Although Ferrari is refusing to comment on yesterday’s budget cap announcement, some letters between its president Luca di Montezemolo and FIA president Max Mosley have come to light.
These show Ferrari’s concerns and hint at arrangements between Ferrari and the governing body, which Ferrari feel have not been honoured.
Montezemolo ; Legal challenge to cost cap?
On April 28th Montezemolo wrote to Mosley and other world council members,
unhappy that budget caps had been put on the agenda of a meeting which was called to hear the McLaren case.
He wrote, ” I have always been concerned about its introduction (cost cap) mainly because I consider that there are serious technical difficulties in making sure that any cap can realistically be monitored.
“There are..doubts as to whether or not two categories of teams should be created which will inevitably mean that one category will have an advantage over the other and that the championship will be fundamentally unfaor and perhaps even biased. In any event this would create confusion in the public’s mind, which would seriously lower the value of Formula 1.”
This is a view shared by all the F1 teams, that having capped and uncapped teams operating to two different sets of rules is unworkable. FOTA will discuss this at its May 6th meeting.
But Montezemolo then goes on to remind Mosley about the deal, which he signed in 2005 to commit Ferrari to F1 until 2012, the one which broke the idea of a manufacturers’ breakaway series and for which Ferrari allegedly received €100 million.
Montezemolo’s point is that under the Concorde Agreement the FIA “cannot pass or amend any regulation without it being approved by the F1 commission.”
When Ferrari did its secret deal and signed up to 2012, it demanded and was granted “all rights under the previous Concorde Agreement will continue to apply until 31 December 2010, exactly as if the Agreement itself remained in place.”
The language then gets quite legal, and Montezemolo says he ‘insists’ that the FIA respect the agreement they made.
Presumably this is a coded message that Ferrari would launch a legal challenge against the cost cap. The problem there is time. It would take months and that would delay the 2010 rules being published, which would throw the series into chaos.
Ferrari would only launch an action like that with FOTA backing, but that will be hard because half of the teams in FOTA agree with the cost cap, which guarantees not just their survival but that they will be able to compete with the big boys and make a profit at the same time!
I’ll post on Mosley’s response separately.
allenonf1.wordpress.com 
what really sickens me about all this is that whilst all this fighting is going on, many firms such as Mercedes will be looking for cost-cutting measures and dropping support for a sport where all the headlines are about dishonesty, and in-fighting, will become the obvious solution; inevitably self-interest will kill F1. And this is at a time when the ‘minnows’ are [at least temporarily] making things interesting with talented, commited and hungry drivers and competitive cars.
what i [as a member of joe public] want is a series of interesting/exciting races – i dont care if they spent 40 million or 200 miliion as i’m sure they’ll be as cutting edge as ever regardless; engineers tend to be cunning like that!
At last some common sense!
Luca di Montezemolo said, “I consider that there are serious technical difficulties in making sure that any cap can realistically be monitored.”
No cakehole mamma mia!
I feel sorry that if this goes through hundreds of talented engineers are going to be chucked out. It just doesnt seem fair to me.
I think that the cap should at least be raised to something nearer 80 million.
James do you think this is a possibliity??
No I don’t because that will not bring in any new teams. It’s what BMW want, however. I too feel sorry for the engineers and those who will be made redundant, but every business is going through similar things at the moment, look at BT laying off 10,000 people. Why should F1 be immune, especially as it risks being seen as a ‘nice to have ‘ for sponsors and manufacturers, rather than a fundamental part of their business plan.
If we do see another 3 teams joining – then this will create jobs, and help to ofset some of the jobs lost.
While I hate to see people ot of work, the size of the current F1 teams is just crazy – and you cannot cut costs without cutting jobs.
But this isn’t a case where companies are making necessary cuts. This is a case where companies are being arbitrarily forced to fire people despite being quite willing to keep them employed.
If F1 teams budgets do become bigger than is supportable then they’ll be forced to cut people, but currently they seem to able to keep going. There is, and always has been, a natural cost cap of what people are prepared to pay
Not a bad few weeks for Max. He’s seen his Nemesis leave F1 under a cloud then destroys the FOTA. He’s smart if nothing else.
What this all comes down to is change. For as long as I have been watching F1 Ferrari have been able to literally through million of pounds at their F1 programme and out spend their rivals by buying the best engineers and the most in-season testing.
