As I mentioned the other day, the small teams in Formula 1 are becoming rather more active as they struggle to survive without a cost cap. The four – Caterham, Force India, Marussia and Sauber – wrote to the FIA last week saying that they want to have a voice in decision-making and hinting that the F1 Strategy Group, which features only the six biggest teams, is almost certainly anti-competitive under European law. The process, they argue, is neither democratic nor transparent and should not have been agreed to by the federation, which was keen at the time to complete its financial dealings with the Formula One group (before the FIA election) and so agreed to what the Commercial Rights Holder wanted. The letter was clearly what caused the World Motor Sport Council to call all the teams together on May 1 for a meeting about costs. Bizarrely, at least two of the “big teams” have significant financial problems as well and would welcome some form of cost control, but clearly did not want to be out of step with the others on the F1 Strategy Group.
The best way to get the big teams to agree to a cost cap is for the smaller operations to come out and announce that they have agreed a limit (the number being something akin to the biggest budget they have between them). If this is given sufficient publicity and one of them is still beating the big teams – Force India being the obvious candidate this year – then it is inevitable that eventually someone on the boards of the big teams will start to ask questions about why they are investing so much in the sport and being beaten by teams spending a fraction of that money. That will create pressure from above for the big teams to reduce their costs and with a few more recruits the small teams and the FIA could write some form of control into the rules. Once this was done the big corporations would not dare to spend more than the limit as the risk of being found to have cheated (and even the accusation) would be sufficient deterrent. It would also be a good opportunity to showcase efficiency for all concerned and thus make F1 more attractive to others who are scared away by the lack of financial limitations. The current situation is being maintained by the teams that are running at the front for purely selfish reasons and none of them really care what happens to the sport in the longer term as they all have other core businesses and will depart if they do not like the rules and regulations. If Formula 1 has to lose a few of these selfish big players then so be it, but all of them are in F1 because it offers them significant gains and so, in the longer term, it is logical for all of them to agree to a cost-cap and to stick to it.
Once there is a sensible cost cap in place and there is an FIA-administered policing system, the teams will start to produce profits. Once that begins to happen each of the entities will suddenly acquire considerably more value than is currently the case, which means that there will be a new generation of team owners who like the limelight but do not want to have to pay for it. This would also help the sport grow in the United States where there are a large number of sports billionaires who would jump at the chance of such global opportunity.
All things considered, there is no sensible argument against a cost cap, unless you have a vested interest in keeping the current status quo and winning by out-spending the opposition. Just as the technical rules have moved towards efficiency, so the commercial side of the sport should head in that direction in order to create a better future for the sport. It will not be an easy route to take, but the current path is not a good one. We have already seen (in the 1930s) what happens when one or two teams can outspend everyone else and it does not bode well if nothing is done.
joeblogsf1 
How about this?
Points down to last place.
Every team has properly audited accounts
The points gained by each team is devided by the cost of obtaining them( or a co-efficient thereof)
Thanks for this.
I used to be one of those who said F1 didn’t need all this, let it be the survival of the fittest (richest), appr. up until last year’s nonsense of spending on cars that were virtually built to a spec. on tyres nobody knew how they worked. And even if someone came up something clever it was banned immediately.
Having said that, it was quite apparent that most of the money spent by teams pre-season was just thrown out of the window. I completely reverted my opinion saying that it is much better indeed if you have a cost cap and you can spend it on whatever you want it: may it be testing, development or just blowing cocaine in the office, whatever. Still, those are going to win who are the best strategists and have the fastest drivers.
Joe: logic and F1, surely you are kidding?
Good points though and worth another try. I remember the challenges Max faced with trying to get the Resource Restriction Agreement through….
Best regards,
NWC.
Glad to hear that the fight will go on! In my view it is absolutely essential for the future of Formula 1 that there be cost control. F1 can still be all about wild excess in the paddock – this is part of its otherworldly charm – but do we really want to see a rerun of AutoUnion-Mercedes? The sport would have been so much healthier in the 1930s if Alfa Romeo, Maserati, Bugatti, Lago-Talbot and even some of the English firms had not been priced out of the game. I know it is a long time ago, but historical patterns do repeat themselves… as we are seeing at the moment in the east of Europe.
Funny you brought up the 30s. I’m thinking 1937 Avusrennen as an example of bonkers spending and a totally committed will to dominate.
I’ve been banging this drum for the last 10 years or so. You are entirely correct Joe, and we all know you are, but the participants are too divorced from the reality of the world that we all inhabit, to realize that they are being utter fools. I can’t remember who said it, but there is an old saying about those who do not study the mistakes of past history, are condemned to relive them.
