Yesterday’s news from the FIA world council was the appetiser, but today comes the main dish, the real story; the announcement of the full budget cap plan, which is set to redraw the business model of Formula 1.
It will be the first time in the sport’s history that the amount a team can spend is controlled. You could argue that this should have happened years ago, before the manufacturers drove the costs through the roof.
The teams have already been informed of the details but are not willing to comment ahead of the official announcement. My understanding is that the cap is in the £40-45 million range, which is slightly more than the original £30 million voted through at the last world council in March, but low enough to attract new teams. To operate on that basis a team would have no more than 350 employees, roughly a third of what Toyota employ and less than half of McLaren’s staff number. There is going to be a massive laying off of highly skilled people once this comes through.
Team numbers will be slashed under budget cap
The clever twist in the original plan was that teams who did not want to be capped, could spend what they want, but the capped teams would have more technical freedoms to achieve parity of performance. This would give rise to a two-class F1, something Ferrari and BMW in particular find completely unacceptable. There could be some refinement to this element, to give Ferrari and BMW something to work with.
As he left the FIA office in Paris, FIA president Max Mosley, the architect of the budget cap plan said,
“Everything is going ahead as planned. It’s a little bit more than £30 million but we have been successful.
“”I suspect when they see the figures everybody will come in under the cost cut, which will come in straightaway. I certainly hope so,” Mosley said. “The budget is a little bit more than 30 million pounds, but it’s important we get it in place because if not then we are going to lose a lot of the teams.”
“I think when [Ferrari] do see it they may find it attractive. Like everybody else they need to save money. They have to think of their shareholders’ money and not just spend like in the old days.”
The interesting line here is the one about the cap coming in immediately. As budgets are already set and partially spent for 2009, this must mean for 2010. We’ll see what the mechanism for changing it is.
The alternative is to run ‘uncapped’, but face spending more money to have a less competitive car, which makes no sense, and would be hard to justify, especially when Mercedes has just announced a loss of over £1 billion for the first quarter of 2009.
Ferrari are very unhappy about all of this and in a clever piece of news management, president Luca di Montezemolo has let it be known that he will be at the Le Mans 24 Hours in June, giving the starting signal. This is a reminder of a time in the 1980s when Enzo Ferrari was so unhappy about a rule proposal from the FIA that he commissioned the build of a Ferrari Indycar. Montezemolo wants the FIA to think that he could take his brand elsewhere. BMW indicated at the weekend that they would not be interested in a two tier budget capped F1.
Montezemolo: Taking Ferrari to Le Mans?
It’s likely that there will be a brief window in which the teams are obliged to make an entry for 2010, probably quite soon too. All of them have commercial agreements in place with FOM for the next two seasons, but they still have to make an entry with the FIA and there are other teams waiting in the wings to fill up the places.
At the same time Bernie Ecclestone is looking for a commitment; he’s saying in the Financial Times today that if the teams do not sign up to the Concorde Agreement, then he may cut their prize money.
The teams may wish to react together as FOTA, rather than as individuals. It will be interesting to see which way that one plays out, because FOTA unity has been severely tested lately over the diffuser issue and I know that at least six teams are in favour of a budget cap of around £50 million, so how unified could they be today as a group on that basis?
Mosley canvassed the teams for their view on the right level for the budget cap last week, but gave them only 24 hours to reply. The teams are due to meet as FOTA on May 6th in London. The budget cap and standardised KERS are on the agenda.
allenonf1.wordpress.com 
It seems like a recipe for even more off track scandal to me.
I can’t imagine how they expect to police such a cap.
Will there be restrictions on running more than one team after the cap ? If not, surely Red Bull will have an advantage as they can split development costs with Torro Rosso. What’s too stop Mclaren starting a ‘B’ team to employ the 350 or so people they have to lay off as a result of the cap ?
This is a very interesting point. Is the 12 team (24 car) limit still in effect? The way Bernie has been talking recently, maybe it isn’t.
The FOTA website http://www.teamsassociation.org is not working at present…. an indication, perhaps, that things are not right?
Private contractors could do the work surely?
How will that be regulated?
If contractor paid by the team then you can police it.
But what if you get a sponsor to pay the contractor rather than pay you? Then you’ve got indirect funding outside the audit trail but work performed by the contractor that provides a useful activity (whatever that may be).