Now that someone is threatening to remove their advantage and put them on an even playing field with the other teams they are scared they won’t be able to beat them. It’s time they grew up…
I dont think so. Its not all $$ as you put it. I dont think Mclarens budget would be any different probably more the ferrari. What about redbull. They paid Adrian Newey 10 mill didn’t they.
Ferrari has been successful in recent time not because of dollars but because they had the right mix of driver enginers etc etc not just $$. There are many teams in f1 like honda and toyota who have thrown billions of dollars at f1 and achieved nothing.
Good on him I say. they were silly enough to pay him 100mil for that right so he should take advantage. The FIA are getting involved in areas where they should not get involved. F1 is so expensive because the rules are constantly changing and Bernie keeps all the cash for himself. F1 is the only sporting event that the teams (the show) gets only 50% of the revenue. The best run series being Nascar and NFL in the states ensure teams get 97% of the revenue 3 – 10% of the revenue is used to run the events etc etc. On 1 billion dollars the min a team would get would be 50mil. That more then the budget cap already.
Bernie and Max need to but out. Bernie knows without Ferrari, Mclaren and all the teams there is no f1. What will f1 be like without Alonso, Kimi, Vettel, Hamilton.. The teams should get all the tracks together and start another series. Apart from Turkey bernie does no own these tracks so he cannot prevent another series starting. He will go broke because the BBC and other entities will sue the pants off him and the teams will collect all the revenue’s. The FIA cannot stop it and it too will go broke because without the f1 it cannot impose 100 million dollar fines.
I hope the teams tell FIA and Bernie to bugger off. Lets see how long bernie last with 10 no name teams with no name drivers. f1 is a name, but Ferrari, Mclaren, Alonso are icons and legends that made the sport.
I can see exactly what Montezemolo is concerned about and I think he’s correct in his concern regarding the monitoring of this proposed cap. Additionally I think he’s dealing with this in the correct manner. No whinging to the media about, keep it all between himself and Max where possible. I say that because I was in sheer disbelief that the day after the FIA start a clean slate with McLaren, Martin Whitmarsh was is quoted in the press say McLaren want changes to the budget cap. If I were them I’d have perhaps kept my views to myself and FOTA (or handle things like Monty) for the sake of giving that relationship with the FIA some time to develop.
Is Ferrari wise to go public about its ‘secret agrement’ with the FIA?
One hopes they are not breaching any ‘anti competition laws’.
Budget cap, what a load of rubbish, you can’t put a price on safety (equipment) and many will be out of work, it’s a disgrace!
It pains me to see sensible people utter such rubbish. The budget cap is not in anyway enforceable. The technical regulations have grey areas. GAAP rules have hole so large you could fly a jumbo jet through them. The rules stipulate teams should follow the GAAP rules in their general jurisdiction. IFRA vs. US GAAP vs. GAAP in off-shore states.
Capitalising vs. expensing. Operating lease vs. Capital Lease. Depreciation methods. Inventory accounting. Manipulating the cash flow statement. Forget everyhting else guys, because this is the in thing and testing is out. What a disgrace.
Then the one that takes the biscuit, “fair market value” for goods and services for which there exist no secondary market. The whole reason we have a global economic meltdown is because banks could not value correctly securities for which there was no secondary market. Accounting based on mark-to-model approaches is fundamentally flawed, price discovery does not exist and one interpretation is as good as another. There is no black and white. There aren’t even any principles.
The FIA expect to use fair value accounting to monitor costs for R&D expenditure that is so unique there will never be a secondary market for it and no historical basis to value from. We are in fantasy land.
This is not a simple salary cap – that has at least some chance of working but like in US sports that system is also fundamentally broken.
The budget cap is complete farce. The FIA has no right what so ever to have full access to the general ledgers of these firms. It is designed to force manufacturers out and ensure that Ecclestone keeps a stranglehold.
Breakaway series please Luca, Martin, Norbert and Mario. Let the muppets continue with their GP2, err sorry, “F1”, I quite fancy the Grand Prix World Championship.
Very interesting point of view, thanks for that.I’m no accountant so I’ve no idea if they will stand a stress test, but I’ll put some of those points to the FIA and see what they say. JA
Yes, these are my concerns also.
I really lke the principal of a Budget cap – but how on earth do you enforce it?
This is the FIA remember, which decided that it could not police a traction control ban (before the introduction of a standard ECU)
Sorry, don’t agree at all, the Mark to Model comparrison makes no sense. Mark to model was daft, clearly, you’re dead right, but how does that compare to a budget cap? They’re not trying to “value” something, like the banks were with their made up derivative instruments, there is nothing to value. The cap is on the operating costs of the team and designed to curb the expenditure on R&D.
