“Global cost cap” to be introduced in 2015

2015 F1 season

Daniel Ricciardo, Toro Rosso, Suzuka, 2013The FIA claims plans for a “global cost cap” have been agreed and will be introduced in January 2015.

“A working group will be established within the coming days comprising the FIA, representatives of the commercial rights holder and team representatives,” said the FIA in a statement.

“The objective of the working group will be to have regulations approved by the end of June 2014.”

Formula One has made several attempts at reducing spending in recent years through rules changes and the Resource Restriction Agreement.

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35 comments on “Global cost cap” to be introduced in 2015

  1. Red Andy (@red-andy) said on 9th December 2013, 19:20

    I will be interested to see how they intend to police this. It will go some way to settle the debate between those who believe that cost controls are impossible to enforce, and those who consider it to just be a matter of political will.

    Whatever the outcome, hopefully it won’t be torpedoed by any particular team.

    • BasCB (@bascb) said on 9th December 2013, 20:07

      I think that given who is most likely to sit in that working group (Red Bull, Ferrari, Mercedes, maybe McLaren?) they might resolve it by introducing a minimum spending limit to get rid of underfunded teams @red-andy :-O

      Seriously, I agree that this is just about the only thing of the plans they announced this week that makes any sense and would be a positive for the sport. I seriously hope that they can get some kind of a budget cap in place.

    • Diego (@ironcito) said on 10th December 2013, 0:07

      It’s impossible to police. All the teams are part of a larger group of companies and have other businesses besides F1. So, for example, Ferrari can have a different department research something and then use it in F1. Is it legitimate? Certainly many things apply to road Ferraris as well as F1 cars, so it could be. It all becomes a huge gray area.

      • Red Andy (@red-andy) said on 10th December 2013, 8:06

        That’s one of the issues, but is it insurmountable? I’m not convinced that it is. I think it’s a convenient way for opponents of cost capping to dismiss the idea without having to think it through.

        • Matt_D said on 10th December 2013, 16:46

          Absolutely. Who’s to determine how much should be charged to Scuderia Ferrari’s budget cap for testing at the circuit that Ferrari S.p.A. own? Or what if Renault cuts Lotus (and Lotus alone) a sweetheart deal on engine leases? Bernie cuts sweetheart deals with one or two of the teams at the drop of a hat, so who are the FIA to say component suppliers can’t do the same? Or what if Mercedes AMG Petronas invent a technology that finds its way into Mercedes-Benz production automobiles, which nets M-B a substantial profit? Or what if Adrian Newry agrees to reduce his annual salary to £100 in exchange for free Red Bull fizzy beverages for life when he retires? Who is to say if Niki Lauda’s services are under-valued? Or overvalued? What are we to do with the fact that Fernando Alonso is the highest-paid driver in F1 when there are four others in the sport who have won the WDC (one of them 4x) since ‘Nando’s tree last bore fruit? Is that _any_ of the FIA’s business? Or what if some team decides to set up a dummy corporation to sell essential services back to themselves at a fraction of their cost? Who will be F1′s budget police? And how will you convince all the teams and all the suppliers to the sport to submit to financial anal probing, because therein lie any business’s deepest-held secrets?

          Anybody believes this is enforceable is quite naïve, and I put the FIA at the head of that list.

    • The top teams will definitely thinking about what should be the max cap for this min cap :)

  2. Girts (@girts) said on 9th December 2013, 19:21

    This is a good idea but there are very important unanswered questions at the moment. How big is this cap going to be and who is going to police it and how? A budget cap of £200 million that cannot be effectively implemented won’t help the sport much.

    • bananarama (@bananarama) said on 9th December 2013, 19:29

      A cap of 500million should be easy to maintain I suppose.

      I’m really curious about the pamphlet that will be presented in January. Any kind of single side restriction contract that I know is at least 250 pages in really fine print because it is REALLY HARD to keep people from getting around it. BUT I’m hopeful that they found a way that works at least somehow.

    • hey guys, and especially hello @keithcollantine… I would really like to read here in the fanatics’ gathering place, exactly what is meant by a “global cost cap” as proposed by FIA, vs. “spending cap” budget cap “cost reductions” etc so that F1 fans are using the right terminology and understand what the differences are, and what the potential impact on sponsorship could be of a “global cost cap”.

      Is there the possibility of such an article, which would immensely helpful?

  3. KaIIe (@kaiie) said on 9th December 2013, 19:24

    Interesting to see if this actually works this time, or will the teams get mad and start their own series…

  4. Nick (@npf1) said on 9th December 2013, 19:28

    Amazed no team bosses have responded angrily yet.

  5. gregwtravels (@gregwtravels) said on 9th December 2013, 19:38

    Haven’t they agreed “in principle” on budget caps for years, but have never been able to agree the specifics of implementation? Is this really “new” news, or just saying the same thing they’ve said for years – “we are going to have a budget cap.”

  6. MazdaChris (@mazdachris) said on 9th December 2013, 20:02

    I’m sure it’ll sound really good until Ferrari and Red Bull both say they don’t want a cost cap then the whole thing will disappear again.

