Kaltenborn still believes in cost cap

F1 Fanatic Round-up

Monisha Kaltenborn, Sauber, Buddh International Circuit, 2013In the round-up: Sauber team principal Monisha Kaltenborn still believes a cost cap could work despite the FIA abandoning plans to introduce one.

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Policing a budget cap ‘not difficult’ (ESPN)

“Maybe you would have a catalogue of penalties that any judge can choose from. That’s like the real world out there. Sometimes people try to make Formula One look so complicated, but actually the situations are very similar to the real world.”

Toto: As a team, it is up to us to rise to the challenge (Mercedes)

“We have seen already that our rivals are relentless in their efforts to close the gap. As a team, it is up to us to rise to that challenge: to take that relentless mentality to an even greater extent than those around us.”

Sport on TV: Race to keep up with Bernie Ecclestone’s money trail beats F1 for drama (The Independent)

“The judge back in 1971 described him as ‘altogether extraordinary’, which is one of the nicer things said about him in Panorama’s Bernie Ecclestone: Lies, Bribes and Formula One (BBC1, Monday).”

Tweets

“Hello friends :) Voila, my toy of the day! Thanks ART GP Karting”

Comment of the day

There were many great suggestions for this weekend’s Caption Competition including those from Steven, Ryan Petersen and Graham228221.

But I laughed most at this cheeky contribution from Jack (@Jackisthestig):

Sebastian Vettel, Red Bull, 2014

“Have you got a better pen? I struggle without the best equipment.”

From the forum

Happy birthday!

Happy birthday to Jack Sargeant, Martin Stanley, Three4Three, Skodarap and Vickyy!

If you want a birthday shout-out tell us when yours is by emailling me, using Twitter or adding to the list here.

On this day in F1

1994 F1 seasonOn this day 20 years ago a special FIA meeting was held to review the disastrous events of the San Marino Grand Prix in which Ayrton Senna and Roland Ratzenberger were killed and Rubens Barrichello had been injured along with several spectators and pit crew members.

Meanwhile the sport continued to come under fierce pressure from worldwide media to respond to the two fatalities. In Italy the possibility of a homicide investigation into Senna’s death was raised.

Italian defence minister Fabio Fabbri told a crowd in Venice: “I hope the murder of Imola is punished. The Formula One world is worse than the gladiator’s circus.”

Image © Sauber

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63 comments on Kaltenborn still believes in cost cap

  1. Jake (@jleigh) said on 4th May 2014, 0:32

    Great caption. It wasa difficult picture, and that definitely stood out as the best for me. Well done @Jackisthestig

  2. PMccarthy_is_a_legend (@pmccarthy_is_a_legend) said on 4th May 2014, 0:45

    Thank you Monisha! Of course it is possible to implement a cost cap. This nonsense about it being impossible to police such a system is just that, nonsense. And people eat it right it up, its incredible. It is a powerful minority who is against it, and they are doing a good job of convincing everyone else, fans included. F1 teams cannot self regulate that is clear. The FIA has to basically force this through if we are ever going to see it implemented in F1, and the current administration simply don’t have the guts to do that. But there is no doubt whatsoever that a cost cap is a viable option to bring costs down in F1. And they have to come down, that’s for sure.

    • Ben (@dysthanasiac) said on 4th May 2014, 1:38

      A budget cap is unequivocally unenforceable. To even have a chance at viability, the FIA, for one, would require the power and ability to audit every team’s suppliers, partners, sponsors, etc, many of which are privately held and under no legal obligation whatsoever to supply financial statements to anyone for any reason. Otherwise, teams will forgo the usual practice of accepting cash payments and will instead accept “goods and services” from those entities – wink, wink – which would undoubtedly be given arbitrarily low values in order to meet the cap’s requirements.

      And that’s to say nothing of creative accounting practices that routinely make a mockery of the best efforts of governments around the world to collect taxes. I don’t know why some within F1 think the sport could somehow be immune to that.

      It simply will not work.

      • Max Jacobson (@vettel1) said on 4th May 2014, 1:44

        @dysthanasiac unless one is naive enough to believe that the teams could be honest. But there’s almost no chance of that happening if there’s a competitive advantage to be gained.

