JANUARY 26, 2002
Motor racing and the recession
AFTER months of pretending that there are no problems, the Formula 1 community is now waking up the reality that there is a recession: the first in 10 years. Across the board in many different industries there is restructuring and there have been large scale job cuts. Confidence is at a low ebb. At the moment it is America which is leading the world down that path. In some respects the recession was inevitable even before the September 11 attacks. The "new economy" began collapsing in March last year and that was followed by other companies which had over-valued share prices. In the course of the year many shares tumbled by 30% or more. Only a few of the old blue chips held their value or increased their worth as investors looked for safe havens. Investment dried up and spending cuts came in.
The sharp slowdown in US spending had already hurt Asia and Latin America and because of increased globalization the drop in demand was felt everywhere. The economies of the world seemed to be in a gentle downward spiral. The main problem was the lack of investment money which was hurting growth. The only positive thing was that interest rates came down. Borrowing money is much easier now than it was before September 11.
The US government has been spending heavily on a military campaign in Afghanistan but the fact remains that the September 11 attacks pushed the US economy down. Advertising budgets, traditionally the first victims in a recession, were slashed - and that hit motor racing badly. Sponsorship is hard to find at the moment. CART, IRL and many other series were all hit - as were the smaller Formula 1 teams which could not justify the spending with their results.
Some economists argue that the recession will bottom out quickly and that as confidence returns the economy will start to grow once again. That may or may not happen but it will do no good for motor racing one way or the other. Budgets for the year ahead have already been decided. Very little new money has been found. A few sponsors have switched between the teams but that is all. It is possible that by the autumn the economy will be getting better and perhaps then, as the budgets for 2003 are being decided, there will be some good news for F1. But in the meantime it is a time for teams to consolidate, keep down costs and hope that they do not have to face a second year without any new money arriving in the sport.
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