    • BasCB (@bascb) said on 9th December 2013, 20:09

      I think they will just introduce a cap of 500 people and 330 million GBP (and a minimum spend of 140 million to make sure there are no “underspenders”) as both Ferrari and Red Bull are almost certain to have prominence amongst the team representatives who will be part of the discussion @mazdachris

  7. bull mello (@bullmello) said on 9th December 2013, 20:43

    Won’t work, won’t happen. Just a dog and pony show that will do nothing more than waste time and money to go nowhere.

    • The differences in types of teams make a single budget cap impossible. Some teams manufacture automobiles and engines, some do not. This makes for nearly impossible to separate budget differences.

    • The CIA and Interpol combined could not accurately police and enforce compliance on this hypothetical proposed budget cap. The financial sleuths and spies hired for compliance will not be as high of pay grade or talent level as those hired by the teams to employ subterfuge and creative accounting methods.

    • It will be a huge waste of time and money that would be better spent on finding a way to more equitably share the revenues of F1 so as to benefit the smaller teams to be more competitive.

    • After a lot of talk and money spent the teams will agree to disagree whilst pointing fingers of blame at each other. Or, worse yet, they will agree to another milquetoast, no teeth, unenforceable pseudo agreement like the last go round.

    • PMccarthy_is_a_legend (@pmccarthy_is_a_legend) said on 9th December 2013, 21:12

      I hear this all the time in my line of work. Won’t work, it is impossible, don’t bother. That is exactly the kind of attitude that maintains a status quo that clearly is benefiting no one.
      For a start the fact that one team manufacture engines or not makes no difference. Those who do can offset costs by selling engines to those who don’t.
      Secondly, yes the CIA or Interpol would not be good at policing accounting practices. It is NOT in their line of work to do so. However international accounting firms are very good at maximizing and finding loopholes in accounting and therefore would be good at helping to police a budget cap. Yes, the teams could hire firms to help them to find loopholes, but it would be a risky enterprise as in bringing in these experts they would have to find loopholes significant enough to offset the costs associated with bringing them in in the first place. There are no guarantees and the team risks wasting resources that could be better utilised elsewhere.
      I do agree with you that the teams have to find a way for a more equitable share of commercial revenues, which is why i support a complete change of the current commercial structure of the sport. But a budget cap AND more revenue from the commercial side are NOT mutually exclusive. Yes we want both. Hey we might even see teams making a profit and potentially attracting new entrants to the sport. @bullmello

      • bull mello (@bullmello) said on 10th December 2013, 2:48

        @pmccarthy_is_a_legend – Normally I’m an optimist, but this is a case of being a realist. If we were counting on one or even a few entities to agree on a complex set of contentious, restrictive rules that require intense scrutiny and complete financial transparency, I might be tempted to believe it could happen. But, we’re talking about eleven separate fiercely competitive, even antagonistic entities that don’t even want the media, the public, or worse yet, their rivals to know what their budgets are now. And there are not even any budget caps or restrictions in place now and still there is obfuscation. What are they hiding and why?

        The teams already don’t want anyone to know what their budgets are. The only reason the big teams are agreeing to talk about caps is to avoid being perceived as against them. The rich teams don’t want caps and have proven they will go to great lengths to avoid them. Even if there is an agreement, if one team is caught cheating, or perceived to be cheating, the whole thing falls apart, nobody will want to comply.

        The teams who manufacture cars do R & D on engines. Without opening the books from the car manufacturers how will the enforcement entity know if the F1 team used their car manufacturing for their F1 team development. The honor system? How will the F1 teams who supply their own engines and engines for customers break out their costs for scrutiny in comparison to teams who purchase engines? Different caps for different teams? These are just a few possible problems to sort.

        The idea of limiting staff sounds appealing on the surface, but I think Red Bull has already been questioned about another company division doing work for Red Bull off budget. Don’t remember the details exactly, but just another example of obfuscation. Again, verification becomes difficult if not impossible.

        What punishment for infringements are the teams likely to agree upon? Anything with teeth? It’s likely audits might not be completed until after race results. Would there be monetary or result based penalties? Changing results after the fact won’t sit with fans and monetary fines could be considered a cost of doing business for the rich teams.

        Forensic accounting has made great strides and would be required for this type of agreement to work. But, would Ferrari be willing to open their car manufacturing side of the books for scrutiny as part of a budget cap agreement? Doubtful.

        Agreed that budget caps and fair revenue distribution are not mutually exclusive. For a long time I thought the teams actually would make an agreement that works. After repeat failures in the budget cap area it seems likely that the teams will never come to an agreement on budget caps with proper verification, real teeth that don’t take away from the racing and complete transparency with their rivals. Like you said in your other post about somebody saving the teams from themselves, it does not seem likely. Sometimes they are their own worst enemy. That’s why I’m more in hopes of equitable distribution of revenues. The money is there, it just needs to trickle down in larger amounts to the teams that need it the most to keep the show going.

        Sorry for being long winded, not that it will solve anything. I still hope that someday the teams, FIA and FOM get a clue about how to make F1 better.