Of course the exceptions allow the smarter accountant to be creative, so scrutineering will be non trivial, but it will be possible. The cash has to go through names accounts and the FIA have the clout to make the teams be fully transparent. It can be policed. Brings the intersting thought that a gifted accountant could suddenly be a very valuable member of the R&D team 😉
The cost of running has to drop. We have dull corporate plastic people now and they’re dull. Loosing them and replacing them with Stoddards, Jordans, Tyrrels, Brabbhams etc, would bring personality and passion back to the sport and could only be a good thing. Drivers should be paid a fixed fee, accross all the teams and then be allowed to get personaly sponsership. Gives them the incentive to be the best and never to settle for the money drive. I truely admire drivers like Justin Wilson, who litterally sold shares in himself, to keep on racing. Give him over canadians who demand big money and sit in a team for years, delivering nothing.
The drivers you name would happily race under those terms, as they are proper racers and would have no issues getting sponsers. Standardise all costs, engines, R&D, customer chassis, chuck out the manufacturers and fill the grid full of passionate racers do don’t know what double entry book keeping is, then we’ll get the entertainment back. Want to know what F1 should be about? It’s about meeting Graeham Hill in a road side Cafe on the way to the race and having him happy to sit with you over egg and chips and discuss how he thinks his seasons going. A proper racer…
Oh and while I’m ranting 😉 Max mosely is laughing at all of us, we’re all missing the game plan here. He has nothing to lose and everything to gain. He promised to stand down this year, but clearly doesn’t want to. If he can win the battle over FOTA, bring the costs down and fill the grid, everybody will welcome him to stay on, with opens arms. If he loses, he leaves anyway and can point the finger at FOTA saying they’re bringing down the sport and he gives up on it. I don’t like him and would love to see the back of him, but you have to admire a political animal, applying his craft…
I watch F1 because it’s the pinnacle of motorsport. It’s the best drivers in the world driving the best cars money can produce. It’s the most excessive, dramatic, glamorous sport in the world and any budget cap will severely threaten it’s future. I don’t want to switch the TV on to watch ‘F1 on a shoestring budget!’
I have no idea of the costs in F1 but I fear any budget cap that hinders an F1 team from producing the best car it can will only be bad for the sport. There’s a worldwide recession at the moment of course, but if F1 teams can afford to spend, spend, spend then they should be able to. If Max wants to make up numbers on the grid then what about ‘junior’ teams like the Torro Rosso team, setup by the likes of Ferrari and BMW that will share some of the technology from the big teams but are run on a budget by a seperate company. They could work as a stepping stone for talented drivers from the lower formulas to the top teams.
Anyway, I hope you will be back on our screens again James, after watching the race in Bahrain on Sunday i’m convinced this guy Legard is not up to the job. I felt like Martin had his work cut out leading the commentary and providing the insights.
It’s an interesting situation we’re in. Personally, as I’ve mentioned before, I’m broadly in favour of a budget cap. We’ll see genuine ingenuity rather than endless refinement. That is the DNA of F1, not tweaking ‘bits’. Still I don’t want it to be at the expense of a Ferrari, BMW or Mercedes’ ongoing participation in the sport.
But it’s hard not to be cynical about this too. This cap represents a cut of around 80% for the most loaded teams. That is going to take away much of their argument for a greater (fairer) share of the sport’s commercial revenues.
But can we expect, for example, similar cost cutting taking place at circuits? Is a Melbourne, or British Grand Prix for example, going to have to only pay 20% of what they do now for the right to host races?
Can we expect the £110 odd pound weekend general admission pass to only cost £30 for 2010?
I really doubt it. And that’s why it is sadly hard to take this capping exercise genuinely. It’s more about protecting CVC than really helping competitors and especially, helping fans.
Aaron you nailed it (I was about to copy/paste an email I wrote to a mate, then saw your post – practically a carbon copy, dammit). This is as much about relieving pressure on Bernie + CVC for coughing up more cash as it is about satiating the peeping Tommery and wandering hands of Max, or giving FOTA another opportunity to fracture.
I fully agree with a lot of these posts, and am impressed with the maturity Montezemolo is showing in his approach to the situation (handling it privately and professionally, fighting for his agreed right, and standing up against the powers that be against something ridiculous in conflict with the opinion of some of his peers and some of the other teams).