Only RBR, Mac, Merc and Ferrari can possibly survive the current spending pattern, and even those teams must surely see that the time is long past for restructuring the costs base. Of course, this should also include the huge sums being sucked out of the sport by BCE and his mates with the complicity of the FIA.
The problem as arisen, imho, because F1 has become divorced from motorsport around it, from the grassroots up to GP2. There used to be a symmetry in the sport, and interaction with teams and drivers in F1, Sportscars, F2, F3, even Saloon Cars too, but removing all that and placing F1 as a Stand Alone product, was a grevious mistake in my view.
The other thing that is a current mistake, is having a critical situation with costs, and then changing the rules so that the teams have to increase their spending to new highs, it is not logical at a time like this.
Also, in regard to cost caps, the simplest thing would be to rewrite the rules to be simpler and that would stop a lot of spending on trying to bend them all the time, in silly ways.
“Those who cannot remember the past are condemned to repeat it”. George Santayana
Is that the real Nick Craw that commented?
Yes.
ehhmmm…did the President of the FIA Senate just leave a comment here?
[clicks “Like” Joe Saward on Facebook]
Yes.
It does strike me as odd that as spending doesn’t guarantee success – Ferrari, Mercedes and McLaren all broadly spending the same as Red Bull with little to show over recent years, that those teams aren’t in favour of spending less.
It all leads me to think that some team bosses are worried at being shown to be inefficient if compared like for like with the rest of the grid.
Amen!
If it’s true what they say tho in F1 the only thing that matters in winning, then what metric to use to evaluate the performance of the “bosses” of the 10 losing teams?
dollar-per-“point” or dollar-per-media_impression or simple P/L report or…?
Regardless, it would seem that first knowing what actual spending is and seeing it transparently accounted for and objectively analyzed are vital for predicting success and evaluating performance (and qualifying failure).
What will be/(is?) Haas’s position on all of this? [“Some say…”] the best way to make a small fortune in motorsport is to start out with a big one and back a Formula 1 team. But I can’t imagine the American will become a spendthrift just b/c he’s joining the F1-Circus™.
You don’t build a fortune like his with profligate tendencies…
Cannot disagree Joe – but big question is exactly how to police the cost cap?
Read the comments about this. They have been endless. It is all entirely possible.
Actually have read the comments and studied the options intensely and agreed that if goodwill and all that prevails (unlikely) then it is police-able. And can probably be audited. But much like big corporations if they wish to fudge the books they will do and will be hard to catch.
If a team wants to cheat the cost cap they can easily set up a clandestine operation in a bunker somewhere in the middle of nowhere and who will know? Where there is a will there is a way…
Not convinced it is something that can be policed effectively all the time.
The whole point is that the risk of getting caught will stop them. And the others will be stopped by accountants. Someone has to pay from bunkers. Everything these days is traceable and people move around and nothing remains secret for long. Believe me, it is possible.
I can see “illegitimate money” being the “doping case” of F1.
It’s called “financial doping” (or at least a derivative of what you’re talking about is, though I could see the term being co-opted to describe off-books or otherwise “illegal” spending to secure added motorsports-performance), no?
but please don’t think that F1 is immune from its own genuine (proper) “doping case”!
FIA became a signatory to the WADA Code only recently, and yet the elite racecar pilots – like top pro athletes in every sport – have a huge financial incentive to dope and very low probability of being successfully detected, despite introduction of out-of-competition (semi)random doping controls.
Allegations (conveyed to WADA via a natl ADA) of past doping history already exist against one piloto, but of course I would not speak their name in this context, as they deserve the presumption of innocence given lack of sufficient evidence providing irrefutable proof of their guilt. Plus the statute of limitations (8 yrs) is expiring…
Never a dull moment…
The UEFA Fair Play rules in Football highlight that cost control is possible; – and it’s now at the point where Football Clubs who have transgressed/have been unable to meet the criteria are about to face sanctions for the first time.
Given some of these clubs can afford the best Accountancy advice that money can buy shows that cost caps are enforceable in a ‘real world’ situation; they will only fail through a lack of willpower by the governing authority.
What if a “benefactor” (the team owner or his cronies) “graciously lends” facilities to a team, from what’s ostensibly an outside firm but is really controlled by the same hand? Could they police this as a sort of “benefit in kind”?
I ask because all of this has got me thinking about football and the Uefa Finacial Fair Play Regulations. Some of the Petrodollar Government-owned teams (such as Manchester City and Paris Saint-Germain) have “sponsorship deals” in place with other parts of their owner’s empires (like Etihad throwing however much money City’s owners Abu Dhabi United want at Manchester City) and it will be interesting to see if UEFA stops them from doing it.
