground, we have the Sepang International Circuit. As we all know our Malaysian income per capita is far far less than Europeans with their strong currencies, but Sepang has done a tremendous and commendable job in offering some of the cheapest F1 tickets in the world, at only US$31 per seat compared to an average of US$150 across all the Grand Prix races. That’s 5 times cheaper and very suited to Malaysian income levels, but yet the SIC is struggling, with ticket sales expected to dip by 20% this year and it does not expect to hit 36,000 international visitors this year, out of a total of 120,000 expected for the Race Day. The SIC is also offering student rates with discounts of up to 80%.

They have also been running other aggressive promotions, such as a 2 FOR 1 value buy package ahead of the race weekend of the 3rd to 5th April 2009, which is also valid for the lowest ticket price of RM100. This will admit one person to the race and to the post-race Jamiroquai concert on Sunday. It’s basically a free concert for all ticket holders. 2 for 1 means you get to watch the Race Day and also the concert at night. They want the Malaysian leg of the F1 race to be more than just a race, but sort of a day of entertainment for race-goers during the race weekend.

SIC wants to create a carnival like party. Think fast cars, men on stilts, beautiful women and loud music. The Kuala Lumpur Grand Prix City programmes will provide more fun for the fans than just the race. They are also offering a fully done-up Mazda RX8 as the grand prize for a competition for F1 ticket buyers. If you’re interested you can check out the F1 roadshow set to be held at the 1 Utama shopping center next on the 25th and 29th of March 2009.

Despite the doom and gloom and even more radical changes set for the 2010 race year, this year’s season should be interesting because of the rule changes as previously explained by Red Bull’s Sebastian Vettel. Some technical changes have been made to provide more chances to overtake, which will further spice up the race. We’ll also see which teams will have good KERS implementations and how they will be used effectively. The team that gets KERS right immediately will have a big advantage.

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