      • raptor22 said on 11th December 2013, 21:09

        best post on the subject I’ve reead so far. I fully support the budget cap and its relatively easy to police since every sponsor is required to follow Sarbanes Oxley requirements for financial reporting. Even the teams would need to follow this since they will be earning revenue in the USA. Their books would need to be structured according to the requirements. There are standard definitions on how services, assets and liabilities are recorded. Every team receiving sponsorship money currently is recording and classifying their transactions. All that needs to be added is a set of rules and an appointed auditing house.

        • bull mello (@bullmello) said on 11th December 2013, 22:42

          @raptor22 – Even if everything in your post is doable, what will the penalties for violations be? Will they be result oriented? If so, since accounting verification is likely to take place after race results are in, should the penalties include changing race results after the fact? If the penalties are monetary, would that not just be a cost of doing business for the richer teams most likely to engage in overspending?

          What other teeth could be placed into any possible budget cap that all the teams would willingly agree to? Future penalties that carry over to the next season, such as grid place penalties? Race bans? Further cost restrictions on offending teams?

          First off, I don’t agree that the budget monitoring would be as simple as your post describes. Forensic accounting notwithstanding, some teams will still have ways of not revealing everything. But, the main point remains, who will force all the teams to go along with a budget cap system that includes complete transparency and meaningful penalties for violations? What if all teams do not agree with such a proposal?

  8. PMccarthy_is_a_legend (@pmccarthy_is_a_legend) said on 9th December 2013, 20:53

    Clearly at this point the teams need a third party to come in and save them from themselves. If it is the FIA them thats good. £150 million cap, whoever is best at making the most of it will do well. Hell some might even make a profit. The focus will shift from spending to efficiency and savvy in using available resources, its about time. As far as policing it, well at the beggining it wont be perfect but the FIA will get better, bring in a external consultancy firm to help. The important thing is getting this thing rolling. Next step will be a complete change on the commercial structure of the sport to allow more revenue to the teams from tv, trackside ads and race hosting fees. This will mean that the teams will become less reliant on sponsorship and this in turn will make sponsorship less expensive attracting more companies to the sport.

    • HoHum (@hohum) said on 10th December 2013, 1:17

      @pat, There will be no change to revenue re-distribution, the whole point of a budget cap is to protect Bernie and his shareholders from demands for a greater share of the revenue. Even if the teams cheat and spend double the “cap” they can’t use that as an argument for a more equitable share of the profits, Bernie isn’t ruining F1 because he is stupid, Bernie is ruining F1 because he is greedy.

  9. Somethingwittyer (@somethingwittyer) said on 9th December 2013, 21:02

    Finally the FIA are doing something about this. If this is implemented correctly and the racing isn’t ruined, then this could be one hell of an era.

  10. jpowell (@jpowell) said on 9th December 2013, 22:09

    Budget cap is a great idea if 2014 is as good as 2013 I’d vote for zero dollars.

  11. Force Maikel (@force-maikel) said on 9th December 2013, 22:58

    The fact they are once again talking about a “working group” says it all for me. Didn’t they already have like a dozen of these working on the verry same thing? I’ll be watching this with interest, considiring the last time they promised this they didn’t keep their end of the bargain.

  12. DominikWilde (@dominikwilde) said on 10th December 2013, 1:37

    I’m sorry but I really don’t see this making any difference, it’s too late.

    It’s all well and good limiting what a team can spend in the year but what about the money already invested in facilities? They’ve already been paid for an will continue to be used meaning the lower teams with poorer facilities will still be on the back foot.

    Also, teams are boun to exploit loopholes such as Red Bull’s third party Red Bull Technology company. That’ll get round it surely and more than likely give them an unfair advantage.

    If a budget cap were to be introduced, it has to have been done before the testing ban, before teams invested more in simulators, wind tunnels and such like.

    I would love to see a more level playing field but I honestly believe we’ve gone too far to turn back now

  13. BJ (@beejis60) said on 10th December 2013, 4:46

    I’ll believe it when I see it.

  14. Timothy Katz (@timothykatz) said on 10th December 2013, 7:55

    The FIA claims plans for a “global cost cap” have been agreed and will be introduced in January 2015.

    Next week: How to nail jelly to the ceiling.

  15. GeeMac (@geemac) said on 10th December 2013, 8:29

    Well done FIA, but the keys to this will be (a) what the number is set at which will have to be high enough to keep the likes of Ferrari, RBR and Mercedes happy but low enough to make sure the likes of Marussia can compete, and (b) how it is policed, which will be nigh on impossible given the places the teams and their shareholders are incorporated. I have very little grasp of accounting but in a number of the large banking and project finance transactions I have done in my career I am staggered at how creatively (and legally) you can be to keep debts and injections of cash off of a company’s books. In F1 too I recall that Christian Horner once said that if you treat Daimer’s equity contribution into Mercedes the same way as many treat Red Bull’s investment in RBR it both teams would end up looking much the same. Similarly Lotus who many say are in deep financial trouble, owe the largest proportion of their debt to Genii, their major shareholder, and intercompany debt is often not a cause for concern in the business world.

    It’ll be interesting to see how it pans out, but like a few have said before, I will believe that we have a budget cap when I see it.

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