Yes, it can be accounted for.
In the tremendous discussion we’ve had on this point, you’ve yet to suggest any particular method able to detect schemes like this. By implying detection is possible, you’re making an extraordinary claim.
The unfortunate truth is that there is no method to effectively police the spending of billionaires and massive multi-national corporations, especially when the FIA auditors will never gain access to the books of the team’s parent companies. T
You say the teams wouldn’t cheat, and an honor system would work, because the risk of being caught would be too dire. Were that really the case, shouldn’t an honor system replace all post-race scrutineering? Why do we need post race checks at all?
The reason is because honor systems don’t work in sports like F1. Without independent checks, winners would be assumed as cheaters, and losers would be enticed to cheat.
By refusing to specifically address the vexing problems of enforcement, your vision of cost controls come off as rather naive.
Random – you didn’t answer my previous post on this issue?
The fact is the kind of scenarios you are talking about are not material. If a cost cap of X is bought in a team will have to reduce and control a set of key costs. These being people and capital investments. My example of Brawn cutting staff at the loss of funding ie a self imposed cost cap by Honda. This is the realistic threat of a cost cap which is why the big teams are anti.
Other costs, yes they have a risk of being exploited but as you have seen there are many potential ways these will be found out. Also, the F1 world is so small the idea that a team being thoroughly investigated and likely to not being found out is unrealistic in the long term.
Ha ha, most things commercially are secret in F1 and have been for a very long time. Cost caps and forensic accounting are not the problem and solution. The problem is that the sport from team owners to FIA to FOM are all wheeler dealers, crooks and not professionally qualified to lead, govern or manage the sport. So this self interested bunch of folk will never agree on anything that would benefit the greater good. A total revolution is the solution but that aint going happen either…
I would say that a cost cap is very much the solution.
Forensic accountants are very good couple with the a harsh penalty should deter most if not all from cheating
And also incentivize potential whistleblowers (who would basically tattle on their employer or a team they supplied for illegal spending) by giving them a not totally insignificant percentage of whatever the huge fine is that would be levied against the cheating team (ensure the amt. is enough to motivate the disclosure).
And of course protect their identity if possible, although it would be necessary to ensure the validity and authenticity of whatever is the documentary evidence they’d use to support the case.
I do find all this talk of cost caps funny when you then look at just how much money is being thrown at these new powertrains…
Merc alone have reportedly spent close to $1Bn on this so far, ie. silly money.
how do you square that with cost controls?
That was yesterday.
Some of the innovation in the Mercedes engine may be immediately adaptable to road cars. The basis of the turbo/MGU-H set up could be used in their hybrids. I would imagine these systems are patented by MHPE and the use of the patent could be sold or leased to the road car division. I can picture a detuned version of the PU in a high end Mercedes within a couple years.
MGU-H on a road car would be next to pointless, road cars do not run at high load (and thus high exhaust outputs) for any significant time.
Turbo compounding is not a new idea, it’s well over 50 years old and has been used extensively on Aero/Marine engines as well as some current HGV’s (although the benefits on an HGV seem only viable on long-haul light load stuff in countries like the US and Australia)
yes, electric boost to minimize turbo lag might well adapted, but that’s hardly new is it?
What I am getting at is all this stuff is only really relevant to an engine that’s at maximum load for a huge proportion of it’s duty cycle in a vehicle that’s doing hard braking/acceleration lap after lap – this does not translate to your everyday road car’s driving profile.
Have you ever heard of V2G? If not, go look it up and you will see the value.
Yes thanks, not sure what the relevance is though?
Your going to have explain this one i think?
So your saying it won’t work because the turbo doesn’t consistently spin fast enough?
I agree Simon. Rather than a cost cap, why not do the obvious thing and cut the rule book down? Get rid of Wind Tunnels, have tyres that last the whole race distance, pit stops only for deflated tyres or to repair car damage, that would get rid of most of the pitcrew, there are so many things that would immediately cut the costs and would be transparent, and not need a layer of greedy accountants added to the mix!!
Unfortunately not, as patents and F1 don’t work out. I can’t quite remember why, but I think it’s to do with if you register a patent you cannot disclose it (i.e. put it on the car which is in the public domain) whilst it is being registered, by which time the innovation is out of date in the F1 world.
May be out of date in F1 but still applicable to road cars in the case of PU technology.
I think your right about incorporating parts, where the patent is pending, in mass production. If not law I’m sure the companies lawyers would frown on it.
I have to disagree about shame or fear of public opinion influencing a team. I think these racers (e.g. horner, williams, denis, brawn, newey etc.) will push every limit and financial shennanigans are easier to hide than fuel-flow ones.
Yes, but they all work for people who have a lot to lose.