        • Ben (@dysthanasiac) said on 4th May 2014, 2:07

          They won’t even have to lie about it. If Shell suddenly became Ferrari’s “partner” for PU development, meaning engine designers/builders/tools within the Gestione Sportiva would be considered de facto employees/property of Shell, what difference does it make to Ferrari, or to anyone else, how much Shell spends on it? Instead of money, they would simply be supplying a service to Ferrari in exchange for the placement of a logo on the car. That’s perfectly legit. And, because Shell is not an entrant in the FIA Formula One World Championship, the company is beyond the scope of FIA scrutineering.

          Not just picking on Ferrari. You can say the same about Red Bull Racing and Red Bull Technology or Mercedes AMG Petronas and Daimler AG…

          • BasCB (@bascb) said on 5th May 2014, 8:39

            Its of no interest what so ever who owns those kind of things according to the books @dysthanasiac, @vettel1. There would be a value attached to using them and it would be FERRARI who is obliged to prove how this was done.

            As for Shell – they are one of the easier ones, as they are a publicly traded company and also adhere the the (relatively strict) US regulations for bookkeeping and reporting – they themselves would have to have this in their books and attach a value to given support or face penalties in the real world for fraudulent bookkeeping (exactly the same goes for Daimler, Boch, Pirelli, FIAT etc.)!

            It gets a tad more complicated if you have non publicly traded companies, but the prinicples are much the same. As Kaltenborn comes from Finance/Legal background, I would say she knows what she is talking about here to a far greater extent than most of the commenters here.

      • bull mello (@bullmello) said on 4th May 2014, 3:47

        @dysthanasiac – “A budget cap is unequivocally unenforceable.”

        Totally agree for all the reasons you mentioned. Nothing wrong with bringing costs down, this is not a productive way to do it. The money wasted on elaborate forensic accounting would be a waste and better spent on actually developing cars rather than on policing accounting. Any penalty system devised would also be a completely negative fiasco destined to create more horrible F1 headlines than double points or lack of exhaust noise.

        Let’s find positive ways to cut costs, not negative, divisive and self destructive schemes that will never be enacted.

      • iamunplugged (@iamunplugged) said on 4th May 2014, 6:34

        I was assuming that FIA will work with the premise that the burden to prove that competitors signed up for F1 adhere to the budget cap will rest with the competitors and not with FIA.

        Comparing loopholes in Government tax laws and its exploitation with loopholes in FIA regs enforced budget cap is not 100% valid.

        Government tax laws are required to be applicable to the whole population of the country, whereas the FIA regs will be applicable only to the participating teams (11 currently). With the current knowledge of accounting magic employed by companies its not inconceivable for FIA (and its accountants) to come up with an almost all encompassing set of rules to follow when adhering to budget cap.

        Of course accountants can still find loopholes and get away, but if one loophole is found out then its fairly easy to close it (a la tech. directive) and punish anyone else using it thereafter.

        What we should not assume is that the regs. guiding the budget cap will be perfect from the start. What we should be looking at is that over time the updates to the regs. will mean that there will be diminishing returns for teams to seek out loopholes and exploit them.

        • Timothy Katz (@timothykatz) said on 4th May 2014, 8:31

          The idea of plugging loopholes over time is a fine one (although it might be rather more difficult than expected). But please consider the time periods we are talking about. If a team overspends this year, their accounts will not be finalised until next year and presented even later than that.
          So a team that has overspent will not necessarily be found to have overspent until late the following season or even later than that. Are the FIA to alter the results of previous seasons or would they impose sanctions (whatever they are) on the team this season or even next season? What if the team no longer exists in the Virgin>Marussia mode?
          You would also have to consider how prior and post season spending would work. Team Haas are spending this year for next year. Is that expenditure to be counted in with next season, or is it to be ignored as it pertains to a year when Haas did not have not have a FIA entry?
          I can foresee some very rich accountants at the end of this – and no benefit at all to to F1 racing.

          • bull mello (@bullmello) said on 4th May 2014, 16:06

            @timothykatz – I can foresee some very rich accountants at the end of this – and no benefit at all to to F1 racing.

            That really is a key point. Teams complain about spending so much money on F1 racing and development, and the supposed fix is to spend an unknown amount of money more on nothing that has anything to do with actual racing and development. It makes no sense.

    • Breno (@austus) said on 4th May 2014, 1:47

      F1 doesnt need a budget cap, it needs to be cheaper.