Of course Ferrari are not happy. Racing is what they are about. In Enzo Ferrari’s eyes, the car business was 2nd place and a means of supporting the racing. Why should they be told they are not allowed to spend X amount. Who are the FIA to say, this amount of effort and spending is inappropriate. They are pure racers. It’s a free world. Let them spend what the want! And I don’t think anyone seriously is giving any credence to a 2-tier system. That’s completely ridiculous! And will only encourage “sneaky” financing, and lead to controversy. The 2-Tier system is only a political tactic by Mosley, ie to support the ridiculous in order to achieve a medium ground swung further in his direction.
The budget cap is an act of desperation in these financially difficult times, but it’s not desperation because of the teams finances, but desperation from Bernie to keep his ridiculous percentage of the profits, and Mosley to hold power and keep the status quo. If the teams and “new teams” were getting 97% of the revenues, instead of 50%, the budget cap would not be necessary, and potential new teams would have a better financial model and reason to be in the sport.
it’s interesting that even the biggest teams are fully in favour of a budget cut – they are reasonable and want F1 to survive without ‘pricing out’ the independants. however, what no-one wants (including the smaller teams like williams who stand to benefit most from this) is the two tiered system that the option of uncapped teams presents.
then again the rules are skewed so obviously that you don’t really have the option to run uncapped.
The 2010 tech regs are out. But immediately one sees that article 2.2 (of which the first para is deleted but the second remains) shows that the the changes that are allowed next year are all illegal, they should have all been published by June last year for 2010.
It would also seem obvious that none of Appendix 5 of the sporting regulations was followed by the FIA. So even within the published rules Luca and/or FOTA has/have a very good case.
£40m for racing + £40m for accounting to hide the other £80m you spent sounds like today’s budget 🙂
The only reason cost have to come down is because Bernie is sucking 50% of the sports revenue out of the sport and into the pockets of some faceless financiers.
The teams’ costs have to come down? What about the tithes paid by the circuits or by the fans to come and watch a motor race?
If Bernie hadn’t hamstrung the sport by selling it to a company who didn’t have the means to buy it and saddling the sport with a debt it struggles to repay there would be plenty of money to go around. The fact that Max stood by and let it happen is even worse. How are they not in breach of article 151c?
James, i have seen inclusions and exclusion on budget caps, however every team and cost are different dependent on the country they operate. Germany is taxed considerably higher then the UK or Italy or the US. Developing aero or testing will be cheaper in the US then the UK as wages are lower. How can the teams compete fairly and evenly?
Put the question to the FIA, how can they claim a budget cap is fair when there is clear evidence development cost between two countries is different because of different taxes imposed on basic materials. For example, import tax in Italy would be different to germany. Electricity will cost more in the uk then italy. If a team has solar power, ie free electricity, does that give them an unfair advantage.
I think there is too many unknowns for a budget cap. Max, whilst intelligent he is, has not thought this one through. A budget cap may work in football, like we have in australia. All teams compete in one country but f1 is developed in 4 or 5 different countries with different cost to develop the same part. Only way to stem cost would be to standardise materials (non exotics), and parts which are irrelvant.
Same tyres, brakes, rims, ecu, floor boards, testing, tyres, engines etc etc.
[…] create debate. I said yesterday that I believe all of the teams will sign up to the cap eventually. Ferrari have written to the FIA stating that they believe the contract they signed with the FIA has been broken by this […]
[…] Letter from Montezemolo to Mosley – James Allen on F1 Ferrari boss unhappy with the budget cap. (tags: LucaDiMontezemolo ferrari BudgetCap fia maxmosley concordeagreement FOTA TwoTiers) […]
Max is 1 smooth operator!!!! This guy just wont be beaten by anyone!!! He is a giant amongst men!!! Its as interesting watching Max go about his business as it is watching the races!! After getting rod of Dennis hes now gonna lock horns with Luca!!!! Fun to watch…I cant wait to see where we end up with this 1 !!!
I think that making the sport more feasible for new teams to join is the only way forward for F1. Ferrari’s threats are just that, I dont see them leaving any time soon. Honda may even return once the costs are capped.
James, how many new teams do you think may realistically be joining F1 in the future?
Cheers,
Jake
[…] (aka szalon~) baromságán. Olyanannyira, hogy a Ferka elnöke a Montezemolo bácsi, írt egy levelet a FIA-nak, miszerint hülyeség bevezetni, mert nem tudják ellenőrizni igazán, és ezért […]