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Motorsport 101: What is Malaysian F1 Team Deadly Cost?

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(It is not cheap to run an F1 team even for winning teams and they need to keep winning races if they expect good sponsorship to cover their expenses every year – Image source: Forbes)

There are pros and cons to the Government’s latest adventure into Formula 1 (F1). We thought we had a taste of F1 with Petronas’ involvement with Sauber, BMW and Mercedes and with our own Alex Yoong in the driver’s seat but in the Malaysia Boleh spirit, we are getting ourselves one notch up in this very expensive sport

Malaysiakini reported:-

Sepang International Circuit (SIC), a joint partnership involving the government and a consortium of Malaysian entrepreneurs for the 1Malaysia Formula One Team project, has allocated between 8,000 and 12,000 hectares for the development of the Made-in-Malaysia F1 team headquarters

Then Paul Tan in his blog reported

According to SIC CEO Razlan Razali, the HQ will be fully equipped with manufacturing and development facilities including a wind-tunnel and costs could be in the millions or even billions.

Seriously the government through Proton have not revealed how much they are spending to bring up a wholly-owned F1 team (they passed the buck to Proton but will Proton have freehand on saying how much they can spare? And how they will recoup the investment?). And with past track records of how public funds are mismanaged, we need to ask the question – how much Malaysians may end up paying for the whole lot.

As usual, the plan was announced with many blurred out details and with the idea ‘1Malaysia’ prominently highlighted. What 1Malaysia got to do with Formula 1, you may ask. Ok never mind, no point cracking our heads looking for connection – somewhere there is a load of money to be spent. I heard something about getting foreign investment into Malaysia but as usual, these were general statements.

Until the government and the ‘not so private’ Malaysian companies’ decides to reveal the details, let have a look at the average cost of running an F1 team.

That leads back to the question – how much the more seasoned F1 team are spending on their team on annual basis? An entry in Wikipedia states:-

In March, 2007 F1 Racing published its annual estimates of spending by Formula One teams.

The total spending of all eleven teams in 2006 was estimated at $2.9 billion US. This was broken down as follows; Toyota $418.5 million, Ferrari $406.5 m, McLaren $402 m, Honda $380.5 m, BMW Sauber $355 m, Renault $324 m, Red Bull $252 m, Williams $195.5 m, Midland F1/Spyker-MF1 $120 m, Toro Rosso $75 m, and Super Aguri $57 million.

Costs vary greatly from team to team. Honda, Toyota, McLaren-Mercedes, and Ferrari are estimated to have spent approximately $200 million on engines in 2006, Renault spent approximately $125 million and Cosworth’s 2006 V8 was developed for $15 million.

In contrast to the 2006 season on which these figures are based, the 2007 sporting regulations ban all performance related engine development

Assuming the Malaysian F1 team spends USD40 million per year (and they are contracted to race for the next 10 years), they would have spent USD400 million. That is not including the cost of preparatory work (like the building of HQ), the normal side functions related to this project, required flights to overseas racing events to give moral support, congratulatory messages in the papers from local politicians and many more.

Of course, one can argue that the team may gain from the latest endeavour – like how Petronas did with the development of fuel and additives and transfer of knowledge and technology – Proton can do the same.

Proton brand may be more famous and therefore be easier to sell overseas (it is unfortunate that the Formula 1 car is not going to use the Campro engine). Of course, Proton need not participate in F1 to sell more cars – they can do the same by building more quality into their cars and coming up with better models. Alternatively, they can concentrate on the World Rally championship instead (after all they use more Proton components in rally sport than in F1).

The problem with Proton is not that they have a problem getting the right technology but rather they are having a problem getting enough sales to have enough for R&D and development to make new saleable models.

One may also argue that the income (ticket sales, their share of TV rights money, advertisements and sponsorship) will be more than enough to cover its expenses. That is arguable since many of the seasoned Formula 1 teams have been in the sports for many years now and they must be making some kind of profit to continue to participate. With enough sponsorship and technical partnership, some teams have a very healthy profit margin. We are hoping for the same

Then there is this question of ‘what if the team gets in trouble financially’? Is there a backup plan?

Of course, we hope for the best for the team and with many ‘Malaysians’ like Mike Gascoyne (the technical director), we hope that better control and professional management of the team funding and resources.

But what if they could not get enough sponsorship and the development cost spirals up?

Who then come in to save the day? The government? A consortium of Malaysian companies – many of it is “government-linked companies’? Of course, we hope that detailed studies have been made before the Government and the GLCs got their one foot into this project and do end up as another PKFZ fiasco where money and time is being spent on ‘investigations’ and delays on booking the culprits.

Of course, we have this – way back in 1992, this was stated in

There are teams like Ligier which have important political friends who can supply an annual budget of around US$40 million without the need for good results.

Fast forward to 2009 – now doesn’t that sound so familiar?

Until then, let’s hope for the best for the team (for the sake of the nation)

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