McLaren Formula 1 boss Zak Brown has warned as many as four teams could ‘disappear’ if the championship does not respond to the current global crisis with appropriate cost measures.
F1’s 2020 season has been on an indefinite hiatus since the opening Australian Grand Prix was cancelled less than two hours before practice was due to start, with eight races postponed or called off completely and more expected to be affected.
That has triggered a sequence of events to cut costs and protect teams to avoid the championship entering into a tailspin at a time when income is set to drop massively due to lost revenue from the lack of races.
These measures include postponing new technical rules, carrying over major parts from this season to next and giving governing body the FIA emergency powers, with further talks between teams on Monday to discuss greater cost-saving initiatives, including slashing the incoming $175m budget cap.
McLaren is placing staff on enforced paid leave, taking advantage of the UK government’s furlough scheme, and reducing salaries for everyone including its executives and drivers.
Brown said F1 risks sleepwalking into a disaster.
“This is potentially devastating to teams, and if [devastating] to enough teams, which doesn’t have to mean more than two, then very threatening to F1 as a whole,” he told the BBC.
“Could I see, through what is going on right now in the world if we don’t tackle this situation head on very aggressively, two teams disappearing? Yeah.
“In fact, I could see four teams disappearing if this isn’t handled the right way.”
All 10 teams appear to be willing to reduce the budget cap to $150m but at least two teams, understood to be Red Bull and Ferrari, are opposed to going lower.
F1 risks struggling to retain its smallest teams if they are hit by the current crisis and then face a massive budget shortfall compared to their rivals.
Brown said: ”If we don’t make an aggressive enough budget cap and some people feel they have to top up this year and have no chance of getting it back, then they ask themselves: Why are they in it?”
He also argued that the timing couldn’t “be worse” in terms of having potential new teams primed to replace any that are lost, “given how long it takes to ramp up an F1 team, and given the economic and health crisis we are in right now”.
“So I think F1 is in a very fragile state at the moment,” he added.
Why the threat is real
You might think Zak Brown’s suggestion that four teams could go under because of the financial challenges of the COVID-19 pandemic is alarmist. But at times like these, alarmist warnings can sometimes prove to be on the money and the situation is serious.
The biggest problem F1 faces is uncertainty. The first race that hasn’t been called off is the Canadian Grand Prix on June 14, but nobody seriously expects the season to start then given the global situation. Chase Carey has targeted a season of 15-18 races, but nobody really knows how many grands prix will be held in 2020 (and early 2021, given the willingness to carry over some races into January).
The number of races is directly connected to the money the teams will receive next season in terms of their share of F1’s revenue. On top of that, there will be myriad other financial impacts, in particular sponsorship revenue, that hit the teams’ income.
Given this uncertainty, there’s no doubt that F1 must be ultra-cautious. That means a conservative approach to spending and also to creating the conditions where significant money might have to be spent.
This alone is a strong argument for deferring the new regulations for another year to 2023. On the face of it, it also means that a lower budget cap figure for 2022 – the $100 million McLaren is among the teams pushing for – is logical. But this is where there are some complications.
The biggest teams inevitably have the higher staff costs and will want to minimise job losses during this period. It could be that pushing the budget cap too low might force the teams that can afford to keep staff making redundancies (payments for which sit outside the budget cap). These are real people with real lives and it would be cavalier in the extreme to cost them their jobs when it’s not absolutely necessary.
Ferrari’s proposal for not deferring the new rules will have to be spectacular to make it the right move. Yes, the new cars should be cheaper to run but with the vast expense needed to design and produce them – including ensuring you have the necessary facilities and tooling to make them – means there is inevitably an outlay.
The question then is at what point the reduced running costs counterbalances the increased design and production costs. Chances are, while on a longer timeline it adds up, in the shorter-term of the current crisis, the impacts of which will be felt for at least a couple of years, it doesn’t.
Perhaps maintaining a higher cost cap of at least $125 million is what the bigger teams want to allow the rules to be deferred.