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Super Aguri: A sign of things to come // Financial struggles aren't limited to the back of the grid

Published by Dan Brunell

The usual process of including guest posts on a blog is for the owner to ask some of their favourite writers to come up with a piece or two to be featured. As you well know, Sidepodcast likes to do things a different way. The Facebook Group has plenty of fascinating discussions going on, and we want to bring those to the main site. The idea is for you guys to write your opinions and entries over on the group, and then we pick the best ones for feature over here on Sidepodcast. Sort of self-selecting guest bloggers, if you will. If you want to get your name in bright lights, just join the group and get writing. We read everything and everyone will be considered.

The first blog entry comes courtesy of Dan Brunell, our guest blogger guinea pig, and focuses on the plight of Super Aguri and what it means for the future of F1.

As Mr C and Christine have so eloquently pointed out, Super Aguri is in serious trouble. If they last the year it will be an achievement. If they get someone to buy them it would be a miracle. However, is their slow demise a sign of things to come in F1?

It’s an understatement to say that F1 is an expensive sport. Advertising arrangements with some teams are in the tens of millions of pounds. Manufacturers themselves pour in hundreds of millions of pounds. The strong economy of the last few years have allowed many auto manufacturers and companies to spend their efforts in F1. However, as the economy goes from bull to bear and wallets get tightened; their hefty spending on F1 might be one of the first things to go from the ledger sheet.

We have already seen Toyota, Honda, and Renault question their financial commitment to F1. Many grands prix are having a hard time finding proper sponsorship to pay the amounts demanded by Formula One Management. Plus, F1's own corporate hospitality and advertising business is $3 million in the red for last year. Add to this the uncertainty of F1 beyond Bernie and Max and this adds up to some troubling waters ahead. The last time the sport looked this uncertain financially, there was a massive turnover and upheaval in the sport due to the loss of cigarette advertising. The loss of several of the manufacturers and primary sponsors could have a similar, even more pronounced, effect.

In my view, there is a lot that F1 can continue to offer for advertisers and people involved. For Pete's sake, their estimate world audience for F1 is 6 billion people! However, unless F1 lowers its costs across the board and lower their expectations from advertisers and manufacturers, the long-term finances of Formula One looks very bleak. After all, for all the riches and egos in F1… these people still have to live on a budget and within their means. If Bernie and the F1 conglomerate which he leads continues to ask high prices of everyone involved in F1, the teams, races, and ultimately advertisers will go on to more effective advertising vehicles that are less costly. If F1 starts hemorrhaging advertisers, manufacturers, and sponsors, then the sport is in major trouble.

  • ahh, this is perfect seeing as i still haven't got me a facebook profile. i'd be interested to to know how readers feel about guest posts (both on here and in general), and if you'd like to see more / less of this sort of thing.

  • interesting comment about the economy dan. the last time this happened f1 suffered badly if i recall.

    back in 2000 or something? i forget, but didn't a bunch of tech companies like yahoo all bail at the same time causing all sorts of problems?

  • I hope I don't put people to sleep...

    With the 2000 recession a lot of it had to do with companies over valuing technology companies (like Yahoo) on the market. The long overdue re-adjustment from 12 years of over valuing the technology sector was one of the main causes of the last recession.

    What we are experiencing right now is a little different, it a little less dramatic and seems to be set up for a little longer term downturn. A lot of this has to do with the world credit market. For a number of reasons financial institutions around the world the last five to six years have set an unsustainable loan market. For example with the housing crisis in the US, many banks were giving loans to people who could not afford it.

    So what does this mean for F1... well a lot. Two main things come to mind... first, as I mention above, as soon as markets start slowing down, companies start cutting expenditures like F1 first.

    Second, this hurts the Formula One Group directly. Since the investment groups that now own 70% of F1 management there is some unforeseen problems. For example, the new group management group didn't buy their shares with hard cash on hand, they bought it via a $2.9 billion loan from the Royal Bank of Scotland and Lehman Brothers. Since in the last year, many large investment rates have skyrocketed.

