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UPDATED: January 4, 2009 NO. 2 JAN. 8, 2009
Formula One's Financial Crisis
The global economic slowdown is bad news for F1 auto racing
By LI XIAO
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Each team's budget usually consists of research and development, engines, tires, fuel, wind tunnel operation, operating cars at tests and races, wages, travel expenses and public relations. In 2004, total spending for the 10 teams exceeded $2.5 billion, including $900 million in engine expenses alone. According to Honda, it was no longer willing to bankroll an F1 team with a $500 million annual budget.

Following Honda's announcement, there was speculation that the Suzuka International Racing Course, which was built and backed by Honda, would pull out as well.

To make matters worse, circuits have been leaving the races one by one. In October, the FIA dropped Montreal from the 2009 F1 season calendar, leaving Canada without a race for the first time in more than 20 years. Eight days later, organizers cancelled the coming French Grand Prix after the Federation Francaise du Sport Automobile pulled funding.

F1 in Shanghai

Shanghai has hosted five F1 Grand Prix (GP) after signing a seven-year contract with the FIA. However, the Shanghai International Circuit has operated under successive deficits since 2004. In 2008, F1 Chinese GP's box office fell off badly. Only 130,000 spectators watched the race over three days, compared with 260,000 during the first F1 Chinese GP.

It is an open secret that Shanghai hosts the F1 Chinese GP at a loss. Yu Zhifei, the former general manager of the Shanghai circuit who introduced F1 to China, once predicted the Chinese event would become profitable after 12 years. In early 2008, Yu was arrested for corruption, which has cast suspicion on the long-term management of the Shanghai circuit.

Shanghai has a long way to go to recover its investment in holding the event. The circuit paid the FIA fees starting at $30 million in 2004 and increasing 20 percent per year. The local government provided figures showing that 2.645 billion yuan ($389 million) has been spent on the construction of the Shanghai circuit, 1.162 billion yuan ($171 million) is to be paid for the seven-year contract, and about 5 billion yuan ($735 million) is to be paid for TV broadcast rights. That means the Chinese event has to earn over 625 million yuan ($91.91 million) per year, which is impossible based on earnings in previous years.

The Website of Titan Sports reported that the F1 Chinese GP earned 300 million yuan ($44 million) in 2004, declining to 216 million yuan ($32 million) the next year. Before seven-time world champion Michael Schumacher's retirement, his last show in the 2006 F1 Chinese GP boosted earnings to 400 million yuan ($58.82 million). In 2007, the number dropped to about 200 million yuan ($29 million) again. The F1 Chinese GP loses at least 200 million yuan ($29 million) every year.

Despite the heavy losses, the Shanghai Government supports the Shanghai circuit for the purpose of developing the macroeconomy. "Shanghai has made a deeper impression in the world and gained rapid recognition thanks to F1," said Jiang Lan, General Manager of the Shanghai International Circuit. "Nowadays, holding a high-level sporting event like F1 is the best way to gain publicity and promotion."

On November 7, 2008, the FIA announced the provisional 2009 F1 calendar, which shifted Shanghai's GP from autumn to spring after a potential scheduling conflict with the Tennis Masters 1000 set for the week of October 12.

"The shifted schedule is better for us to operate the two events," said Yang Yibin, Marketing Director at Shanghai Juss Event Management Co. Ltd. "After all, there is only one team to promote the two events in Shanghai."

F1's future

In a recent 163.com survey on Honda's withdrawal, which drew 5,197 votes, 46.3 percent of respondents believed it was just the beginning of F1's serious depression; 28.73 percent even think the economic slowdown will kill the sport, with only 8.96 percent predicting a prosperous future for F1 racing.

To help the sport get out from under, F1 Chief Executive Bernie Ecclestone has proposed awarding drivers Olympic-style medals instead of points in an attempt to attract racers. Mosley wants all teams to use a "one size fits all" standard engine. Teams are resisting another proposal to move from 2.4-liter V8 engines to fuel-efficient 1.8-liter turbo engines starting in 2011, which could lead to a ban on mid-race refueling.

The use of lower-cost, longer-lasting engines and a ban on refueling would probably force the cars to slow down, critics warned.

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