How did Toyota react following their international rallying ban in 1995? Were they shamed, forced to wear sack cloth overalls when permitted back in 1997? Perhaps shame might work differently in the spotlight of F1 but motor sport is remarkably forgiving of rule breakers. There may be an element of “There, but for the grace of God, goes John Bradford”.
Incidentally, Max Mosley’s words about the Toyota cheat are entertaining: “It’s the most ingenious thing I have seen in 30 years of motorsport.” To me, it looked much like one of the emissions control devices adopted by dodgy manufacturers in the 1970s.
Yes, they were completely embarrassed. The problem there was that the manufacturer did not know what the engineers were doing.
And, arguably, Renault were so embarrassed that they “sold” their F1 team following Piquet Jr.’s crash…
Very good point, Tim.
Remember the humble-pie Renault had to eat after they defamed Piquet Jr and his dad (not to mention the $$$ they paid em), after originally rubbishing their claims?
somebody, somewhere, at some point in time will talk. Especially if the Million Dollar incentive that Bernie anounced is available.
If the authorities are willing to expunge historical results in the same way that the cycling authorities have. and also apply horrific financial penalties at the same time, then the teams (or owners if possible) will have too much to loose.
This is all great logic Joe, but as usual, it does involve all the teams getting and working together…
If by some miracle this was to happen, would it not be better for all those involved to do something about the huge amount of money that is simply syphoned off by the men in suits – if that were to happen, surely any kind of cap could be set relatively high, or even put aside?
The amount of money that the circus generates could easily support all teams, if they could only mount a unified fight, but alas, in my 25 years of following the sport, I don’t recall that ever happening…!
Joe:
At the point where new regulations are introduced, would you see the cost cap being varied/relaxed to allow for extra expenditure for design/R&D work?
That would be logical
I think that a cost cap is essential to the futureof F1. It would also allow for an opening up of things like testing and other elements designed to cut costs allowing teams to spend what they have on what they want.
A maximum engine cost should be included. To ensure there is no favourtism there should be a lottery between the teams using a particular manufacturer for specific engines.
Similar ideas could also be used for tyres or other common components.
I think it is also important that the teams get a more equitable share of the FOM payouts.
The problem is to many vested interests many people point the finger at RedBull probably because they win so much recently, but I believe McLaren, Ferrari and Merc are just as guilty if not more so.
The FIA can just mandate a cost cap but one presumes they are scared some teams would throw the toys around and leave, I would bet that they would threaten but it would never happen. I can see Ron eating his words from Bahrain would he say cost cap they are the rules we should all just get on with it and race what we bought.
Would F1 survive without Ferrari I bet several dollars it certainly would things come and go they are never forever people adapt.
F1 is supposed to be the ‘ultimate’ in sport & entertainment…It’s not meant to be some socialist, Nick Clegg voting, tree-hugging, eco-mentalist activity that is dressed up in ‘political correct’ clothing.
A cost cap won’t work in reality despite all the talk about “forensic auditors” and the “risk of getting caught”…F1 has the most competitive and ruthless animals in the sporting jungle…and they will find many ‘loopholes’ to any form of financial straight-jackets imposed upon them.
We’ve had endless pathetic arguments recently about the fuel-flow metres….can you imagine the amount of financial loopholes that could be exploited in any cost-cap?…the endless and utterly boring legal disputes between teams all arguing about complex financial instruments and transactions that the general F1 fan-base really couldn’t give a damn about.
There will always be the ‘haves’…and the ‘have nots’…it’s called LIFE.
“Bizarrely, at least two of the “big teams” have significant financial problems as well and would welcome some form of cost control, but clearly did not want to be out of step with the others on the F1 Strategy Group.”
Lotus and Williams, I assume. I can understand Red Bull, Ferrari, Mercedes and (to a lesser extent) McLaren. But these two? What on earth are they playing at? These two (desperately) want cost controls but vote against them anyway? It’s like turkeys voting for Christmas.
F1 teams really do operate in a different world to the rest of us.
I’m not nearly as confident that a cost cap will stop attempts to flaunt the cap or to cheat. I fear the rewards will alway outweigh the risks. If we look at football Uefa introduced a cost cap but the “top” teams like Man City, Chelsea, Real Madrid continue to spend like the so called drunken sailors. In the financial world the list of big and famous companies being fined for insider trading/price fixing etc continues unabated. As for cheating, Juventus football in Italy were done a few years ago for match fixing and were demoted. Who owns Juventus? The Agnelli family. Just as well they have nothing to do with F1..oh wait. Couldn’t happen in motorsport? Toyota were caught with their GT4 rally program some years ago. Plus we can only shake our heads with the Renault F1 team’s effort in organising Nelson Piquet Jr to crash in Singapore. It makes me wonder what the FIA would do if, god forbid, Ferrari were caught being a little too creative with their accounting. I wonder would we hear that expression used about the banks “too big to fail”
A cost cap is still worth pursuing because what we have currently is simply unsustainable.