      • MagillaGorilla (@magillagorilla) said on 4th May 2014, 3:34

        @austus, you contradicted yourself there pretty much, wanting it to be cheaper and saying no cost cap is why it’s expensive in the first place. However, wanting a cost cap has a potential of making it cheaper even by a little that current system doesn’t have. So yes it does need a budget if it is going to be cheaper, because technology doesn’t just get cheaper unless one is forced to find a way in doing so.

        As it stands now there is no incentive for the top teams to find or develop methods to that would help build their cars at a lesser expense. They have the means (money) and thus will continue to build in a way that gets the job done to win which is expensive, while other teams that don’t have so much rather their be cheaper methods developed because they have to build with cost effectiveness in mind.

        • MagillaGorilla (@magillagorilla) said on 4th May 2014, 3:36

          If it will work to decrease cost in such a manner that Sauber and others think, that has yet to be seen or explained. However, I think it will decrease cost but not by some 80 or 100 million which seems to be the idea the cheaper teams hope for.

          • MazdaChris (@mazdachris) said on 4th May 2014, 10:06

            Interestingly that sort of a budget gap between top and bottom teams would be more or less addressed if you had the equitable distribution of commercial profits from the sport, rather than the top teams taking more than eight times the revenue from the sport than the bottom teams. You can’t spend money you don’t have, which works both ways.

          • The Abbinator (@abbinator) said on 5th May 2014, 23:34

            Agree with MazdaChris on this one, the revenue should be shared equally amongst all 11 teams instead of the richest getting the most prize money for winning which is a direct result of having the highest budgets. But then again the whole idea of handing our the prize money came from one of the top 1% richest people so hardly surprising that it would reinforce his outlook on wealth distribution (the rich get richer).

      • Barry Miller (@bmk1586) said on 4th May 2014, 7:06

        Kind of agree but its the top of the top, like saying platinum should be cheaper.

    • bull mello (@bullmello) said on 4th May 2014, 3:39

      Monisha Kaltenborn: “As far as I know in England you do have bookkeeping, and they are based in England, and you also have to submit your results. I think they know how to keep books and how to put figures in there, and I assume everybody sticks to the laws there when you are given these kinds of figures.”

      Just like Bernie…

      Sometimes cheating happens. Expensive forensic accounting might catch some cheating. Somebody please ( @pmccarthy_is_a_legend ) tell us how the penalty system would work. Post race or post season penalties? Demotions, disqualifications, future race penalties in the form of grid penalties? Please enlighten us on how such a penalty system would work and also how it would not tear the sport apart, please.

      I have yet to hear any plan put forth by anyone credible. Monisha just mentions harsh penalties, but not draconian. What does that mean?

      • iamunplugged (@iamunplugged) said on 4th May 2014, 6:23

        What is needed to enforce this cap and the penalty system is for a precedent?

        The best approach for enforcing the new harsh rule(s) is to go for the low hanging fruits (situations you know do not comply with the regs) and use them as an example by punishing them with harsh penalties. Once a precedent is set, it acts as a deterrent for future violation, esp. when the burden to prove compliance rests with the teams and not FIA.

      • PMccarthy_is_a_legend (@pmccarthy_is_a_legend) said on 4th May 2014, 13:38

        It would be interesting to learn with how much information and from what perspective he formed such an opinion. I would venture and say that not a lot, or at least only superficial information and unsubstantiated conjecture. I will explain why:
        The first flawed assumption is that F1 teams sponsors and partners (which are legitimate businesses with greater interests beyond sports sponsorship) would be willing to enter on a agreement with teams with the clear intention of circumvent (some would use the word cheat here) the FIA regulations. For example if a business channels the bulk of their UK sales through Luxembourg in order to pay less tax in the UK, there is a clear incentive for that. Less taxation has a direct positive effect on the bottom line. But as a sponsor of a F1 team one has to ask what is the incentive from the sponsor perspective to aid a F1 team to cheat financial regulations? If the FIA makes the penalty harsh enough then there is a good chance this would be seen as poor ROI strategy for any sponsor, not to mention the potential negative PR fallout for anyone caught in it. All things considered it would be seen as too risky a strategy. I found it funny @dysthanasiac mentioned Shell as an example. Shell reported a fall in profits margins last quarter and there is pressure in the industry with projects on hold in Russia due to the current political instability in the area. Though I am sure they value the F1 association, it is certainly not their core concern at the moment.
        Now of course there will be loopholes, as @iamunplugged mentioned this will be closed over time. As anyone who worked with accountancy and tax law will know there is no perfect legislation. It evolves to close loopholes. In F1 it will actually be easier as there is a central body which can enforce the rules, whereas in international tax law that is not really the case. @timothykatz accounting reporting doesn’t have to be on a yearly basis. It is feasible that it is done in shorter periods of time.
        Now @bullmello asked me to explain how the penalty system would work in a blog comment which is quite unfair and disingenuous in my opinion. Of course I won’t be able to go into details here, but yes penalties could be in the form of further reduction to budget the following season, points deduction in the current championship etc. It is not the penalties that would tear the sport apart, it is the current financial structure that will. @bullmello I am sorry if your intelligence has been insulted that’s not my intention but a lot of people buy into the idea of the budget cap being impossible to enforce without really thinking it through and that’s understandable because it is a complex subject. But my work background and experience tells me it is absolutely possible to have a budget cap in F1 (my goodness it is only 11 entrants). It wont be perfect to start with but in time will get better. There is great pressure from the 3 bigger teams against, why would they willingly give up an competitive advantage? The reason a budget cap won’t be implemented it is not because it is impossible to police but because the current FIA administration lacks the political power to push this through.

