New F1 Engine Program to Cut Ferrari’s Budget by 1/2…. Only $250,000,000 by 2012

I found this article over at itv-f1.com to be interesting.  In the article Ferrari president, Luca di Montezemolo, praises F1′s decision to create a standard engine program featuring Cosworth engines beginning in 2010.  Under the standard engine program, teams will pay approximately €7,000,000 per annum, which is a drop in the bucket compared to the amount most teams spent on engines in 2008.  Under the new standard engine program, teams will have the right to opt out and create their own engines, so long as the engine is of equal power as the standard Cosworth power plant.  Ferrari will undoubtedly create their own engine and, according to Montezemolo,  likely would have pulled out of F1 if the spec engine had been mandated for all teams.  It is anticipated that four or five other teams will also opt out of the program and utilize their own proprietary engines.

The part of the article that I found most interesting is the impact that the standard engine program will have on Ferrari’s costs.  Even though Ferrari will not be using the standard engine, Montezemolo anticipates that in 2010 alone they will save 50% based on historic engine expenses.  This savings is primarily based on the fact that the 2010 standard engine program produces slightly less power output compared to 2008 and, thus, is less expensive to develop and maintain.   Ferrari estimates that by 2012 the standard engine program will save them 50% of their entire budget!  Ferrari’s annual budget for 2008 was reportedly in excess of $500,000,000.  That means F1′s cost cutting will save Ferrari $250,000,000 per annum by 2012, even though they’ve opted out of the spec engine program.   The savings, as a percentage of overall budget, are most assuredly even greater for the teams utilizing the spec Cosworth engine.  Assuming similar savings across the entire F1 paddock, the impact is enormous — nearly $1,000,000,000 per year!  Sure, that’s a rounding error in the Big Three’s bailout request, but it’s some serious coin to those without legacy pension expenses…

Speed certainly doesn’t come cheap, but I venture to guess that only the most astute observer will be able to visually differentiate the speeds of Ferrari’s cars on a $500,000,000 budget vs. those on a $250,000,000 budget.  Sure, there will be some that say F1 should be an unlimited class, but the fact is that without significant cost reductions there would very shortly only be two cars on the F1 grid, and both would be emblazoned with the prancing horse.

Agree, disagree, or think my writing stinks? Let me hear about it.

Matt Breeden (SportsLawGuru.com) is an internationally respected business advisor and attorney based in Indianapolis, IN. His practice is focused on Sports & Entertainment, Intellectual Property, Commercial and Corporate Law. He represents Sports & Entertainment properties, as well as many other businesses, in a variety of matters, including: Broadcast & Digital Media Agreements, Licensing Agreements, Sponsorship Agreements, Commercial Agreements, Athlete/Driver Contracts, Insurance & Risk Management, Employment Agreements, Litigation Management, Mergers & Acquisitions, Business Formation and Corporate Governance.