The UEFA Financial Fair Play isn’t a cost cap. It only looks at what professional football clubs spend in comparison to what they earn.
So teams can still to some extend spend whatever they want as long as it doesn’t exceed what they earn.
I have previously mentioned that I do not see how a cost cap can possibly work in F1.
Firstly Ferrari has a veto. In the current situation LdM will want to spend more than ever before.
Secondly it will take several years to to find an agreed definition of each part, project and process and how the cost is to be calculated for each. Which salaries are included. What is this year, next year, general research? How are in house resources costed for cross flow of data from other projects? (ie Williams, McLaren, Shell).
In the past I have often commented that the regulations have been written the wrong way round, by trying to think of every way an effect may be achieved instead of banning the effect. (and putting the onus upon the team if challenged to prove compliance)
I can see accountants coming up with results of their enquiries three years after each season finishes. After all the accounting can only start when all costs for the season are finished,. But then there will be carry over to next year of designs and data are they costed twice or how allocated? What if they are then not used?
No it is impossible!
You may suggest current accounting with your forensic man both at the circuit and simultaneously at the factory and at the design centres and at all the suppliers.
How much does this bit cost? Dunno mate! Who designed it? The design team,” “How many people worked on it for how long and what were their salaries and benefits in kind?”
How many people attended the design verification meeting? For how long. Who did the design FMEA? Who made the first model?
No, it could take 5 years not 3, if total cost accounting were used.
If things are not individually defined then it would seem logical to try and calculate total expenditure. The only way to do this is to have all of a team’s incomings and expenditure through one account. However I think this will be difficult to get agreement upon but even more so to police.
Last time, when the RRA was supposedly in force, it was a widely held belief that at least two teams were in breach of it’s terms, but nothing was done to challenge them and they showed no shame at all.
Thirdly, who is going to pay the accountants?
Fourthly the teams have spent their entire lives wriggling around the regs this is just another load to be circumvented if they wish.
Finally if the sport were to be revamped financially, then the cost cap would not be needed.
Rpaco, go spend a few bucks and talk to a forensic accountant. You are presenting the same lame arguments you did last time.
My favorite this time is “fourthly”. “The teams have spent their entire lives wriggling around the regs this is just another load to be circumvented if they wish”.
Hear, hear
Forensic accounting is not magic. It doesn’t have x-ray vision. It is process. The capabilities are limited and require considerable time.
The problem you continually refuse to address is that the larger teams are owned by multi-national corporations. For a number of important reasons, these parent companies will never allow the FIA’s forensic accountants to dig through their books.
You say it’s possible for forensic accountants to audit books they’ll never, ever see, yet you refuse to provide any insight into how this is possible.
The reason you can’t specially address this massive hole is obvious, cost caps are not enforceable in a sport like F1.
If you truly want cost caps, address the issues, don’t paper over them. An unenforceable rule is worse than no rule at all.
I don’t know if you were replying to me or Joe. If it was me; I have never said that the books of the parent company need to be seen. I have said the opposite. They don’t need to be seen.
Go back and read my posts about the topic over the last couple weeks. I have answered all of the questions with a brief view of how it would be controlled. I don’t think you could have read what I wrote.
I worked for a company once, it was jointly owned, and overseen by a top city auditor/accounts practice. The one side of shareholders/directors, tried to screw the other side out of this business for 8 years. The company was twisted one way and another, the accounts were bent but always signed off by the accountants as ok. Eventually it ended up in court, and the whole thing was settled out of court. During the 8 years the joint company suffered hugely, lost £ millions in money and future opportunities. Believe me if a huge corporation wants to screw the law on accounting, it will, and it can. The city accountants went bust in the end, taken down in the Enron scandal…they were auditors and accountants to Enron….surprise surprise….also for other companies whose accounts they doctored that also went bust.None of the Directors of the offending company got any punishment, they all went on to other companies to carry on their activities in other places….It’s not accountants needed to cure the F1 problem, it’s new and clear rules, and less of them!
Yes the same arguments, the facts have not changed.
I notice that you have no answers.
I noticed you haven’t read any of my answers.
Joe, you seem to be the only one, of the credible journalists, that understands the need for and acknowledges the advantage of a spending cap. Is it a topic in the media centre? And why do you think Williams and Lotus would vote against a cap?
