Compromise, stalemate, war: What will be the outcome of F1’s budget cap talks?

Toyota is among the teams demanding better governance of Formula 1

Toyota is among the teams demanding better governance of Formula 1

Ferrari, Toyota, Red Bull, Toro Rosso and Renault are threatening not to participate in the 2010 world championship.

With the deadline for entries just two weeks away, the teams’ representatives are meeting FIA president Max Mosley and commercial boss Bernie Ecclestone to hammer out a deal.

Will they get the job done? Will the impasse drag on closer to the deadline? Or will F1 take another step towards civil war?

What Mosley wants

Mosley claims his interest is ensuring F1 has a decent complement of teams. That means the likes of USGPE, Prodrive, iSport, Litespeed, Lola (the latter two making significant announcements yesterday) or others entering next year.

Alternatively, it means getting the present manufacturer-backed teams to give a commitment to stay. As Mosley wrote in his letter to Luca di Montezemolo:

We have already lost one manufacturer [Honda]. Despite my repeated requests, not a single manufacturer has given us a legally-binding undertaking that it will continue in Formula 1.
Max Mosley

In the absence of guarantees from the manufacturer teams (although Ferrari did agree in 2005 to extend its terms with the FIA from 2008 to 2012, for which they received a substantial cash reward), Mosley is pushing for a budget cap to ensure new teams can join at short notice.

It’s worth putting Mosley’s latest demand into context. Twelve months ago he was arguing for a budget cap of ??140m in 2010 and ??110m in 2011, excluding the cost of engines, KERS, marketing and salaries for drivers and team principals.

Since then cost cuts agreed by FOTA have gone some way towards achieving that reduction without resorting to budget caps.

Mosley’s latest budget cap proposal calls for a ??40m (??44.6m) budget cap which excludes marketing costs and driver salaries but includes engine and KERS costs, and staff salaries.

Mosley has vacillated between a number of seemingly contradictory positions. He has repeatedly called for car parts that are not ‘performance differentiators’ to be standardised to save money. Yet now he is criticising the teams for opposing his budget cap proposal which would allow for greater technical freedom. From the same letter:

We would eliminate the need for the depressing restrictions on technology which the existing teams are discussing with a view to reducing costs.
Max Mosley

It’s hard to escape the depressing view that Mosley only wants to have an argument and win it, with little regard to the consequences.

What the teams want

Ferrari’s threat to quit F1 has garnered much attention (there’s a lesson here for anyone who underestimates their importance to F1). Yesterday they produced Piero Ferrari, sat him in front of a huge photograph of his father Enzo, and had him talk about how their threat to quit the sport is perfectly serious.

The budget caps aspect has gained the most attention so far but many (perhaps all) of the teams are not objecting to this in principle, just the low level it has been set at.

Above all, they are complaining about the inherent problems the FIA’s ‘two-tier’ system would cause and the manner in which it was introduced:

If you consider the single thread running through all team’s similar statements it is a wish to establish a correct and proper basis of governance for the sport.

There is clearly a genuine wish for all to continue to compete in Formula 1 but only if future stability is assured.

To secure this, the priority for the future is a process of governance which ensures all competitors compete under the same rules, that the regulations are stable and which establishes a platform from which costs can be sensibly and actively reduced without destroying the core DNA of the sport.
John Howett, Toyota

Mosley claims the budget cap was agreed at the World Motor Sports Council meeting on March 17th. Also, although he does not go so far as to use the words ‘force majeure’, he also argues in his letter the Montezemolo that the prevailing economic conditions make it necessary for the rules to be forced through.

Would the teams go so far as to demand Mosley steps down in exchange for their commitment to participate in the future? They will surely remind him that, while canvassing to win a vote of confidence from the FIA Senate last year, he promised not to contest the forthcoming FIA president elections.

Which brings us to the third party in the room: Bernie Ecclestone. If the manufacturers promised to stay if Mosley stepped down from the presidency, who would Ecclestone back?

What Ecclestone wants

As ever the short answer is “money”.

