Spending caps crucial to Formula E

Having been conceived just four years ago, Formula E is very much a baby in sports terms; but it’s found its legs quickly, and continues to develop and try new things.

The ePrix in London is perhaps one of the biggest races in the sports short history, with new teams joining the fold for the 2016/17 season and an increasing fan base, the early signs are the sport is taking off.

Formula E is compared to Formula One for obvious reasons, and it is a tough act to follow – Sir Martin Sorrell recently said that F1 Grand Prix was one of only three global live sports events – along with the Olympics and the World Cup.

Alex Tai, Team Principal at the DS Virgin Formula E team, knows only too well the differences having help run Virgin’s Formula One team when they briefly ventured into the sport.

He told iSportconnect that he would like to see spending caps in Formula One – as seen in Formula E:

“I raised I think 25 million before we started in Formula One. Max Moseley promised Richard Branson a cost cap of 50 million euros, that’s horrendous that it costs that much to run two cars. Ferrari and McClaren are spending 200 million, the pressure of reducing your budget will be huge. The cost caps went away and you see the problems they’re having.

“The system we have here is a cost cap – our budgets are 10 times less than Formula One, so I can ask our partners for a lot less money.”

Formula One has debated a spending cap for many years, but the larger teams have blocked its progress. F1 have managed to cap engine prices, but the costs are still eye-watering expenses, with smaller teams struggling to survive.

But Tai feels that the green nature of formula E, along with its cost cap, means teams can run in profit.

“It’s difficult to talk about a Corporate Social Responsibility to a Formula One team when you’re running petrol or diesel cars that are hurting the planet.”

“It’s been very easy for us to find sponsors, although we have no need to find sponsors a both Virgin have the capability to run the budget, bizarrely we’re a race team that it in profit. That’s sustainability; Formula One teams should be able to make money where they aren’t relying on drivers paying to drive their cars. We’re increasing the money we pay to the driver’s year-on-year so we get better drivers.”

Challengers to Formula One have come and gone, including A1 Grand Prix, and Superleague Formula – both of which folded. Getting involved with rivals to Formula One usually doesn’t end well, but Tai thinks the nature of the sport has appealed to brands like Virgin.

“It’s very valuable to the Virgin brand, it’s a great people’s champion message for any companies we have associated with us, having directed sponsorship, coming in to run this has actually been a good way to make sure it activates properly.”

“The Virgin brand has permission to try to do things; we try and do things in space, we tried Formula One, we try and put submarines in the bottom of the ocean – innovation. We didn’t have much to lose, if we decided it was a bad thing to do we could’ve exited. We love Formula E, everyone should be driving electric vehicles in the future.”

So how do Formula E move forward and build on their early success? For Tai it’s a simple matter of dates.

“You know if you go to Monaco for the Formula One – you know that’s going to be at the end of May. If you go to Le Mans, it’s probably going to be in the middle of June.”

“If you go to the Formula E race in London, you need to know it’s going to be the first weekend of July, unfortunately we might not have a race in London next year, so people don’t know to not book their holidays for that time. We need to get that set, so local people know in Buenos Aires, New York or wherever, that this is the date of the event.”

But Tai can see that progress is being made.

“Eventually these races will make money, but it will take time. There’s only a certain amount of places where people are willing to invest. I think London should invest in keeping Formula E here.”

“I think we should be racing in the streets – you can race inside, because there are no emissions; let’s have a race that goes through The O2! Because of the emissions, that’s something you can’t do with any other race.”

“The success is there; 190 million people watched it last year 220 million watched it this year. There’s a 70% uptake from broadcasters who want to show this, we’ve got this on ITV for this weekend. I think this is having great success.”

As a British team taking part in a global competition, it’s inevitable that the recent ‘Brexit’ vote will have some ramifications for DS Virgin.

Tai thinks these will be minimal

“It might tighten up budgets for some companies. For example DS, they need to work out if they are going to spend more money advertising in the UK, what it’s profit margins are, as it receives sterling for its cars and it’s cost base is in Euros, so they need to work out where it’s profile is.”

“When the waters finally work out where they are and the exchange rate works out what direction we want, then big companies like DS will be able to work out how much it spends on sponsorship and obviously that will effect Formula E and Formula One, of course there will be ripples from the Brexit.”

“We are a worldwide competition, so really for a British team it probably has more of an effect for us than other teams – luckily for us, because the cost base is so low, we will continue to run. Our partners need to work out whether they want to invest more or less until things sort themselves out – in business you want things to be predictable.”

DS Virgin will be hoping Sam Bird or Jean-Eric Vergne are able to guide the team to victory on home soil over the weekend as they plan to electrify London.

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