        • Ben (@dysthanasiac) said on 4th May 2014, 15:26

          @pmccarthy_is_a_legend

          In the hypothetical scenario I outlined earlier, Shell wouldn’t have to spend a dime over what it would ordinarily pay. In the same manner companies like PDVSA, Medion, Telcel, etc sponsor drivers via payments made to teams (pay drivers), team sponsors can pay team suppliers for those services. So, neither Ferrari nor Shell would actually pay for Shell’s “services” to Ferrari, Philip Morris would. It’s a perfectly legal solution, and it’s exactly how Red Bull Racing usurped the RRA.

          As the formal entrant to the FIA Formula One World Championship, only Red Bull Racing was subject to the terms of the RRA. Red Bull Technology, deemed RBR’s “supplier” by Christian Horner, faced no so restrictions and could spend as much of Red Bull GmbH’s money as Red Bull GmbH would allow. As a privately held company, RBT’s reporting requirements are nominal and can obscure virtually anything.

        • Ben (@dysthanasiac) said on 4th May 2014, 15:40

          For your viewing pleasure, here’s an (incomplete) list of companies that would have to be audited by the FIA in order to ensure compliance to a budget cap:

          Scuderia Ferrari
          Ferrari S.p.A.
          Fiat S.p.A.
          Philip Morris
          Altria
          Santander
          Kaspersky
          Dutch Royal Shell plc
          AMD
          Hublot
          Puma
          TNT Energy Drinks
          INFOR
          OMR
          SKF
          Mahle
          NGK
          Magneti Marelli
          Brembo
          Iveco
          Carbon Industries
          Hitco
          Red Bull GmbH
          Red Bull Racing
          Red Bull Technology
          Red Bull Mobile
          Infiniti
          Renault
          Total
          Rauch
          GEOX
          Pepe Jeans
          Casio
          Singha Beers
          Platform Computing
          Siemens
          ANSYS
          Hexagon Metrology
          DMZ
          OZ Wheels
          PWR Performance
          Nissan LCV
          Pirelli
          Alpinestars
          Sonax
          Hanshin
          Tracker
          P&O
          Sabelt
          Scuderia Toro Rosso
          CD Adapco
          USAG
          Facom
          Volkswagen
          Volkswagen AG
          OMP
          Advanti Racing
          Delconca
          Hansgrohe
          Falcon Private Back
          CEPSA
          Nova Chemicals
          McLaren Group
          McLaren Racing Limited
          McLaren Electronic Systems
          McLaren Applied Technologies
          Vodafone
          Diageo/Johnnie Walker
          Mobil 1
          ExxonMobile
          Lucozade
          SAP
          TAG Heuer
          AkzoNobel
          Sikkens
          Hilton
          XTB
          AON
          Akebono
          Enkei
          FanVision
          Faro
          GSYUASA
          Boss
          IFM Sports Marketing Surveys
          Kenwood
          Lenovo
          Mazak
          Sparco
          Processia
          Steinmetz
          Dassault Systems
          BINZ
          Daimler AG
          Mercedes-Benz
          Mercedes AMG Petronas
          Petronas
          Allianz
          Deutsche Post
          ISOFOTON
          Monster Energy
          Standox
          SPG
          Thomas Sabo
          Endless
          Lincoln Electric
          Sandvik
          Solace Systems
          STL
          Helen and Douglas House
          Skidz
          Laureus