And that means keeping the manufacturers in the sport. Ever since Mosley’s boast that “F1 could survive without Ferrari” Ecclestone has been at pains to keep the Scuderia on-side:

Formula 1 is Ferrari and Ferrari is Formula 1. It’s just a marriage made in heaven, one of those super things that work well.

This might be putting things rather generously, but it gets close to the heart of the situation.

As Dieter Rencken argues in Autosport this month (sub. req.), without Ferrari and many of the other manufacturer teams F1 would be poorer not just figuratively, but literally as well. Why else would the proposed budget cap leave their marketing spend unrestricted?

Striking a deal

Either because of the huge sums of money involved, or the equally large egos, or both, it seems F1 is incapable of sorting out its problems without generating massive antagonism.

Can they finally reach a compromise? Will brinkmanship drive the parties to the eve of the May 29th deadline before reaching an agreement? Or will the sport take another perilous step towards a split?

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70 comments on Compromise, stalemate, war: What will be the outcome of F1’s budget cap talks?

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  1. ILoveVettel said on 15th May 2009, 7:27

    Keith, if all members of FOTA agrees to sign for non-budget capped rule than what is the issue with that?

    Because a new team obviously can not make grounds in an year to win the championship!!!!!

  2. Achilles said on 15th May 2009, 7:33

    No wonder that Bernie is saying ‘ its just a marriage made in heaven’ regarding Ferrari, if they have had the veto on any technical regs proposed by the FIA for the last decade, and Bernie was giving them extra cash. It is probably time for a divorce! Maybe Ron Dennis had a strong suspicion of this, which may partly explain why he was at loggerheads with the FIA for so long.

    • joseph mccallum said on 16th May 2009, 20:59

      As a loyal ferrari supporter through good and bad times,not just ferrari is f1 all manufacturer teams are fi ,there is a place for smaller Are we going back to the 2tier situation of turbo non turbo championship. I dont feel it was bad for the sport,it gave recognition to less financially wealthy teams

  3. DGR-F1 said on 15th May 2009, 8:11

    Just a thought: How can the teams that sign up to the £40M Budget Cap have technical freedom as well? Doesn’t developing new technology cost money? And how can the teams that don’t agree to the budget build cars if they have restrictions? What are they going to spend the money on exactly?
    Added to the fact that Max wants more standardised parts (including KERS) in the future, who wants to be a racing car designer from next year?
    Its a lose-lose situation however you look at it. And it isn’t Formula 1.

    • Martin Bell said on 15th May 2009, 8:39

      As someone else has noted in relation to the budget cap, teams will have technical freedom to build parts they can’t afford!!!!!! The cap in itself is a sensible idea, I think we all know that it will just result in more court cases between teams about who is spending money on what, and whether it falls within the rules. To paraphrase someone else “Gentlemen, start your accountants!”

    • Patrickl said on 15th May 2009, 11:15

      It’s a lot cheaper to build a fast car if restrictions are not holding you back.

      For instance, the moveable rear wing is said to cut 1.5 to 2 seconds off the lap times. A big budget is never going to compete with cheap and big advances like that.

      I think the deal is also more that teams can decide on their own what they want.

      For instance now there is the ‘no testing at all’ rule. That’s silly. With the budget cap they can go testing on track if they want to, but obviously then they will have less money left for wind tunnel testing. It leaves the choice to the teams and would allow for more reasonable development.

    • Patrickl

      It’s a lot cheaper to build a fast car if restrictions are not holding you back.

      Lack of money is a restriction. Technical freedom is no good if you don’t have the funds to explore the possibilities.

      But that is besides the point. The objecting teams do not want a two tier formula, they are not opposed to a budget cap.

    • Patrickl said on 15th May 2009, 17:05

      Well the question was how they can build a faster car on a lower budget and I explained how.

      Actually the resistance against the 2 tier regulations is simply ridiculous. The big teams know they can never beat a budget capped car. So even though technically there is a 2 tier regulation, in reality everybody is forced to use the budget cap.

