Counting the costs of F1's coronavirus crisis

When Zak Brown took the decision to withdraw McLaren from the Australian Grand Prix, few imagined that three weeks later teams would be manufacturing medical equipment and furloughing most of their staff. Not only has racing been suspended, Formula 1 is in intensive care.

While F1's CEO Chase Carey talks about restarting the world championship mid-summer with up to 18 grands prix crammed into a congested schedule, possibly spanning the early months of 2021, some teams and many suppliers will struggle to survive that long. This is an anxious moment, and to overcome it will require leadership, patience and creativity.

Carey has the unenviable task of trying to captain the F1 ship through a storm which came out of nowhere to leave us in uncharted territory. His job is to inject confidence but Liberty Media's investors are nervous; F1's share price had peaked at USD$48 per share on 13 January but halved by 1 April.

By then one New York-based investment analyst was asking advisors whether coronavirus represented a short-term problem from which F1 would soon recover, or posed an existential threat. The question rather gave away the thinking.

The COVID-19 pandemic is shaking F1's foundations. Revenue from broadcasters, race promoters, sponsors and licensees are diminished, threatened or gone entirely.

For the teams, the only saving grace is that initial payments due from sponsors had already been made. However, those which did pay will want to know that a credit will be applied, and those which haven't are in no rush to settle up in the face of so much uncertainty.

The after-effects of this will likely include a global recession that could comfortably dwarf the financial crisis of 2008, which caused Toyota, BMW and Honda to quit F1, joined by the banks and other sponsors for whom motor racing became irrelevant.

The vast car design, development and build costs for 2020 had already been incurred along with pre-season testing, making the timing of the pandemic a worst-case outcome

Similar fears are now emerging. With a glut of oil caused by near-global lockdown, exacerbated by a price war between Russia and Saudi Arabia's Aramco - F1's newest sponsor - oil prices have dropped to USD$20 a barrel, down from a June 2008 peak of USD$165.

You can be certain that Petronas, ExxonMobil, BP and Shell board meetings will not be spending too much time wondering whether Spa or Monza will take place...

Directors of Formula 1 teams have a number of duties, one of which is to ensure they preside over businesses that are viable, able to meet their obligations and trade legally.

With this in mind, there has been a rush to get rid of costs, conserve whatever cash is available and look for ways to generate income sufficient to stay alive as a going concern.

The vast car design, development and build costs for 2020 had already been incurred along with pre-season testing, making the timing of the pandemic a worst-case outcome.

The costs of going racing have largely been suspended, most engine costs paused, leaving teams to wrestle with the thorny question of fixed overheads and contractual payments which did not account for COVID-19.

Staff costs have quickly become a focus, since a team with 800 employees on an average salary of £60,000 must find £4m-plus each month, racing or not. This is the stark reality for the Totos, Guenthers and Claires of Formula 1.

A crisis, not of businesses, but of people, their families, their wellbeing and survival.