          • PMccarthy_is_a_legend (@pmccarthy_is_a_legend) said on 4th May 2014, 16:51

            @dysthanasiac

            You miss the point here by a country mile. I understand what you are trying to say but for the sponsor it is not about spending more or less. From the sponsors perspective it is about getting involved in a financial transaction where the negatives outweigh the positives. Besides the biggest spending area in F1 is not with the supply of parts or fuel or brake discs. It is with Research and Development. It is how many aerodynamicists or enginners and how good they are (generally the higher the salary you are able to pay the higher the calibre of people you are able to attract) and how long you spend in the wind tunnel. It is the infrastructure to build new parts and test them and have them on the track as quickly as possible. If a sponsor wanted to help a team I guess the team could turn around and say to the sponsor, “hey instead of putting x on our account for a sticker in the car could you please put this engineer on your payroll instead“. Besides the fact that this does not sound good at all for the sponsor, it is also fairly easy to be flagged by other teams and picked up by the FIA. Again too risky for the sponsor, makes no sense.
            As far as creating an altogether separate company as Red Bull have done, that is also a loophole that isn’t too hard to plug, just because it is so obvious what they are up to. Finally comparing the RRA to the budget cap, really? RRA it isn’t much more than a gentleman’s agreement in a non-gentlemanly environment.

          • Ben (@dysthanasiac) said on 4th May 2014, 18:25

            @pmccarthy_is_a_legend

            Other teams can cry foul as much as they like, but if a team puts together a scheme whereby development costs are shared with partners, it’s perfectly legitimate, and nothing can be done about it.

            This is sort of stuff already happens.

            Pistons for Ferrari’s engines are developed by Mahle. Its turbo is developed by Honeywell. The KERS is developed by Magnetti Marelli. Brakes by Brembo. Other mechanical components come from OMR, NGK, and others.

            Do you really think those companies are going to share their genreal ledgers, which are considered trade secrets, with the FIA? Not a chance. And without such information, the FIA would have no choice but to accept the value of their contributions as declared by Ferrari and paid for by the team’s commercial partners.

          • Mike (@mike) said on 5th May 2014, 4:15

            it’s perfectly legitimate, and nothing can be done about it.

            Clearly if a cost cap where introduced this would not the case. Either because a) It’s blatantly cheating the rules or b) because the smart people who work out the cost cap rules would be aware of this and write it accordingly.

            share their genreal ledgers, which are considered trade secrets, with the FIA?

            Yes, because that would be a requirement for them selling their parts to an F1 team. Which they want to do because not doing so would lose them money.

        • bull mello (@bullmello) said on 4th May 2014, 17:09

          @pmccarthy_is_a_legend – said: “Now @bullmello asked me to explain how the penalty system would work in a blog comment which is quite unfair and disingenuous in my opinion. Of course I won’t be able to go into details here, but yes penalties could be in the form of further reduction to budget the following season, points deduction in the current championship etc.”

          Thank you for the reply. It’s not unfair and certainly not disingenuous to discuss a what kind of penalties may or may not work for a proposed budget cap. We are, after all, discussing an entirely hypothetical situation in a discussion forum. You are claiming emphatically that a budget cap will work and I’m asking how. The whole issue is hypothetical, especially since it is unlikely the richer teams will ever agree to any budget cap agreement with teeth in it anyway. Remember the last anemic attempt?

          Regarding your penalty suggestion of points reduction in the current championship, that is the kind of thing I’m talking about that could tear the sport up and take away on track results by moving them to approval by accountants, then to the FIA court to appeal. At least now the FIA enacted penalties are for violations taking place on the track in the arena of racing in the form of driver penalties for infractions and technical infractions like the Red Bull fuel meter issue. Accounting violations penalizing fan’s favorite drivers and teams by taking points away after the fact would cause turmoil and cause fans to give up on F1. People don’t want to see bean counter racing, they want to see auto racing.

          @pmccarthy_is_a_legend – said: “@bullmello I am sorry if your intelligence has been insulted that’s not my intention but a lot of people buy into the idea of the budget cap being impossible to enforce without really thinking it through and that’s understandable because it is a complex subject.”

          On the contrary, I think it is you that have not thought this through. You insist that the budget cap will work, but you don’t want to explain how you think it could be implemented with regards to penalties or even the complexity of the forensic accounting involved to really comprehensively involve all aspects of F1 team’s financial dealings.