I’m always impressed with what Sauber and Force India do with the budgets they have. It would be a great racing series if the big teams had to compete with Sauber or FI sized budgets. That would show us who really is the best race team. Now all we can tell is who is spending the most and the least.
“But *our* accounting model shows that at no time did we exceed the cost cap! Clearly the FIA’s cash flow meter was giving false readings!”
As the International Court of Appeal just proved, the teams’ accounting models would be irrelevant. The teams would have to prove that they spent less than x million.
F1 comprises two competitions run concurrently: best team and best driver. To win the championship for best driver, the competitor has to be with the best team or close to best team. To become best team, the design and operations groups need great ideas (which might be exciting to enthusiasts and impact the rest of the world) and perform a lot of grunt work in the lab (which is boring to everyone). Great ideas are cheaper than grunt work.
Is a financial cap compatible with the concept of F1 being a race series that is about the best technology? I don’t know. It seems that F1 spends a lot of money on grunt work — evaluating different aerodynamic configurations — without necessarily understanding how they work. That is what is different about a great idea — engineers understand whether or not it works pretty quickly.
We need to remind ourselves that F1 rules prohibit technology known to make a car go faster — skirts, sidepod ground effects, high wings, wider tyres etc. We also need to consider that driver aids such as automatic gearboxes are prohibited — although we might all be better off if F1 gearbox technology of that type became commonplace. F1 rules ban technology that works. Spending money can work to make cars go faster, but whether it matters (life, the universe and everything) is another question.
I’d vote for a financial cap but open up the power unit rules — especially those defining dimensions of the internal combustion engine. Some rules on bodywork need to be retained — I don’t know how they worded the regulations to ban deflectors, but the rule makers did a good job. Perhaps it is time to ban wings altogether and look at some of the recommendations from Gordon Murray.
Hear hear!
Hope springs eternal. And yes, add CanAM and a few other series that didn’t survive cost escalation.
Having said that… add me, a former employee of an accounting firm (not a CPA) to the list of people who doubt this can easily or efficiently be done.
For instance… Company F,, an F1 team, goes to Company S, a large oil company, and says, “Hey, gosh, we need a special fuel / oil.” To which Company S says, “Gosh, we have some young brilliant people working on such a thing, golly gee!” And then Company F says, “Hey, let us know if your product is going….” So in this world, it would be EASY for Company S to bury that cost, and Company F wouldn’t even see it at all, never know about it in any official way.
Money, like water, finds its way into everything, finding its own level. The only way you can stop it is when you make the rewards not worth the investment, as well as *shudder!* limit technology. And wouldn’t that make F1 into a series like so many others, only with a higher budget?
It is all traceable.
Joe — one of the things taught to me in the accounting firm is that 1) people lie, and 2) a good accounting team can often miss that when the parties of part 1 are intent on lying.
Perhaps cheating is unheard of in F1?
This is all true but it ignores the fact that the overall aim of the cost cap is to bring the main costs down. This specific example is one likely scenario however the fact is the cost cap will mean an overall reduction in key costs – Staff and Capital investments.
Then you also have to factor in the fact that the accountants will be sniffing around constantly and also in such a small world people will move teams or fall outs will occur that will mean a potential for whistle blowers. The cost cap has potential flaws but it is most definitely workable.
Its a bit like trying to implement the ever popular bonus cap for bankers. The people who work in the industry are far cleverer, better paid and better at finding their way around these things than the people set to design, enforce and regulate it.
Which doesn’t mean it shouldn’t be tried. There ought to be some very creative people out there who can come up with disincentives to exceed or evade a budget cap that doesn’t rely on ethics or shame as most major boards these days are entirely without either.
The longer the teams faff around and delay the inevitable introduction of a cost cap, then the longer they may think that they have to learn the tricks of forensic accounting to be able to circumvent it!
Sadly for them I think they’ll find that while they are expert engineers, aerodynamicists and team leaders they won’t be adept enough to stay ahead of a really determined expert accountant – especially if Bernie makes good with his idea to reward whistleblowers on overspending teams with a million dollar reward.
Probably the most viable way of dodging a cost cap would be to grow a money tree behind your wind tunnel…
“big corporations would not dare to spend more than the limit as the risk of being found to have cheated (and even the accusation) would be sufficient deterrent”
Well I would disagree with you on that one.. I recall the Honda/BAR’s fuel tank scandal in 2005. And then Mercedes last year with the illegal test. Some said its was cheating, other said it wasn’t but the accusation was there. I think big corporations will break a rule if they think they will not be caught or think they will get away with it if they are caught.
You really don’t know anything about the Honda fuel tanks scandal, if you right that.
Why do you clamor for hundreds of people in the industry to lose their jobs?
