Is a budget cap realistic for Formula One?

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Paul di Resta, Force India, Circuit of the Americas, 2013The 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?

For

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.

Against

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.

I say

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.

You say

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.

Do you agree introducing a budget cap is realistic for Formula One?

  • Strongly agree (18%)
  • Slightly agree (34%)
  • Neither agree nor disagree (5%)
  • Slightly disagree (18%)
  • Strongly disagree (23%)
  • No opinion (2%)

Total Voters: 240

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83 comments on Is a budget cap realistic for Formula One?

  1. Prisoner Monkeys (@prisoner-monkeys) said on 10th January 2014, 13:59

    I think the problem is the emphasis on aero development. The sport is simply too dependent on aerodynamic grip, and has been for some time. But the teams know that aerodynamic grip gives them an advantage, and so they will not give it up. Not without a fight. The only feasible thing to do is clamp down on aerodynamic design freedom, and open up the engine regulations as a quid pro quo. That’s the way it should have been in the first place.

  2. MazdaChris (@mazdachris) said on 10th January 2014, 14:02

    I think it’s fundamentally the wrong approach, and impossible to effectively enforce. What really needs to happen is that firstly the revenue distribution needs to be seriously looked at, with significantly less money being creamed off by third parties for personal profit, and a fairer distribution of TV revenue from the fastest to the slowest teams. Things like Ferrari’s special bonus should be scrapped, along with any other multiplier bonuses which award teams more for continual or repeated success. A championship or race win should be of equal value to every single competitor.

    Then the business of operating and creating F1 cars should be made significantly cheaper. Firstly by restricting development, which is currently unrestricted. My suggestion is either to require teams to produce, say, three aero packages for the car which they must use through the whole season, which should be homologated and unchanged. Or to allocate a number of ‘development points’ for each team. Say a new wing costs 2 points, a bargeboard 1 point, a new floor 3 points, etc etc, and then restrict the number of points available to each team. Basically reduce the benefit of relentless testing and development. And finally by having genuine rules stability for a significant period of time. Having teams design completely new cars each year is ridiculous and introduces massive unnecessary costs, while also creating a bigger gap between teams. Stability in the aero rules allows the teams to build up a good understanding of the aero concepts, and reduces the need for lots of experimental development.

    • Tayyib (@m0nzaman) said on 10th January 2014, 14:09

      I like your Idea, every race we see small or large updates to a car but those are that have been deemed worth taking to the track, there are many new components that never leave the factory, that are probably just discarded when not needed any more and it is a big waste of money.

      • MazdaChris (@mazdachris) said on 10th January 2014, 14:16

        My favourite idea is simply to have the teams create a limited number of aero configurations before the start of the season, and then they have to use them for the whole year. You might see teams create three really interesting and individual aero concepts, and stops teams spending huge amounts on diminishing returns from tiny incremental changes.

    • Nick (@npf1) said on 10th January 2014, 20:23

      Basically what I wanted to post. F1′s revenue model is a big problem, as are the figures the teams spend on development.

      Setting a limit to the amount of money to be spent is going to get teams looking at what they can save on, but the limit might still be more than Caterham’s budget. Teams will still get an uneven slice of revenue. It is however very consistent in the ‘treat the symptoms, not the disease’ formula the FIA and teams have been using since the 90s.

  3. Lauri (@f1lauri) said on 10th January 2014, 14:02

    Could engine manufacturers override the freezing of engines rules by setting up new companies? Merc could take over Ilmor and start to develop a new engine based on its own engine. Then just start using Ilmor engine branded as Mercedes AMG… Ferrari starts using FIAT engines and Renault quits engine business, sells it to Infinity :)

  4. Tayyib (@m0nzaman) said on 10th January 2014, 14:07

    The sport has to have a budget cap or certain restrictions on spending. One of the biggest is everyone has to agree on it, and why would Ferrari for example agree when they can spend so much on their F1 programme. And how would you police it, F1 really is heading into a watershed period for the sport, we could have a financially stable sport in with more teams or half the grid could fold and the series could be dead. What about an you can only spend how much money you generate or limit spending on certain parts of f1 e.g. 30% of a teams yearly budget can be spent on aero development. But the way prize money is handed out has to be the first port of call. Its so lopsided and unfair to the smaller teams.

