Published December 8, 2008

breakingviews.com
F1 in need of an urgent overhaul

By UNA GALANI
Email this article
Print article
Feedback

FORMULA One faces a shrinking grid. Honda is quitting the F1 motor racing championship after 44 years in the sport. The exit of the Tokyo-based carmaker has a lot to do with the pain that it's taking in the rapidly deteriorating global car market. But it is also a worrying verdict on the economics of F1.

Honda's departure may not be a one-off. It could give beleaguered rivals such as Toyota and BMW Sauber an excuse to make tracks.

F1 is the world's most expensive sport. One reason for it is that performance is closely correlated to investment. Teams that can afford to splash out on the best engines, engineers and superstar drivers tend to take podium spots.

Honda put in a dismal performance last year - finishing ninth - in spite of having one the largest budgets at around 200 million euros (S$388 million).

True, Honda also made some mistakes. It shunned corporate sponsorship in favour of a self-funded environmental campaign, which cost it dearly. The top four teams - McLaren, Williams, Renault and Ferrari - are each understood to generate up to 40 million euros annually from deals with the likes of telecom giants Vodafone and AT&T, Dutch financial institution ING and the UAE's national carrier, Etihad.



Yet Honda's departure underscores the serious threat that the global financial crisis poses to the sport's future. All carmakers will be under shareholder pressure to review their F1 commitment after global car sales fell 45 per cent last month. Corporate sponsorships will also be aggressively renegotiated amid a crunch in global marketing spending.

F1 needs to adapt. The sport in its present form unduly favours teams such as Ferrari, which is supported by the cash-rich Abu Dhabi state-investment vehicle Mubadala. F1's governing body has already aired controversial suggestions such as introducing standard engines and capping team budgets. Such reforms would change the sport, but could also help level the playing field financially. Honda's departure should add some urgency to F1's thinking.