And who are you kidding when you expect big teams to fall in line because their boards will tell them to ‘at least lose on the cheap?’
Ah, the usual negativity… Every time you make a comment, it is negative. Have you ever thought of looking on the bright side? If you stop and think about, you will work out what will happen to the people who are surplus to requirements in the big teams if the small teams have more money. Where might these people have a value? It does not take a lot of thinking to figure it out.
How does banning Red Bull, Mercedes, Ferrari, and McLaren from spending money they have and clearly are willing to invest in winning result in Marussia (a team sans raison d’être), Caterham (Tony’s promo vehicle), Sauber (can’t find sponsors even when fighting for podiums), and Force India finding enough new sources of revenue to more than double the highest of their current budgets?
Cause that’s what it would take to keep the size of the industry roughly similar (say 2.5 billion Euros), while also cutting the money spent by the top four.
Of course, none of the four teams would be happy with 230, or even 200 million Euro spending cap, it would just mean losses at the top while doing nothing for the small guy’s bottom line.
The comercial agreements are in place through 2020, sponsorships don’t get any easier to find because you forced the teams actually trying to win to fire hundreds of people, so where do the small guys find the money to pay for the extra jobs you imagine them offering?
It’s math in the end, if you force the industry to shrink by 500 million Euros (1/5th) to help teams with a combined budget of 375 million Euros, you’re worse off than if all four had failed.
Here is a problem. You have a Gold ring studded with Diamonds. You can’t afford to keep it, but you want to. You could afford a Gold ring without the Diamonds on it. So what do you do? Take the Diamonds off, and you have a Gold ring that still looks nice, and better than that you can afford to keep and maintain it!
Everyone is looking at this from the wrong end. Yes, teams are in dire financial positions. Why, because ( a ) the technology being used is enormously expensive and ( b ) the world has had to cut back costs in general because of the global finance disaster of 2008. This is now leading to fewer and more financially cautious sponsors for F1.
So what do you do? The logical step is to reduce the cost of running F1.
Drop duff races at places not even the locals will turn up at. Cut the cost of ticket entry so more fans can actually afford to see one or two GPs a year. Cut the cost of building the cars by reducing the amount of overly expensive throw away items, and using more traditional materials on brakes for example. Cut the cost of tyres by using tyres that can last out the race, or even the race and qualy…now there’s an idea! Cut the cost of the engines by using simpler tech and reducing the backroom computer banks. Reduce the size of a race team for the weekend to say no more than 20 people. Allow teams to sell spare cars, or manufacture cars for sale, as long as they are the same spec as works cars when they are sold. I could go on and on, there are numerous ways of solving the problem of an unsustainable F1. However, no one is going to listen an d eventually it will collapse like a planet turning into a Black Hole. That should not surprise anyone since I don’t think there is anyone in F1 who understands that we are all on this world, and that F1 is not some other planet that is immune from the strictures that we all have to contend with in real life!
I thought the FIA’s 2008 White Paper on F1 Cost Containment Policy was pretty convincing on the issues of methodology and enforceability. The real problems I see are (a) getting to “yes” with all the teams and (b) meaningful sanctions. I think (a) is the greatest hurdle and perhaps insurmountable. As for (b), maybe the most effective approach would be to reduce each team’s FOM revenues by the amount of their overspend or a multiple thereof. Forget naming and shaming, the penalty would be financial and the punishment would fit the crime. It could even result in the big spenders having to put money back into the sport!
Bernie’s whistleblowers’ reward scheme is also intriguing, although it could create an even more paranoid atmosphere within teams, with line items for high-tech torture devices showing up in the company accounts…
Joe
So if two of the Strategy Group teams who have a definite interest in a cost cap have put their names to this letter (Lotus and Williams I presume) rejecting it, is it reasonable to assume they have either been nobbled or made an offer they cannot refuse?
Martin
I cannot answer that
Joe
Pourquoi pas? Pas besoin de repondre! Excuse the French.
Martin
Formula 1 is the pinnacle of Motorsport, it pits the most expensive cars in the world against each other. No other racing series can legitimately claim that it’s cars are the fastest, most sophisticated and that it attracts the best engineers and drivers in the world to do this. A cost cap would threaten its status as the pinnacle racing series because it would create opportunity for someone to create a new series without those limits attached. If Australian organisers thought the new engines meant they weren’t getting what they paid for, then the thought that a better racing series may exist outside of formula one wouldn’t go down too well. We all know that for most of the grid, money is finite, but it’s the few with the bottomless pockets which validate the sport as being at the cutting edge of Motorsport… Apart from Ferrari, frankly there efforts are woeful, I imagine Alonso has been on the blower to his best pal Lewis about replacing Rosberg with a real competitor!