  5. Frogster said on 10th January 2014, 14:17

    Something needs to be done about the cost that’s for sure. The teams will never agree among themselves so it as to be done through the regulations.

    Getting back to basics would be a good start. The cars only need a powertrain, tyres and chassis, anything else is just extra expense. Engines don’t need expensive KERS, Turbos etc, don’t need to rev to 18000rpm. Gearboxes don’t need 8 ratios. A standard powertrain could be used. Afterall they’re all much of a muchness after a couple of years development. They could open up tyre supply to other suppliers, and they only need one dry tyre compound, and they could be homologated at the start of the season. Homologating say four wings at the start of the season, together with the chassis would still leave plenty of scope for deveopment in other areas.

    It’s not for the purists, and I’m one of them, but the rate things are going F1 won’t be around much longer without some radical changes. In my opinion it’s only the rule makers that can make those changes, and if some of the teams object they can always go and race elsewhere. There’s no other race like a grand prix or no other race series like F1, and when push comes to shove no team walks away from it if they can afford it.

  6. Atticus (@atticus-2) said on 10th January 2014, 15:25

    A huge ‘strongly disagree’ – I think there’s no legal regulation which could be made loophole-free and thus the smart legal experts at the teams would be quick to circumvene them somehow.

    See FFP in football and how it really affected spending on the player market this summer…

  7. ME4ME (@me4me) said on 10th January 2014, 15:46

    There’s no question, something should be done. But a budget cap will not work, loopholes will ultimatly be found by the teams.

    The current problem is that all bar the top teams are in financial trouble. So logically the first thing to do should be to even-out the price money. Let’s just split the ~63% the teams get evenly over all teams. Bin the rule which connects championship position to money. Teams and drivers should just race for the sake of winning (and getting a commercial advantage), not prizemoney from FOM. This would solve part of the problem. There will always be teams having more money than others, but at least not 5 times as much. A quick fix is simply not possible. Small steps are.

  8. bull mello (@bullmello) said on 10th January 2014, 16:23

    Won’t work, waste of time and resources better spent elsewhere. Natural selection works better. Teams should use Lotus as an example for two reasons. They spent less with better results than McLaren, for example, who spent more. This proves overspending does not always work. Making best use of available resources works better. If a team (Toyota comes to mind) wants to spend itself into oblivion for mediocre results, let them. Let the prize money structure be fixed to reward teams like Lotus more fairly for their excellent results so they do not have to resort to pay drivers and then miss test deadlines the next season. Lotus, the fans and the sport as a whole deserves equitable compensation to teams that get results and benefit the state of the sport. Create a positive cycle to replace the vicious cycle!

    Another thing, penalties. How will penalties be meted out in such a budget cap system. Everybody talks about the cap, nobody discusses the penalties. Would they be financial? That would just be a cost of doing business for the rich teams. Would they be performance based penalties? Likely the accounting analysis will not be complete before racing, so would penalties result in post race declassification a certain number of places by degree of financial infraction? Or, complete disqualification for a race, races or season? Explain to me, how could that be good for the sport? OR, would teams get penalized in future races? Next race, several races or next season? How would that work? And again, good for the sport?

    I’m not too worried about solutions to any of the above budget cap problems because the teams simply do not have the political will or desire to enact or enforce a workable agreement in this area of the sport. They may say otherwise, but that is just more politics. Fixing the problem lies in the more equitable distribution of prize money for all teams. There is enough money there to do the job. The various entities that comprise the sport of F1 just need the foresight to save themselves from themselves and fix it. That would actually be easier and more logical than an budget cap system that will never happen.