OK, thats a simple example, but as we’ve seen in the world of offshore finance (and onshore scandal – WorldCom, Enron, etc) you can create schemes where it is very hard, if not impossible to follow the money trail due either to law enforcement (offshore jurisdiction) or obsfuscation via shell companies (WorldCom, Enron).
They are going to need some extra rules to clearly show the money trail in all cases.
Apologies to all Ferrai fans but F1 seems completely reinvigorated since we have had a change in the old order. The ‘liegate’ and ‘diffuser’ scandals have given all F1 tongues plenty to wag about off track and now the budget cap which certainly works well in the tv show ‘Ready Steady Cook’. I’m sure most F1 fans would like to see the budget cap gradually reduce year on year so that by 2030 it’s a series of karting events 😉
I love the “Ready steady cook” analogy. It’s not that I ever watch any daytime TV you understand but the best “bag” was a tin of beans, tin of fruitsalad and an apple. What would Ferrari do with that?
In fact what could anyone do with that? If the FIA are not careful F1 could end up being just another “baked bean” series. Tricky one.
JP
Some thing like this?
http://www.worldfirstracing.co.uk/
Limiting the amount that an F1 team can spend is a noble cause – the current excesses are way beyond acceptability and the responsibility for that lies with the manufacturers.
BUT… the proposals today are NOT going to set a new business model for F1 – they are going to set a further agenda for controversy
It is idealism gone mad
Whatever the supposed FIA controlled budget cap is, it will not prevent some key questions that destroy the utopian solutions being offered:
1) How will this be audited?
2) What if a sponsor pays for an event or supplies FREE equipment, parts etc as part of their finanical deal?
3) What about the drivers salaries?
4) What about if a driver is supplied by a 3rd party at no cost to the team (a common deal in F1)?
5) What happens if a team spend £1 more than the cap – or £100,000 more or will it be £1,000,000 before any penalty comes in (that is if you can tell in the first place)?
6) What if I have 2 teams (like Toro Rosso and Red Bull) can I share resources, move money around?
7) What about existing contracts that in place between: Driver and their team, Technical Staff and the teams, Sponsors and the Teams that when added together exceed the planned amount – but the contracts have a couple of years left to run – are they to be cancelled?
You raise some very good points. The only way that i can see some sort of cap working is if:
– Some parts are generic amongst all competitors e.g. KERS, possibly diffuser
– Macro limitations are implemented (or remain if already in place) e.g. testing restriction, limits on wind tunnel use
That way, there may be a natural ceiling e.g. 350 employees, beyond which there is no role for any others. What the team(s) spend on the elements that are still a design “free for all” e.g. gearbox, but with restrictive conditions e.g. testing limit, would probably ensure that we won’t ever get back to the days of 700 – 1,000 employees, annual budgets of +350m for some teams etc.
In summary i can’t see an express cap being workable, for the reasons as offered by Lee. But if some changes are effected, as above, i can see a paradigm budgetary change as possible, albeit there will always be slight budget differences between the teams, but nothing like the financial chasm at the moment.
I still can’t see how it can be implemented.
Imagine the cap is £40 million. At the end of a tight season, with the budget at £39.8 million, a team finds that an extra £500,000 gives them a new part and 1/20th a lap, which clinches the title. The champagne flows, the Champion is crowned.
Three months later, the FIA accountants see that the cap has been exceeded by just under £300,000. The team says this can be explained by changes in exchange rates over the season, raising the cost of some part or service which was initially budgeted for less.
What happens now? Is the team stripped of its title?
Unless the FIA insists that every team banks £40million with them at the start of the year, I cannot see how this can work fairly. I hope FOTA keep united and give Max & Bernie the bird.
I suspect the classifieds in Autosport will soon be full of ads for accountants. Of the ‘creative’ kind I suspect.
How can this be policed?
What is stopping a team secretly spending a few million on new designs when, let’s face it, the ideas new designs are built upon cost nothing but plenty of tea bags and milk?
Maybe the FIA will be asking for receipts??
If it comes off and lots of new teams join the series it will be great for drivers on the fringe like Davidson, Liuzzi, Sato, etc. and some new job opportunities will also be created for the laid-off staff from the other teams.