  4. sean said on 15th May 2009, 8:41

    It’s a game of who blink’s first who has the biggest balls.I personlly think you are right re:MONEY if ferrari leaves you can you will see the diffirence in the stands there ofcourse will be a flow down through all the rite’s issue which will surely be slashed.Bernie aint stupid he will see the interest payment’s he has to make getting harder and harder, MAX is about to have a very large fall.Bernie needs a fall guy MAX and all those poor teams he has conned are about to realise what F1 is all about.

  5. Jonesracing82 said on 15th May 2009, 9:11

    i reckon the cap idea is brilliant, return of quali engines etc as they can spend and spend all they like on differant things (this means no standard parts) and they wont go bust as they can only spend a certain amount!
    if the cap was in yrs ago, teams like Tyrrell and Jordan would still be in! evenb tho Ken is sadly no longer with us, teams like his are a part of history and rightly so, they r the teams that stay in F1 tyill they go bust, the Manufacturors come and go as the please.
    also it could b possibly to extend above 13 teams! as if teams don’t qualify and have to go home b4 the race, they can still stay afloat. the most important thing from a fans point of view, the cap wont affect the racing we see whatsoever!

  6. HounslowBusGarage said on 15th May 2009, 9:21

    I think Max is being very over-optimistic in believing that any Manufacturer will give a legally-binding committment to *anything* just at the moment.
    It would be simply a mechanism for the FIA to wring money out of the Manufacturers.
    Has Max made the same legally-binding request of the independent teams as well? Williams, Brawn, Force India etc?
    I still think Max wants the Manufacturers out of F1 because they don’t have F1 as their sole reason for existence, and they cannot therefore be bullied and totally dominated by the FIA as the independent teams can.
    And yes, I think the Manufacturers are threatening not to sign up for 2010 if Max stays in the FIA chair. F1 costs them loadsa money that their shareholders would prefer as dividends. Difficult for the Manufacturers to justify involvement with a disgraced perv in charge of the racing. Doesn’t do well for marketing values, does it?
    And Bernie? He will just go where the gravy is deepest, making stupid assertions like “All the teams agree witht the medals idea” as he goes.

  7. scunnyman said on 15th May 2009, 9:24

    I think regarding your article Keith that ultimately sense will prevail and a compromise will be sought between the teams and the FIA. Though i doubt it will be resolved before 2th May deadline.
    The FIA may have to readjust the deadline to allow for more detailed discussions.
    Max Mosley is not want to back down, or be seen to back down, unless the teams and Bernie can come up with a solution that doesn’t make him look bad.
    BUt if Mosley stands his ground then the teams need to also.
    Flavio Briatore says in autosport that “a solution must be found at all costs”, which to me sounds a lot like the teams are ready, willing, and able to say goodbye to F1 if Mosley get his way.
    Of course other people have commented that Mosley never really intended on the £40m cap and just wanted the teams to agree some sort of cap so they could get into their books and control the teams more.
    There is no better time than now in Formula One to oust Mosley. I’m sure the people who backed him last year are thinking twice about it now, and it’s clear that he never intended on stepping down this year.
    I have said before that Max Mosley is a sociopath and doesn’t live to the same rules as the rest of us. To him going back on his word is NOT lying, it’s normal to him.
    The teams could get the backing of the racing clubs around the globe if Mosley does not come up with a compromise and if they had Monaco on their side for a breakaway series then the FIA wouldn’t stand a chance and would have to give in.

    Personally i would say a compromise is is desperately needed. But not just a gesture from FIA. Not only do they need to backtrack on the budget cap limit, but they need stabilise the regulations for the sport. Ever changing rules just costs millions if not billions for the sport. For instance if they have the £40m cap and new teams come in and that is all they can afford to run in F1 then how are they going to afford all the new rule changes after 2010, because they are sure to have changes in 2011, 2012, and beyond and it all costs money.
    Money would be saved in a big way if they just left them alone to get on with the racing.

    And that is what all the fans want really. None of this off track crap. Just simple…cars racing each other fairly around decent tracks for a good championship.

