Is the petrol-hungry Formula 1 a better bet for manufacturers than going electric?

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  • Formula 1 has revised its rulebook, sparking a wave of investment in teams that have struggled to compete for years
  • The likes of Aston Martin may be betting success on the track will rekindle demand for their struggling sports car companies

In 2009, more than a decade before Super League football plans rocked the sports world, Formula 1’s elite were preparing their own separatist competition.

Eight of the best racing teams, including those belonging to Ferrari (IT: RACE) and Red Bull, were enraged by what they saw as the autocratic leadership of Max Mosely, the sport’s governing body chairman, who wanted them to agree to an annual budget cap of £ 40million . Moseley must resign, the group threatened, or they would form their own league.

Mosely, who died last week, has finally resigned under increasing pressure. But just before he died, he was able to see his own plan come to fruition. Under new leadership, F1 introduced a cap on team spending; As of this year’s season, the rules will prevent manufacturers from spending more than $ 145million (£ 102million) each on their cars.

The development sparked a wave of investment in companies that for years could not compete with the huge research and development budgets commissioned by F1 leaders Ferrari, Red Bull and Daimlerowned by (DE: DAIX.N) Mercedes. Of Aston Martin (AML) at McLaren, hundreds of millions of dollars in new money are now funneled into racing teams controlled by smaller automakers.

Their owners may be betting success on the track will reignite demand for their consumer vehicles, which was hit during the Covid-19 crisis and faces new challenges as the auto industry demands to ditch fuel. . But is fuel-hungry F1 a better bet for their business than going electric?

Level the rootfield g

Mosley, son of British Nazi Oswald Mosley, said he was drawn to motor racing because no one gave his origins “a heck”. But while politics may not be a barrier to entering the sport, money is.

Lewis Hamilton, currently the world champion, is a rare example of a driver who did not come from a wealthy background – his father had to work up to four jobs at a time to support his training. Hamilton has now won a joint record seven F1 championships, mostly with Mercedes, helped in large part by the hundreds of millions of dollars the team has invested in the series each year.

But the vast budgets of Mercedes and its closest rivals have severely limited the competitiveness of the sport and, for many, its entertainment value. The Mercedes team reported costs of £ 333million in 2019, 54% more than McLaren’s spending of £ 217million, according to company accounts. The former has won every championship in the past seven years.

The $ 145 million budget cap excludes costs unrelated to the performance of the car, but should still help level the playing field. A string of investors are seizing the opportunity.

The new team Aston Martin was launched this season after a 60-year hiatus, after billionaire Lawrence Stroll led a $ 500 million takeover of the sports car maker and renamed his own manufacturer Racing Point F1 under his last name. In December, investment firm MSP Sports Capital took a 15% stake in McLaren’s racing team, which, along with a £ 185million cash injection, will eventually reach 33%. A few months earlier, Dorilton Capital signed a £ 137million deal to acquire Williams, the legendary builder who in recent years has slipped behind its peers.

The wave of investment directed at F1 appears to be going against the trend of the wider auto industry, which for the most part has consistently given in to the pressure to clean up its act and focus its future on vehicles. electric; many automakers now see Elon Musk and You’re here (US: TSLA), not Hamilton and Mercedes, as their main competitor. In October, Japanese affairs Honda (JP: 7267), which supplies engines to the Red Bull team, has said it will retire from F1 to focus on building zero-emission technology.

But as Aston Martin rivals scramble for pole position in the electric race, the iconic automaker apparently sees F1 as the best opportunity to revive its struggling business. Under Stroll’s leadership, he immediately suspended further investment in electric vehicles, in the hopes that success on the track will revive demand for his struggling sports car business instead.

“Our job is to do [the brand] younger, more dynamic, interesting… culturally relevant to a lot of people, ”Jefferson Slack, commercial director of Aston Martin F1 recently told the Financial Times.

Winning the F1 championship itself also comes with significant financial incentives. Including cash prizes and sponsorship deals, the Mercedes team achieved a turnover of £ 355million last year, or around a quarter of the Daimler Group’s total revenue.

But winning the race often depends on factors beyond the control of top management. Aston Martin’s acquisition of champion driver Sebastian Vettel should improve its chances – although the decision to hire Stroll’s son Lance as a teammate has raised eyebrows. With five races completed by all 10 teams this year, the duo currently sit in fifth place.

Meanwhile, the McLaren team, whose parent company plans to go public, had steadily increased their polls every year before the budget cap was introduced, from ninth place in 2017 to third last year. Under MSP co-ownership, he is currently on track to win the bronze medal again in 2021.

“The cost cap now… is a compelling investment,” said Jeff Moorad, CEO of MSP, during a phone call en route to watch McLaren compete in the Indy 500, a separate racing tournament in the United States. But success will not be measured by the team’s performance year over year, he said, as the buyout company takes a “long-term view” of the business.

Bonkers aabout F1?

Despite the controversy, the European Football Super League would likely have been a smart business move for the sport’s biggest teams, helping them reach an even larger audience in the United States and Asia. Ultimately, of course, plans thwarted by the outrage of local fans on the continent.

As F1 seeks to become a more global event, it shouldn’t have the same problem – the series is already set on five different continents. American group Liberty Media (FWONA), which acquired F1 in 2016, has prioritized growing the tournament by expanding it beyond its strongholds in Europe and Asia, with plans to add a Miami Grand Prix to the year next.

While devastating F1’s finances last year, the coronavirus pandemic also accelerated a digital revolution in racing, prompting the launch of a virtual tournament in which professional drivers competed against each other on the F1 video game. The series will likely attempt to continue to capitalize on the rapid growth of esports in the years to come as it seeks to attract the next generation of fans.

“F1 has done a brilliant job of attracting young viewers,” Moorad said. “I have my own discussion group of three sons aged 21 to 27, and they are crazy about F1. They play video games religiously.

Continuing to attract young people like the sons of Moorad will likely be the key to success for Liberty Media, as well as for automakers who hope to gain new sponsors – and, as the next generation matures, customers for their cars. .

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