1Malaysia F1 Team Will Be A Success, Says Fernandes—Well, Think Again

By Seow Yaohan on October 15, 2009 at 1:28 am

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Datuk Seri Tony Fernandes

Contrary to what many Malaysians may believe, the 1Malaysia F1 Team (1MF1T) makes business sense and would become profitable in the first year of its operation—that is the view of team owners, Datuk Kamarudin Meranun and Datuk Seri Tony Fernandes, at least. The former declared “We will make money in the first year as we have always done with our other ventures”. Perhaps true for all his other business ventures. But F1 is unlike any other kind of business.

To be entirely privately-funded, 1MF1T will have an initial start-up capital of RM 168 million, followed by an estimated baseline annual budget of RM 308 million (USD 89.7 million). But this yearly budget seems small compared to what the big boys were spending in 2008: Toyota with USD 445.6 million, McLaren with USD 433.3 million, Ferrari with USD 414.9 million, Honda with USD 398.1… the tenth team on the list is Force India, which had a budget of USD 121.9 million. The only team with less than USD 100 million to play with, Super Aguri, exited F1 before the season ended.

If Toyota and Honda, with such big budgets and substantial expertise, found it hard to compete effectively, what makes 1MF1T, with a significantly smaller budget and still searching for expertise, believe that it can pull a rabbit out of the bag? In fact, times are so trying that Honda had decided to pull out of F1. On the other hand, the Lotus F1 Team, the racing name for 1MF1T, is starting from zero, with nothing except for the Lotus brand and racing heritage to lean on.

Don’t get us wrong; As a business, 1MF1T could derive sufficient revenue—from mainly sponsorship, the sale of merchandise and the sharing of profits with Formula One Management (FOM), the F1 commercial rights holder—to offset the money invested. Petronas could well jump on board, since their sponsorship deal with BMW Sauber ends this season. Then there are a number of government-linked companies (GLC), led by Malaysia Airlines, that could feel pressured to sponsor the team, if not by obligation then at least by association.

Regarding the sale of merchandise, Fernandes brought to attention how one F1 brand managed to sell £150 million (RM 816.7 million) worth of T-shirts. While the Lotus brand may be notable, it is absurd to even suggest such an unrealistic sales target—one reachable by Ferrari and perhaps McLaren, and no one else. To be fair, there may be other potential revenue sources such as technology spin-offs, research and development (R&D), and entertainment opportunities, as Fernandes pointed out.

But let’s not forget that 1MF1T was conceived in part to foster national pride. But pride may as easily turn into pain if Lotus F1 Team finishes poorly week in, week out, or worse, fails to even complete the race. Remember Minardi? Their cars were driven by Ferrari engines, and sponsorship was not lacking. But on the racetrack, their results were nothing short of abysmal. Malaysia’s first F1 driver, Alex Yoong, drove for Minardi in 2001 and 2002, managing precious little success. Keep in mind that only the top ten cars earn points in an F1 race; Starting from scratch, Lotus F1 Team will be hard-pressed to even manage that, subject to the number of teams competing next year, of course.

“We are certainly not here to throw Malaysia’s name away”, Fernandes said at the recent Singapore F1 Grand Prix. But consider the relatively small budget, limited expertise, and total lack of experience at this level, and it becomes hard to justify the confidence surrounding the entire 1MF1T idea. Unlike a conventional business that loses money and folds, 1MF1T’s failure could well drag Malaysia’s name through the mud, along with Fernandes and company’s.