    The leads me to believe that Bernie demanding the moon for things many not be a question of him being crazy but desperate... since his new overseers at these financial groups are desperate to pay off a much, much, much high interest rate on the loan they took last year. This makes me extremely nervous.

  • Super Aguri's 2007 early season achievements have very little to do with Super Aguri, except for having Sato in the car. They picked up a good 2006 Honda RA106, that was better than many other cars early on in 2007 season. They added nothing to the performance during 2007 and slowly slipped to the back of the grid. What is killing the team may not be the economy but the uncertainty about their future (who wants to buy or invest into a team without knowing where the new car will come from ? ). The other factor is the weird attitude of Honda. On one hand they do not want to pay all the bills on the other hands are ready to veto possible investors trying to push their drivers into the race seat. If they want Super Auguri to become self sufficient, they have to let them make their moves ...

    The 6 billion people F1 audience is few billion too many ... Yes, there are viewers in China and India, but just because these 2 countries have together 2.5 billion people does not mean that all of them watch F1. I would eliminate several zeros from that number ... Similar adjustment would have to be done for example in USA ... F1 may be one of the most watched sports globally, but nowhere near the 6 bil mark. And many of those who watch make very little financial contribution. Either they never buy a race ticket or merchandise, because of the prohibitive cost, or watch on free to air channels. No one signs up for premium services on Formula 1. com because there are none to sign up for.

    I am confident that with a bit of fresh thinking that 3 million loss can be eliminated a turned into profit easily. But some fresh thinking would have to replace the greed.

    Also, while I am not questioning the right of the drivers to negotiate the best possible deal for themselves, I question the reasons why the teams pay them as much as they do. Would Kimi Raikkonen be any worse off should his salary be 10 million a year instead of 45 million ?

    There are many ways how to reduce the spending, lower the costs. There are also many potential revenue channels for F1. Ecclestone however sees only one. Blackmail the F1 hosts to spend more and more and more on things that bring nothing for fans and squeeze them out for more cash that at the end fans have to pay to watch the race.

  • No one signs up for premium services on Formula 1. com because there are none to sign up for.

    bloomin' good point. they be missing a major trick there.

    But some fresh thinking would have to replace the greed.

    £260 mouse mat anyone? thought not.

  • The 6 billion viewers is a total of the maximum number of viewers for every F1 programme shown during the season. It is the normal way of counting an audience in marketing and bears no relation to reality.

    So if in Britain you have 4 million people watching each race and you have 16 races then 64 million people is the annual audience. If 3 million people watch each qualifying session that is another 48 million and we will say for easy counting 2 million watch each highlight package then that is another 32 million.

    So if my counting is correct you total annual British audience is 144 million. The country has a population of only around 60 million and in reality at no time did more that 4 million people see F1. So over the year there were probably only 5 or 6 million people who watched any F1 coverage.

  • Steve beat me to the punch...The six billion number came from FIA's television numbers. It might be a little dubious way to count the TV numbers but that the industry standard for counting viewers.

    I agree wolf.. Formula One is really missing out on revenue. If I was an investor in the Formula One Group, I would be asking some very serious question of Bernie.

  • Audience figures also come from anyone who has any exposure to F1 Coverage - so watching your news channel with a few seconds footage of F1 results at the end of the sports bulletin is enough to get yourself counted in the F1 viewing figures.

    Super Aguri do seem to be fighting a losing battle at the moment and may well become the second victim of the customer car fiasco. (The first being the non-arrival of Pro-drive). Hondas backing of SA was on the basis of chassis sharing, and it seems that is no longer a medium & long term option.

    Proposed budget caps (if policeable) will help smaller teams to remain in existance in F1, but does little to balance competivity. With budget caps in place how can a small team invest in the necessary infrastructure (Wind tunnels, CFD computers, plant, machinery etc) that its competitors already have?

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