The FIA is making a fresh attempt to impose a budget cap – or “cost cap”, to use its latest preferred terminology – on Formula One.
The sport’s governing body intends to have regulations completed by June this year ready for enforcement from January next year.
Budget caps have been talked about in F1 for years but none has ever been successfully implemented. Is it a realistic idea, or a piece of pie-in-the-sky optimism?
The FIA is yet to give details of how its proposed cost cap will work. The basic idea is that a maximum limit for annual spending is set and new regulations written to ensure teams do not exceed it.
As is the case with the new engine rules this year, the specification of which will be gradually frozen between now and 2020, the budget cap could be set fairly high at first and gradually reduced over a number of years. This would allow the largest teams to scale down their operations gradually and avoid the shock of widespread staff lay-offs.
Enforcing the cap would require the enlisting of a third-party accounting firm to evaluate the expenditure of each team.
The first obstacle to a budget cap is finding common ground between the teams on how high to set the limit when the difference in their spending varies so greatly. F1’s richest competitors are believed to spend at least five times that of their smallest rivals.
Different team structures presents a further challenge: for example, consider the question of engines. Some teams buy theirs from third-party suppliers (e.g. Caterham from Renault), some buy theirs from other teams (e.g. Sauber from Ferrari) and some develop their own engines which they also sell to other teams (e.g. Mercedes). Given that, and the fact different engine manufacturers supply different numbers of teams, how can a fair limit be set? This is one reason previous attempts to agree a limit have foundered.
But the greatest barrier to a budget cap how one could be enforced. Teams are secretive about their budgets, and there is potential for expenditure in areas such as research to be hidden. Some teams are the minor arms of global car producers, within which F1-related development work could be conducted beyond the eyes of the FIA’s investigators.
There should be no doubt over the necessity of reducing costs in Formula One – the number of competitors remains stubbornly low, there is no sign of any potential new entrants arriving and last year showed even the midfield teams are feeling the strain as talented drivers are jettisoned to make way for those with more money.
Some of the visions for what F1 might be like under a budget cap verge on the utopic. But while a return to the days of 26-car (or larger) grids would be a boon for the sport it doesn’t make the difficulties of capping budgets any less real.
Not only do these challenges appear insurmountable, but even if they were, could each team be persuaded their rivals genuinely were sticking to the spending limit? Or would we face a return to the days of the Resource Restriction Agreement and the persistent innuendo that some teams were spending more than they had agreed to?
I believe F1’s financial crisis needs to be tackled from both angles: not only controlling costs, but changing how teams are rewarded.
F1 has enjoyed some success in controlling costs by imposing limits in the rules: the 2003 parc ferme restrictions which ended the use of qualifying cars, limiting numbers of engines and gearboxes per race, and capping staff levels at race weekends. As well as extending those regulations into other areas, F1 should revise its revenue sharing, which tips the balance too far in favour of the wealthiest teams.
Like a budget cap both these proposals require political will to achieve. But unlike a budget cap at least appear to be realistic.
Do you agree introducing a budget cap is a realistic solution to Formula One’s financial worries? Cast your vote below and have your say in the comments.
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