    So what i would want from a compromise(a big compromise) is

    1. budget cap raised to a sensible limit and reduced over a number of seasons.
    2.help for newer teams who want to come in at the £40m cap from either Bernie or the rest of the teams.
    3. Max Mosley to sign a contract to say he will definitely step down this year, or step down immediately.
    4. Ditch the 2 tier sytem because it is unworkable.
    5. stabilise the regulations and put a cap on them. Say no new changes for at least 3 – 5 years.

    As for no. 3 If they get Max to step down who will replace him? Personally i wouldn’t trust anyone in the FIA to take over. They should have gotten rid of the dictator last year.

  8. Regarding Ferrari – according to Badger’s Pie of Possibility they won’t be quitting F1.

    Would love to be a fly on the wall at that meeting today!

  9. Tomcat173 said on 15th May 2009, 10:02

    Would the teams go so far as to demand Mosley steps down in exchange for their commitment to participate in the future?

    I had never considered that the teams might take things that far – but it makes perfect sense that Max could get the chop when the knives are out.

  10. Kutigz said on 15th May 2009, 10:02

    Brillantly articulated Keith! I just sure hope these guys sit down and re-think their guarded positions!
    Quite frankly, the reason why F1 is a sport above the rest is the kind of money invlolved – its the ace of racing, without which it will simply be comparable to just any type racing!

  11. CJD said on 15th May 2009, 11:08

    Very well put Keith. Missed you on Sky, hopefully you can YouTube it.
    If F1 is ever to achieve stability both Mosley and FOG must go. Max private life is his own but he does seem to have been de-stabilised by it’s exposure, the smell of revenge is in the air.

    FOG adds an unnecessary level of profit burden which contributes nothing to the racing or to the reasonable expectations of the competitors.

    Mosley has ignored the huge amounts taken out of the sport, not seeing that as a wasteful part of the F! cake. Perhaps that is the worst of his misjudgements.

  12. PJA said on 15th May 2009, 11:19

    Another great article Keith.

    I think a compromise will be achieved but it may well be after the deadline for 2010 entries has passed.

    The proposal that Mosley made twelve months which you mentioned in your article, was a sensible starting point and if the FIA had tried to push that through with only one set of regulations I think more people would agree with it.

    But the current optional budget cap of £40m for next season with two sets of regulations is just ridiculous. It is hard not to agree with your point that Mosley only wants an argument.

    I have read that Mercedes have said they won’t be quitting F1, but lets face it there is no point them making a threat to quit as Mosley would love to see McLaren leave F1.

  13. What an excellent analysis.

  14. IDR said on 15th May 2009, 12:05

    Great article Keith.

    I honestly think the issue is not the costs, the issue is the revenues of F1, and it’s distribution:

    FOM-CVC who retain the biggest part of them, due to the Debt and interest expenses FOM has to pay each year. And they have to pay it , because Bernie and his partner/dog Max have became millionare in the process, btw.

    So, Less income for FOM=>Less money for the teams=>

    Bernie:”Max, please, ask the teams to reduce considerably their budgets because I will not pay them what they were used to.”

    Max: “Don’t worry, I’m not going to ask them, I will change the rules, making possible to “Yes Sir” Teams enter into the competition, so F*** big Teams, if they don’t want to be here.”

    Bernie: “Well, let me see what is going to happen with our current sponsors, just in case…”

    What my heart says to me: Big Teams lshould eave Formula one and stablish a new competition: “Formula 0″ letting Max and Bernie going bankruptcy managing a Formula one with Lola, Litespeed, USF1, prodrive…

    What my head says to me: Today, Bernie will set the principles of a new “concorde agreement with FOTA” and, hopefully Max will have to resign in october if not now. Everything will return to business as usual and all fans will be talking again about who is going to challenge Brawn Cars…

    We will know soon…

  15. D Winn said on 15th May 2009, 12:21

    From Autosport:
    Ferrari is represented by team principal Stefano Domenicali today as FOTA and Ferrari president Luca di Montezemolo is unable to attend after the death of his father yesterday.

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