          Let me try another tack in this discussion. I believe the budget cap will not work because it operates from the premise of negative reinforcement. It would promote accounting competition, not racing competition. Everything F1 does should be about racing. What are my ideas about fixing F1 financially and promoting better racing?

          Get rid of Bernie the crook and fix FOM to distribute funds in a more equitable manner to benefit all teams and grow the sport. How can the sport require the teams to be fiscally truthful while the figurehead of F1 himself is known to be unscrupulous? The additional funds teams would fairly receive would go a long way to improve the finances of all teams, especially the struggling ones.

          Better technical regulations to promote racing and help to limit spending without making a spec series.

          Why does Ron Dennis say, paraphrasing here, if F1 is too expensive get out. Why is Carl Haas attracted to F1 even though the deck is essentially stacked against him? Because F1 remains the ultimate in auto racing.

          The budget cap is not the answer to F1 teams spending too much without getting results. Success and failure is the answer, regardless of how much teams spend. Look at how much Ferrari and McLaren spend compared to their results over the past few years. How have smaller teams produced decent results while spending less? If spending guaranteed success, then maybe a budget cap could work, but it doesn’t.

          • PMccarthy_is_a_legend (@pmccarthy_is_a_legend) said on 4th May 2014, 17:26

            I don’t know why you seem to think that a budget cap AND better distribution of funds are mutually exclusive. They are not. Please see my comment above about it, i won’t repeat myself. Unlike you, who seem absolutely convinced that a budget cap won’t work despite all evidence to contrary, I did not go as far as say emphatically it will work. What I have been trying to say all along is simply that there are many good reasons why it can/could work. And I have outlined these in previous comments.

          • PMccarthy_is_a_legend (@pmccarthy_is_a_legend) said on 4th May 2014, 17:27

            @bullmello

          • bull mello (@bullmello) said on 4th May 2014, 17:40

            @pmccarthy_is_a_legend – I do not think they are mutually exclusive. Simply, I think the budget cap is a bad idea. Better distribution of funds is a good idea regardless of anything else.

            One thing I think we can agree on is that the budget cap will never be enacted given the current situation politically with the FIA and the teams.

        • The Abbinator (@abbinator) said on 5th May 2014, 23:38

          The simplest and only fair way to judge anything is to hold the parties responsible to the spirit of the rules, whether they are in technical compliance or not. As entrants in the FIA championship, they should be subject to a ruling on unsportsmanlike behaviour. Simple as.

    • mateuss (@mateuss) said on 4th May 2014, 14:30

      Budget cap is the only way to go.

      All the rest of “feel good” solutions mostly have two results: F1 gets closer to becoming a spec-series or some part of the operation gets squeezed, not resulting in overall decrease in spending, but a bulge in a different area.

      An F1 type spec series might not be a bad thing, but by the very definition F1 is not such, AND we already have multiple open-wheel single spec series, GP3, GP2, Formula Renault 3.5 and others. (Personally I have never been interested in such racing categories, but I would follow one more often if they had cars that had 2500hp, fat tyres, DF fans, ground effect, other ridiculous things like that and other high-tech.) But I don’t think FIA would allow Formula 1 not to be Formula 1 (top category).

      Though some of the “cost cutting” measures have had the effect of decreasing costs in some R&D areas or in race weekends, they serve no purpose whatsoever in dealing with the problems. Team budgets have not gone down (and why would they), and the disparity between teams is bigger than ever. All the other “non-budget-cap” measures may help the “poor loosers” stay or enter F1, but they do nothing to increase competitiveness or decrease top budgets or the disparity.

      I have not yet read a coherent reason why a budget cap is impossible. All I’ve heard is: It’s a bit difficult(not an argument, try harder), things would have to change (that’s the whole point), people cheat (that’s why we police all the other rules, this is no different), FIA would have to police the teams (well, obviously), there is no mechanism to police such rule (because there is no rule in place, make up a good mechanism), some teams don’t want to (they are not being held hostage, bye, bye) and other nonsense.

      It is obvious that it is only the representatives from the two teams with sponsorship from narcotics companies (not FI) a team with “lack of downforce” and one or two others, that put forward this view, that it “is impossible”. Quite a coincidence that they are also strongly against it and stand to loose an unsporting advantage, don’t you say?
      And all the people who are campaigning for it and dismiss the Truth of the impossibility of a budget cap are just unfortunate fools, wasting their time, put in charge of multi-million international organisations and companies, aren’t they?

