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postheadericon Formula 1’s 2009 budget cap and its effect on team performance and cost cutting

Formula 1’s 2009 Budget Cap and Its Effect on Team Performance and Cost Cutting

The season of 2008 has witnessed astounding growth in Formula 1 auto racing. With the addition of two new circuits including Valencia, Spain and Singapore, we have seen a tight championship being fought by talented young drivers. For those of you not familiar with the format of F1, there are currently ten teams consisting of two drivers each. Each team also contains engineers, designers, test drivers, principles, pit crews, and many other staff members who make it possible to bring the teams together every couple of weeks from March to November.

Now that Lewis Hamilton has snatched the crown from the hands of Felipe Massa, teams and fans are looking towards next season; a whole new batch of regulations and a couple of new faces. One regulation seems to be more and more common is sporting these days, and that is the idea of budget caps.

In order to compete in this sport, there needs to be A LOT of money behind each team. When I say “A LOT,” I mean these ten teams have well over $3 billion in resources at their disposal! The stats also indicate that the more money a team has, the better the team will perform.

However, with a proposed budget cap and the top teams sharing notes, how will the championship look in 2009?

2008 ended with Ferrari retaining the Constructors championship receiving 171 points. McLaren-Mercedes was the runner up (151 points) and BMW Sauber came in third (135 points). These three teams alone account for 65% of the total constructor points distributed. These teams, incidentally, have a massive amount of resources established with a combined 40% of the total of the 10 teams. In 2009, the goal of the budget cap should be to bring more competition to the sport and allow for the lesser financed teams to compete for the championship as well.

Also, let us not forget that the world is in a global economic crisis. A sponsor may spend up to $50 million to put their name on a top ranking Formula 1 car but it may be difficult for some organizations to spare the cash. During volatile times, the first thing organizations cut back on is advertising. Ad revenue represents 80-85% of the teams’ total income and when that is pared down, the teams may struggle to come up with enough resources to maintain current spending.

The budget cap’s economic benefit, of course, is to cut down on costs. This is going to create a greater opportunity for the sport to innovate and come up with cost saving measures while maintaining performance. For example, a major part of a team’s budget is the engine. In 2008, teams were required to use an engine for two race weekends in a row; if they switch out an engine against regulations, they must take a penalty. The regulation is revised in 2009 so that engines must be used for three weekends in a row. BMW Sauber says “this change to the regulations is intended to reduce costs in Formula One. On the other hand, the FIA wants to challenge and promote technical reliability among the teams.”

Teams will be challenged to come up with new technology and even more reliable components for their cars.

An addition already in effect is the standardization of electronic control units which controls the components of the engine. ECUs are manufactured by an FIA approved supplier and can only be used with approved software. Since teams are provided with ECUs and don’t have to develop their own, the expenditure has been greatly reduced. Gearboxes have also been provided in the same fashion, decreasing those team costs as well.

In this time of uncertainty, the FIA as well as the teams would be acting prudently by instituting budget caps and lowering costs to make the sport more competitive. More competition is good for the sport because it could allow for more teams to enter the sport and bring in a larger fan base. I was quite disappointed when the United States Grand Prix was removed from the Formula 1 calendar, but with lower costs, it may be possible for more teams to enter the sport and bring it back to America.

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