“A cost cap would threaten its status as the pinnacle racing series because it would create opportunity for someone to create a new series without those limits attached.”
Why is that different to today when, presumably, someone could create a new series with bigger engines or stickier tyres? Except they don’t, because I think it’s not realistically possible to set up something even remotely like F1 (see manufacturers’ breakaway series…).
A cost cap at the sort of level we could realistically expect will still likely leave F1 as the most expensive race series (whether that’s a good or bad thing). It’s not as if the cost cap will be $100k…
I’m a bit fed up writing support in these forums for greater equality in how the sport spends money and how earnings are distributed, like many others, just to be ignored by those in the sport with power and influence. The ‘contact us’ form on the FIA website seems only interested in contacts about business opportunities or road safety promotional ideas.
These people don’t care what the fans think and this is where the small teams are missing a trick. If I were them I would set up a joint petition website with a manifesto to reform the sport thoroughly and use public support to win the battle. Mr E will just ignore them otherwise and the others will be too greedy or comfortable to break rank.
Highlighting these issues to a broader audience is needed first and that perhaps could drive a demand for real change as the top teams glutonous advantage becomes more and more of an embarrasment.
Joe – whilst I agree that more should be done to give the small teams a chance, I’m not sure if you have considered the consequences of a cost cap. To me, the biggest beneficiaries of the current arms race has been the engineering talent. There are more staff and they are better paid than ever. You rightly point out that the UK is the centre of F1 engineering. Therefore it would likely suffer most through the layoffs and pay cuts that would need to be enforced. It is hard to see the team heads agree to a cost cap when it is likely to mean a big cut to their salaries!
Its a good point ANJ, but if the financial issues continue will Lotus, Caterham and Marrusia who are all UK based going to continue? If they can’t that would also lead to many redundancies. If big teams are to slim down and small teams can get a fairer slice of the sports income, then they will be able to offer new opportunities to those who had to leave the big teams.
Well, your hope rests on the arrival of a “budget fairy”, handing large sums of money to teams that can’t even find basic sponsorship, but have commercial agreements in place through 2020. What is the likelihood of someone turning up at Marussia’s or Caterham’s step and more than doubling their budgets just because?
But lets just say that did happen tomorrow, what are the chances that extra money would go towards improving the cars, and ultimately hiring more people? Wouldn’t it be more prudent to just take the money and pay down the debts of those outfits and hand a nice dividend to the owners? Marussia and Caterham have not shown to be competitive in 5 years. 5 years!
And even if that happend, where would you rather work? Mercedes, Red Bull, Ferrari or McLaren, or Marussia, Caterham or Sauber?
To use a terribly mundane topic, how do you think a mortgage lender would value a job at the former vs. a job at the latter?
And there’s still the issue of forcing hundreds of firings (eh “redundancies”) at teams that have the budget and the desire to employ these people, all for the glimmer of hope of keeping teams around that have no budget, no sponsors, and, in the case of Marussia, no reason to exist at all.
Small teams struggle for sponsors because a reasonable amount of sponsorship will still result in a huge shortfall to the big teams. If the annual cap was £100 millions then you could make the case to the sponsors that an extra £15 million would bring the team so much closer to those that at the front. With improved payments from Fomula 1 management the small teams would end up hiring more.
You also seem to not value the people who work hard at the smaller teams, and suggest that smaller teams collapsing and laying people off doesn’t matter.
The best engineers will obviously gravitate to the like of Ferrari and McLaren – but I don’t see what that has to do with having a more equal and sustainable grid?
If the annual cap was £100 million, Formula 1 as an industry would shrink by more than half, and over 50% of the people currently working in F1 would lose their jobs.
That’s considerably more than a thousand people fired, not because they didn’t do their job properly, not because their employers didn’t want them to continue, not because their employers couldn’t afford to keep them around, but because their employer’s competition forced mass firings as a concession for their own budgetary ineptitude.
Is that what you want?
It’s not that a collapse of a small team doesn’t matter, it’s that the cure in this case is so much worse than the disease, even if the latter takes out the two likeliest teams, that it’s ludicrous for anyone to claim that this is ‘for the good of Formula 1.’
And your figures are based on what?
IIRC, the only verifiable number is just under £90 million for Williams GPE in 2012. Beyond that, I’ve seen a bunch of funny numbers that vary so widely that they might as well have been produced by rolling dice or asking magic 8-balls.
Just look in Companies House. It is not rocket science
The NBA has a soft cap with luxury tax, where teams incur financial penalties if they exceed the (salary) cap. That still allows teams to spend more, but the incenctive to stay below the cap is clearly there.