  9. Paul A (@paul-a) said on 10th January 2014, 16:23

    In the beginning F1 developed as the fastest, top end of motor sport (now the “pinnacle”) and attracted designers, manufacturers, drivers and fans (then called “spectators” and “magazine readers”.) Over the last maybe twenty or so years it has seen an insidious input of “spectacle” and “rules” — not all good, not all bad — but all requiring more money and as any economist will tell you, there is a snowball effect in that you have to spend more and more in order to obtain more and more.
    I don’t know how much the teams spend on “rule compliance” or how much the FIA puts into “rule writing” and “rule enforcement” covering design, testing, racing, tracks, etc. But if F1 wants to remain the “pinnacle” then innovation within very broad guidelines is an absolute necessity. Nit-picking minor details is counter-productive, very expensive and curtails innovative development.
    As to the spectacle, the finances are outrageous. If Mr Ecclestone’s personal fortune and family trust were properly re-invested in F1, there would be no more talk of budget caps or pay drivers for years to come.
    So, what do we want? The ultimate expression of the fastest man and machine combination? Or the flamboyancy of the World Wrestling Federation with its tabloid driven squabbling? It all comes down to the freedom of achievement compared to the dreary, messy, over-regulated current state of affairs that is still called Formula 1.

  10. Cyclops_PL (@cyclops_pl) said on 10th January 2014, 18:03

    Short answer: no. There are no means of policing such budget cap that can’t be circumvented.

  11. Paul (@frankjaeger) said on 10th January 2014, 18:10

    Maybe only development money should have a limit imposed on it. It’s sounds like a very tricky rule to implement and then police. The only way I could see it working if all the teams’ money was pooled in an FIA account and all transactions went through it, and that seems very implausible

  12. Keith Collantine (@keithcollantine) said on 10th January 2014, 18:48

    Occasionally with these polls we get a situation where the sentiment expressed is the comments is quite different to what’s in the poll. I’ve just read a lot of comments about how a budget cap wouldn’t work, yet at the time of writing with only 148 votes cast those who think it’s realistic outnumber those who don’t.

    So it would be interesting to hear more from those who think it is realistic and how they think it could be made to work.

    • bull mello (@bullmello) said on 10th January 2014, 19:02

      I would especially like to hear how the potential penalty structure would work. Would penalties be financial, post race position changes or future race grid penalties? Or some other method?

    • HoHum (@hohum) said on 10th January 2014, 19:57

      Maybe those who think it is realistic haven’t really thought about it but just wish it could work, much like Bernie does everytime he has a new idea.

      • Robbie said on 11th January 2014, 13:01

        I didn’t vote but I commented because to me all ‘evidence’ seems to suggest that a budget cap wouldn’t work not because they couldn’t figure out the actual method, what to physically enact on paper, but because the teams can’t be trusted and nobody seems to know how it would be policed given said distrust.

        On the other hand I think a cap would work, but I think it would have to be with a gun to the teams’ heads, and that would only come if viewership was so down that the health of the sport would be in serious jeopardy, a point at which they aren’t quite at or else something would have already been enacted. I think they’ll all have to be threatened with their jobs and therefore do an about face and willingly accept caps, policing, and not abuse it by pulling the wool over the fans eyes who will have shown them that they are the number one concern, for without them they don’t get to do what they are supposed to be there doing for the love of it, not just the millions.

        So sadly, I think the teams will need a big slap in the face and a wake up call and then I think much can realistically be done.

  13. PMccarthy_is_a_legend (@pmccarthy_is_a_legend) said on 10th January 2014, 19:24

    How can anyone who calls himself a F1 fan strongly disagree with a budget cap given the current financial state of most of the teams in the grid today? It’s a disgrace in my view. Of course there has to be a budget cap and quickly before it’s too late. I think instead of discussing whether it should or shouldn’t it be implemented a much more productive discussion would be to propose ideas to make it work. The current financial situation is unsustainable.

    • bull mello (@bullmello) said on 10th January 2014, 20:02

      @pmccarthy_is_a_legend – There are plenty of ideas on how to make F1 sustainable without the addition of another layer of negative, non-productive rules and penalties structured to punish teams caught cheating. How can this problem be fixed without another authoritarian layer of crime and punishment where the only options for violators seem to be altering race results after the fact or grid penalties in future races? Or, even worse, complete disqualifications for a race, races or season? Financial penalties alone won’t work. Rich teams would consider that just a cost of doing business. How can adding more possible penalties that change points scored or future grid positions possibly be a good thing for F1 and all of its fans?

