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 (22%)
  • No opinion (3%)

Total Voters: 241

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

  1. SauberS1 (@saubers1) said on 10th January 2014, 22:33

    It’s a difficult question. On the part one this is a good idea, the little team’s chance will be improve. Otherwise, nobody can check that which team keep the cost-cap.

  2. DominikWilde (@dominikwilde) said on 10th January 2014, 23:43

    The way I see it is like this:

    Right now it’s not what you spend, but how you spend it.

    It’s all well and good telling people how much/little they can spend, that’s relatively simple, but the likes of Caterham and Marussia don’t have the infrastructure that the likes of Red Bull and McLaren already have. For example, Marussia could spend money to develop their own wind tunnel and simulator whilst Red Bull already have both and don’t need to spend money building them. Basically, the top teams already have options the smaller teams don’t have.

    A good example is Lotus: What was once a top team with a vast budget is now strugling for money, yet despite this they’re still a top team because they still have the infrastructure from the Renault days.

    It’s a nice idea but for it to be 100% successful it surely would’ve had to have been introduced when F1 started.

    This is just the way I see it from the outside looking in really, I can’t say I’m right or wrong.

  3. A Budget cap cannot be enforced as the big teams have spread and obfuscated their financial structure. Also some teams work for others. Red Bull Technology for instance provides the KERS for Caterham and provides simulator time for Toro Rosso. How are you going to factor that in?

    I think the way to go is not policing/enforcing a hard resource limit, but rather
    encouraging to spend less.

  4. Mooph (@mooph) said on 11th January 2014, 14:00

    Is it Realistic, not really, you would never get agreements from the teams nor be able to effectively police it
    Is a way to make the sport financially sustainable Required, Yes.

    I agree that the division of money from the sport needs to be improved so that all teams benefit equally from the commercial rights ofthe sport, and that this should provide the basis for the operating budgets for teams, this would then be supplemented by the prize money based on finishing position, and then further by the sponsorship a team / driver can attract. Will some teams have more than others, Yes, but there should be sufficient money for a team to operate the full race schedule and to meet their financial obligations to staff and suppliers, given the millions of £’s in the sport, it is frankly embarrassing to see bills not being paid.

    Where I think the focus needs to be is to work out where within the budgets control and cost saving can be made. The main areas in which an F1 team spend their budget on which i can think of

    Facilities / Plant / Equipment (inc expansion & upgrading)
    Staff
    Engine / Powertrain (inc Gearbox, ERS etc)
    Materials (carbon fibre etc)
    Drivers

    I dont know the % split among them to be honest, but areas like Staff Salaries and Plant & Facilities would not be areas in which I would expect the FIA to influence, limiting staff at track is fine at race weekends, but they should not be able to mandate how many people each company can employ nor which equipment they choose to purchase to make their car.

    Limiting Wind Tunnel & CFD time probably needs to be expanded into the Simulators as well (if not already done so) which provides some control over the runtime and cost that can be put into this development and levels the playing field in terms of time to develop as well and adding limited testing post race weekends again makes sense while at the race tracks with the facilities and equipment already in place.

    So the only areas in which i think the FIA and teams can look to manage their costs are the the costs of providing the Engines / Powertrains & the other materials and items which go into building the car’s,

    I believe that fixing developments on the Engines limits further costs, (some equalisation will probably be needed initially) and that any and all developments done on the engines by any team should be shared with all the teams using that engine, which may put off some expensive development which would not be as big an incentive if they have to share it as well as trying to stop all the teams spending time and money developing specific engine maps etc which other teams also in isolation are spending money on developing as well. I would like to go further and really reduce the amount of control over engines / diffs etc that the driver has while racing which I think leads to far too much control in races being given to the engineers and pit walls who are monitoring the car etc, vs the driver to manage his race

    This leads us to the other parts and materials required to make the F1 car, i was impressed with the recent move in safety where the teams collaborated to provide the solution to the side impact tests and would like to see more collaboration and standardisation of non performance parts within cars. we already have standard electronics control units, the fuel cells are I think all made for by the same company (ATL?), would be interesting to know if they all cost the same..

    I think wheels, nuts and wheel guns could be an opportunity like tyres to be a supplied item, i think we are reaching the limit now of how fast a tyre can be changed and at some point all the teams will be changing them in about the same time.

    Brake discs and pads again are provided by only a couple of companies and again while an area of personal driver preference, could a collective agreement among teams be had,

    Carbon Fibre and Rapid prototyping materials would be another area where I think we could look to agree to a fixed definition and specification, would eliminate some of the areas of controversy in flexible parts on vehicles, I know that this in the past has been an area of competitive advantage in producing thinner, stiffer, stronger or more flexible but really is a benefit mostly to the teams that can afford to spend in this area, we do it in Engines which define what metals etc can be used in pistons and blocks for example, if done collectivley then again total requirements for all teams can be combined and a potentially lower cost can be sourced for all competitors… doubt teams would agree to this…

    I deliberately left Drivers till last, people object to pay drivers and its a symptom of not being able to control their costs and needing to balance budgets, which would reduce if teams were not so constrained. i wouldnt look to limit this area at all.

    Sorry it turned into an essay

  5. Miss Chief (@miss-chief) said on 12th January 2014, 2:27

    Re-introduce in season testing but limit it in some way?

    Teams that have won a dry GP within the past two seasons may only test with limited mileage and cannot use their race drivers. They may have unlimited mileage if they use a driver or drivers who have not started a Grand Prix within the past 4 seasons.
    Teams that have scored points in the past two seasons may either use race drivers and have limited mileage or use their third driver/drivers and have unlimited mileage.
    Teams without any points may have unlimited testing mileage with their race drivers.

    Gives the lower teams that desperately need the mileage, also gives the bigger teams a chance to blood some younger drivers and gets them the experience they’re missing out on since in season testing was stopped.

    You could test after Bahrain (2 week gap to China and a lot of gear will be shipped there direct rather than back to the factory), after Austria (two week gap again, British GP is next so cars will be going back to the UK anyway, does it matter if it’s a day later?) and then after Italy if allowed at Monza. I’m not sure if there are noise regs there or not. if that’s a problem test after Belgium two weeks earlier. Job Jobbed!

  6. ElBasque (@elbasque) said on 12th January 2014, 23:14

    I wonder how many people have mis-answered this as a question about wanting a budget cap.

  7. Boost (@boost) said on 13th January 2014, 14:23

    I strongly disagree a budget cap is realistic for F1.
    You can put it in the rule book but I think following the money in F1 is as unrealistic as trying to police team orders during a team order ban.

  8. Budget cap has killed f1 i work for FedEx most people at the depo watched f1 since the cap and sky tv it now just me.i would get up at stupid o’clock to watch races .now if i don’t want to get up i don’t care i just read about it .started watching middle of the 90’s but ever since 2001 it got worse ever year shame it was so great

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