Anyway lets just hope that all the F1 plans and indeed the rest of the season are not scuppered by swine flu. A1GP’s cancelled their final round, if the flu gets a hold in Europe I can see F1 events being cancelled too. Still at least that will save money!
This is utter rubbish, no one is interested in a half-baked Formula One. It is meant to be the pinnacle of motor racing. Of course in the current climate money needs to be taken care of, but F1 as a brand will die without the likes of Ferrari and BMW on board, in fact scratch BMW, it will die without Ferrari.
I wonder about the timing of McLaren ramping up their road car division, and whether this is an indication that some of the top teams will do more research and development on road cars that filters its way through to the F1 cars rather than the other way around.
Example – if the budget cap were in place this year, then Ferrari could decide to develop KERS for the Enzo and associate the costs with the road car division, but then lo and behold the technology gets adopted for the F1 cars without all the R&D costs.
I like the idea of a budget cap, as I long to see 26+ cars on the grid again. I also think that although F1 ploughing huge sums of money into technology does filter down to road cars it’s far from sustainable (Encouraging debt or a loss should be frowned upon, take note Governments and Bankers!).
My only concern with the proposal is that the teams will spend spend spend this season in order that they have a competitive package for next season, and then we’ll see little movement in terms of race pace over the course of the next season (i.e. if you’ve got the best car at the first race you may well still have the best car at the last race ).
Paul I agree!
Im concerned that next years big scandal will be down to technical use of accounting loopholes which at the end of the day will have very little impact on the racing. If someone finds out that another team has somehow managed to spend more then them then it will kick up a stink. It would be nice to see costs brought down, but Im not sure how they are gonig to police it.
I’d love to know what CVC is thinking about its investment these days.
Can’t all this cr*p be over-glamourised in the out season and leave April – November for what F1 is about – RACING!
F1 politics get more media coverage than the actual races and results.
An F1 budget cap is bad for the economy of the UK – the midlands area is almost a one stop shop for manufacturers to source and produce the cars.
Lee and rob .. i agree. Red bull/toro rosso will have the upper hand next year. Mclaren/Ferrari could use their sportscar divisions for RnD.
also i heard that the budget cap will not affect the paddock area, catering etc. … maybe next year the caterers staff will increase by 200 … in the ovens instead of shrimp sarnies there baking carbon composits for cars…
So, a team like McLaren will cut their staff costs by 50% as well as must reduce their ‘racing’ budget by let’s say 80%, and their engines are effectively paid for by the Force India, BrawnGP deals.
Partners are still stumping up the same rates for sponsorship deals as their coverage remains tied to the popularity (i.e. viewership) of F1 and the team itself.
Each team still recieves the same amount (or more) of TV and commercial rights money. I’m fairly certain that race-hosting (more featureless desert circuits please), TV broadscast, concessions and ticket prices won’t reduce – CVC will make damn sure of that.
The business becomes a cash-cow.
Where do I sign?
If you take McLaren/Mercedes as an example, if they decide to pour money into engine development, does that go onto McLaren’s budget or are McLaren just buying the engines off Mercedes (and so not paying development costs)?
If they did the above, do they have to sell the better engines to Force India / Brawn GP or can they sell them worse engines? If the development costs are McLaren’s, can they palm some of the development costs off to Force India / Brawn GP?
I have a feeling if (although it appears to be when) the budget cap comes in we could well see some rather creative accounting. Anything to stop one of the top teams forming a company that specialises in say KERS development, the team then sign a [cheap] exclusivity deal with the formed company and get “free” development of KERS. Granted there is the question of where the company will get the money but I’m sure the top teams can convince a sponsor or two to bank roll it for a highly reduced rate of sponsoring the cars/team.
How are they going to account for currency differences?
Presuming the fixed amount is given in dollars, that has to be converted into sterling, euros, and yen, before each team can work out how much money it has. Those sums will fluctuate.
Depending on the location and preferred currency of their suppliers, some teams could end up with significantly more purchasing power than others.
Look at it, it is just another angle Max is using to attack McLaren. Every single ‘idea’ that man has just happens to have the effect of destabilising the larger teams, it is just a stick Max and Bernie are using to divide and conquer them. [moderated]
In the last few weeks we’ve had the huge row about diffusers. Essentially, the core of the dispute was about how very clever minds can find a way around any written rule.