      I will not insult you by asking how anyone could call themselves an F1 fan if they disagree with me, that would be silly. It’s OK to agree to disagree while still having the best interest of F1 at heart. Discussion to reach better ideas on how to fix problems is a good thing and not worthy of negative insults.

      I would rather see F1 implement positive changes to improve the sport through better technical regulations and profit sharing instead of negative policing and penalties. The money to fix the problems of the financially strapped teams is already there. More equitable sharing of revenues through profit sharing and prize money could avoid the need for pay drivers and missing valuable pre-season tests. Technical regulations designed to improve racing and decrease costs are extremely possible. Hire Ross Brawn as a consultant or director and let him do it. I bet he knows how to improve the racing and cost structure at the same time. These two ideas alone could make F1 a better show for everyone without turning it into a spy vs, spy police state. Get rid of the vicious cycle by implementing a positive cycle, not introducing another vicious cycle!

      I respect your views even if you completely disagree. As a fan of F1 since the 1960s I’m not going away anytime soon. I know F1 can fix these issues for the better and there is likely more than one way to make it happen.

    • Nick (@npf1) said on 10th January 2014, 20:31

      I see there are a lot of problems with the finance of F1 in pretty much all of it’s parts. Running a team, running a race, being a driver and even then leaving so many stones unturned that could make them more profit or bring them more goodwill or investors.

      F1′s costs and profits are spiraling out of control. One of the ways that manifests is teams running out of money. If anything has a structural problem (finance in F1) treating symptoms one by one is going to take forever and not actually doing that much to treat the root of the problem.

      Firing off solutions before you figure out what the root of the main problem is, is a cardinal sin in consultancy. The teams, the FIA and now the strategy group seem to not even be able to read a textbook on solving organizational problems when it comes to changing how the strong stay strong.

  14. HoHum (@hohum) said on 10th January 2014, 20:36

    A quick response, some ideas that could reduce the burden on teams , some of which have already been mentioned:
    Limit pit crew in pitlane to 4, combined with tyres that will last a full race and no mandatory pit stops.
    Save tyres and wages, travel and accomadation costs, back to sprint racing.

    Only 2 dry and 2 wet compounds available.
    save tyre cost and transportation.

    allow more testing at local tracks with less onerous manning requirements.
    small teams can’t afford the massive capital costs of wind tunnels and simulators, drivers don’t need to drive flat out to evaluate new parts.

    Limit aerodynamic benefit by reducing the size and complexity of the front wing, consider an FIA supplied wing.

    Reduce the number adjustments the driver is allowed to make during the race, if the differential needs adjustment make it a mechanics job.
    All these adjustable mechanisms add huge cost, how much is that steering wheel costing, as long as it is the same for all it doesn’t need to adjusted every corner.

    Make the rule more stable but allow some engine development within the fuel and rpm limits.
    allow engines to be rebuilt between race weekends.

    Remember that everything is in reality paid for by the teams, FOM only give the teams back a share of the revenue after all costs have been deducted,finally the teams nead a bigger share of revenue and more opportunity to publicise their sponsors, like billboards on their motorhomes and trucks.

    • bull mello (@bullmello) said on 10th January 2014, 21:16

      @hohum – Good points and suggestions. Improving racing and decreasing costs are not mutually exclusive. I totally agree that better technical regs concerning aero are a huge possibility for cost saving and better racing.

  15. dragoll (@dragoll) said on 10th January 2014, 21:58

    I’m in favour of cost reduction purely because the teams themselves have pushed their own budgets to the limits and generally beyond. I chose slightly agree to a budget cap because of this reason. I didn’t choose strongly agree, because I’m not sure that a rule change by the FIA will be able to sufficiently keep it in check. Many codes of sport around the world have budget caps, and there are always loop holes in the rules. In Australia there have been multiple breaches of budget caps in both the Rugby League competition and the Australian Rules competitions, where teams either keep 2 sets of financial books, where 1 set was kept to fudge the player payments, or they don’t declare certain payments to players within the books and write it off as something else. The other thing that the teams in the Australia Rules competition are rumoured to be doing, is getting the sponsors to directly pay players to do PR or Event Functions work which really is part of the players pay.

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