F1 facing uncertain financial future

Friday 22 June 2012

A larm bells are starting to sound in Formula One, and not for the first time in recent history as the sport veers towards rocky financial waters.

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It was not so long ago that the global economic crisis accounted for Honda, Toyota and BMW in rapid succession, and you would assume memories of their departure have not been forgotten. It prompted Max Mosley, the former FIA president, to put in place plans to safeguard the sport, although his idea of a budget cap failed to come to fruition.

Instead, the Resource Restriction Agreement was implemented, a cost-cutting code of practice by which all teams must adhere, although doubts are often aired as to how strictly some comply.But given the financial meltdown across Europe at present, not least in Spain where F1 returns this weekend for what will be the final European Grand Prix, problems are looming.F1's traditional European heartland is shrinking and that in itself tells its own story, with Valencia and Barcelona to alternate their hosting of the Spanish Grand Prix from next year.Hockenheim and the Nurburgring already do so for the German Grand Prix; France long disappeared, although is making veiled attempts to regain its place; Belgium and Hungary are struggling.F1 supremo Bernie Ecclestone's race-sanctioning fees are, some would suggest, exorbitant, but as Europe is faced with searching financial questions, race promoters are unable to find any answers to their own dilemmas of dwindling audiences. Then there are the teams themselves, who push the spirit of the RRA to the limit, in particular given a lack of self-regulation.No wonder Luca di Montezemolo, the Ferrari president, expressed concerns recently that F1 cannot ignore the "very serious" world economic situation, and that of Europe, in particular.The Italian called for "the need to tackle urgently and with determination the question of costs," insisting that "drastic intervention is required".When Di Montezemolo speaks, and given Ferrari's vast resources, you know his words are far from hollow and should be heeded.Talks involving the teams and the FIA took place on Monday after last month's Monaco Grand Prix, the first of many.Jean Todt, current president of motor sport's world governing body, is not immune to the fact changes need to be made.Speaking recently, Todt said: "We are discussing this [the RRA] as we have been asked by 10 of our 12 teams to control costs. The FIA's chief administrative officer, Damien Clermont, is talking to the financial heads of all 12 teams in F1 concerning the chassis costs and with all engine manufacturer for the engine costs."Jonathan Neale, McLaren's managing director, also confirmed "the teams are trying hard to ensure the sustainability and good health of Formula One going forwards".Perhaps a budget cap is that way forward, but at what level it would be set and how it would be policed are just two of the questions that would need answering before it could be administered.To further highlight F1's financial situation you have to venture to opposite ends of the spectrum. First up, we have the very sport itself, as plans for an initial public offering on the Singapore stock exchange have had to be shelved. Commercial rights holders CVC had planned to make available a percentage of the sport, valuing it at £5bn, however, the volatile nature of the markets has scuppered matters for the time being.Then, at the other end, we have something seemingly as simple as Lewis Hamilton's contract renewal negotiations with McLaren.The 27-year-old will naturally want an increase on his currently estimated £10m-per-year salary, but while the team are not short of a bob or two, even they have to cut their cloth accordingly.As former team principal and McLaren group chairman Ron Dennis noted earlier this month, Hamilton is "very highly paid".To that end, Dennis added: "He's on the end of a contract which was signed at a time when the economy was somewhat different. Now there has to be a balance."As can be seen, F1 is facing uncertainty right across the board and drastic times call for drastic measures. Even someone like Hamilton may have to face facts on that one.

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F1 facing uncertain financial future

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