F1 is filled to bursting with very clever people who make their living by looking at the words carved in stone by ‘Moses Mosely’ and his tribe…and finding the gaps that are always there to be exploited.
So Moselyites will issue a strongly worded set of rules about how much the teams can spend, and what they can spend it on….and within weeks ..
F1 engineers and accountants will drive a coach and horses through it !
QED.
In the above posts not a single person has offered a thought for all those poor people who are probably going to lose their jobs as a result of this cap.
That is far more important than anything so far discussed here.
Put yourself in their position. Have a care!
Yeh, why not, yes its fraught with loopholes. And funding reduced to early 90’s level.
But I’d really like MM to call Ferrari’s bluff, I don’t think Ferrari will find a great new friend in the ACO, its really not the same platform as F1 getting only any real coverage for Le Mans. That said I’d like Sportscars profile raised so if Ferrari want to come and play awhile, very well, can’t wait to see their competitive diesel (very Ferrari) LMP1 car.
In the meantime, while we wait for Ferrari’s return to SuperGP1, let Le Garagiste’s return to F1, Lola, Aston Martin, Isport, SuperNova, Art GrandPrix, Piquet Sport (ahem…)
Imagine all those out of work from BMW, Toyota, McLaren, Renault and Ferrari, there’ll be loads of talented people readily available to staff these new teams.
how has it been determined that at £40m with those technical freedoms, cars will be similar in performance to unlimited spending (in reality probably not more than £80m) with stricter rules. or is it just a wild stab in the dark.
and why is it the FIA’s place to tell the manufacturers how much they should be spending – i’m sure the teams know their financial positions rather better than max. the teams have expressed a willingness to implement some severe cost cutting but in a reasonable way, gradually coming down to a limit over a few years but the FIA has just been completely ignorant and rammed this through. as a result, i’m guessing that over a thousand people will suddenly be seeking employment elsewhere in 2010 – even more if ferrari and BMW (and probably more) decide that they don’t want to run in a two teir race where the split in tiers is at the whim of a power-crazed dictator.
is this the time for a breakaway series? the manufacturers are still strong in FOTA and have reasonable and sustainable ideas for the future of a racing series. they have no need for the FIA or bernie. i kinda hope it happens. it would be more F1 (as we know it) than what max and bernie are going to give us.
It’s not about telling manufacturers how to spend, it’s about controlling a situation where teams go out of business spending to try to compete with manufacturers who spend freely, while recognising that all the manufacturers are in big trouble sales wise and one or more of them could drop out at a moment’s notice.
Car manufacturers like Daimler and Honda are in big trouble sales-wise, but one that isn’t is Ferrari, who are posting record profits… Seems this budget cap idea is another way to unsettle Ferrari.
http://www.pitpass.com/fes_php/pitpass_news_item.php?fes_art_id=37741
my issue (apart from the method of the FIA in changing regulations) is that these sort of externally imposed limits are false and fundamentally flawed. As the body in charge of the regulations, the FIA should understand that it has been their overly prescriptive and restrictive regulations that have forced teams into corners of research looking for the smallest incremental gains.
I would like to see a far more organic culture around restrictions and limits, whereby regulations concerning the cars simply do not require money to be spent, and teams get a better share of the income of F1 revenues.
For example; aero development is hideously expensive and contributes nothing outside of F1. high downforce creates high drag, requiring high power. the obvious solution is standardised front and rear wings, simple floors, and no additional aero parts. a huge part of the budget is immediately slashed, engine development doesn’t spiral as it once did as you don’t need to chase massive power, and *naturally* the cost requirement for so much of the current team budgets is gone. in fact, engine development should be one of the few things that the teams can fight with, as fuel efficient powerful engines are something that are far more useful in the real world than moveable aero etc
Meh, things have to change to allow more teams to compete at the front.
This mess was predicted when manufacturers started pouring money into the sport and privateers fell by the wayside as budgets to compete increased.
Dont like the rules? Tough, go do something else.
What everyone seems to have forgotten is that these cars are, and have always been built to be the best that it is mechanically possible. this is the essence of F1. Are all these new rules and regulations hindering this development? I do appreciate that new teams need to have a chance and be able to compete but something needs to be done in order to ensure the essence of F1 remains.