Originally published December 2011.
A Formula One car’s steering wheel costs more than your average family sedan. That’s what the folks at the former Netcars Motoring Blog thought, but £4.76 million (US$7.21m) in total seems awfully cheap for a Formula 1 car these days.
Consider the following:
First, total team budgets and the revenue (mainly from television) distributed by F1 impressario Bernie Ecclestone — under the Concorde Agreement — are highly confidential secrets, rarely even rumored. So everything is in sum guesswork. When Ecclestone proposed in October 2012 the possibility of a per-team spending cap of US$250 million (€191.5m), which would cover all costs, including driver salaries, the suggestion was met with derision by McLaren team principal Martin Whitmarsh (“unrealistic,” in the typically understated British way). Mercedes-Benz, Williams May Pull Out of Formula 1 | AutoGuide.com.
An American journalist, used to the transparent financial workings of US sport, innocently asked Formula One’s chief executive the size of the prizemoney. Ecclestone’s eyebrows rose to meet his grey fringe as he fixed the hack with a stare and replied quietly: “We don’t talk about money.”
Second, the topic of spending limits has been central to F1 for years, but the much-touted Resource Restriction Agreement by the Formula One Teams Association (FOTA) is ephemeral, and Red Bull and Ferrari have withdrawn as members. In 2010 it was speculated that the RRA mandated a €50 million ($65.28 million) budget with no more than 250 employees. Even teams like Lotus (formerly Renault) had more than 550 employees in the 2013 season. Keeping costs under control in F1 is an objective initiated by Max Mosley nearly 20 years ago — in the aftermath of the “active cars” and Aryton Senna’s tragic death — but plainly far from realized, especially when two of the best teams are conspicuously absent from any enforceable limits. As Dieter Reinken wrote in Autosport, “Whoever thought a bunch of the planet’s most competitive individuals could self-police without searching for loopholes in every nook and cranny suffered from the most extreme bouts of optimism.”
Third, spending varies widely by team, with the front-running organizations McLaren, Ferrari, Red Bull and Mercedes demanding far larger financial resources than backmarker teams Caterham and Marussia. In 2011, Ferrari reportedly spent €199m ($259.8m) as “the highest budget” in the sport, while now-defunct HRT’s €34m ($44.4m) was the lowest. In 2013, “officially” the Red Bull Racing team had 525 people and a budget of some $296 million, but on a consolidated bais with its research affiliates is spending more. (The numbers never agree; well-respected Autoweek says Red Bull “had a $270.2 million season-long budget [in 2012] for a $13.5m per-race average, while even the 11th-place Marussia team spent $5.4m at every Grand Prix.”) How much more RBR spent is a matter of some debate.
It is safe to assume is that the true spending total is somewhere [closer to] $344 million. McLaren and Ferrari may both employ around 600 people apiece, but both seem to be spending no more than $240 million each on their racing teams. The Mercedes budget is growing fast, but this year is reckoned to be only $225 million, with 550 employees, while Williams and Lotus may both employ big team numbers of staff, but are running on much tighter budgets. Lotus has been spending about $190 million this year and Williams’s budget is down at around $145 million.
Fourth, component costs themselves, although still astronomical compared to road cars, tell only a part of the story. A single F1 engine reportedly costs £107,000 ($161,000) as of 2008, and with 10 engines per car per season, that alone equates to a huge sum. Yet as the new “insider” blog Get a Job in F1 notes:
A new set of carbon fiber wings and bodywork for example may cost £20,000 ($30,000) in material to produce. You might think that is a lot of money. It is, but the real cost of that bodywork is actually likely to be 10 or more times higher than that due to the research, testing, and engineering that was required to produce it. The shape of those parts and the intellectual property which produced it is much more valuable than the actual physical parts themselves.
Since each F1 team fields two cars and the era of spare cars and test cars is over — spares are banned and testing is very strictly controlled — the most logical way to price an F1 car is to halve a team’s budget. It’s not the components that cost so much as the entire organization required to develop, build, constantly modify and improve them. So you can get a 2012 HRT F112 for US$22m or a Red Bull RB8 for $172m. Take your pick, although market prices of used F1 cars — of interest essentially only to collectors and vintage racing drivers — are for obvious reasons quite a bit lower.