      Here is my rough idea of a budget cap:
      The rule at a glance:
      Teams that sign a contract to be in F1 also sign for a deal of total transparency on all money related “stuff”. Including transparent operational bank accounts, open doors to FIA personnel at any time, monitored internet traffic etc.

      X amount for “factory” operations (including the purchase of supplied parts expect engine parts), Y amount for engine purchase.
      X1 amount for engine R&D and build. Engine manufacturers operate under the same cost rules, as if they were separate race team.

      Any outside supplier of car parts, raw materials, factory equipment, race equipment, garage equipment, and other car, factory, garage related technology must send out the exact details, blueprints, all specification, price of the said item to all teams and the FIA four weeks before any of the materials and parts, or three months before the factory equipment can be delivered and unpacked in the factory. The supplier has to be ready to supply the item to other 10 teams if they wish to, at the same price, for a period of a year, on the date the said notice period expires if the order has been made within two weeks of the time the notice was sent out, or within the notice period minus two weeks if later. If the supplier cannot manufacture and deliver the item within the before mentioned notice periods minus two weeks, then the period has to be extended.

      No information can be bought or received by the teams for parts to be manufactured or further developed in the factory. R&D has to be done in the factory, with every virtual iteration of design needing an virtual FIA time stamp.
      Policing:
      The cars will be laser scanned and X-rayed to build a 3D model to be compared with the database of designs and supplied parts.
      Random technical,factory checks and financial checks will be performed by skilled FIA personnel.
      Penalties:
      For any and every unauthorized part discovered in the factory, one race ban. For any and every unauthorized part discovered on the car, DSQ of the race weekend and a further one race ban. For a systematic noncompliance with the rule, a one year ban.

      This is a rough idea of how I would do it, if I was in charge of the FIA

      • PMccarthy_is_a_legend (@pmccarthy_is_a_legend) said on 4th May 2014, 17:04

        “I have not yet read a coherent reason why a budget cap is impossible. All I’ve heard is: It’s a bit difficult(not an argument, try harder), things would have to change (that’s the whole point), people cheat (that’s why we police all the other rules, this is no different), FIA would have to police the teams (well, obviously), there is no mechanism to police such rule (because there is no rule in place, make up a good mechanism), some teams don’t want to (they are not being held hostage, bye, bye) and other nonsense.”

        Simply put and couldn’t agree more. @mateuss

      • Ben (@dysthanasiac) said on 4th May 2014, 17:29

        @mateuss

        If you think teams will voluntarily hand over blueprints/specs/whatever to other teams, I’ve got some great seaside property in Switzerland that I’d love to sell to you.

        • mateuss (@mateuss) said on 4th May 2014, 17:53

          Not the team’s own designs, but the supplied parts. That solves the problem of teams setting up separate operations for R&D.

          Why would someone like Xtrac for example be bothered about giving info on their gearboxes to the teams? (with confidentiality agreements obviously) And most high tech and industrial equipment companies patent their designs anyway, so there is no real world problem for the suppliers.

          Teams would have to do the clever trick bits in-house with the R&D costs taken from their own budget or others will have access to the parts as well. This makes trying to circumvent the budget cap pointless.

          • Ben (@dysthanasiac) said on 4th May 2014, 19:20

            @mateuss

            Well, Mercedes High Performance Engines is a supplier to Mercedes AMG Petronas, and I highly doubt the Brixworth company would be willing to share anything with other teams. So, what then? Would you have MHPE’s suppliers disclose information? Had IHI, MHPE’s turbo supplier, been forced to share the schematics of its design, both Ferrari and Renault would have easily figured out that the team would be running a split-turbo layout due to the presence of a long, precision-machined shaft to connect the turbine to the compressor. I can’t imagine that would sit too well with anyone.

            Believe me, I can understand and appreciate the desire for a budget cap, because it’s a great idea in an idyllic world. But, since we don’t live in that world, the only way to bring down costs is to standardize components, which sucks, because that’s not what F1 is supposed to be.

          • mateuss (@mateuss) said on 4th May 2014, 20:25

            I specifically mentioned how engine suppliers would be dealt differently to all the other suppliers. They would have their own cap and would be regulated and policed as a team. Read my comment.

            I am still not hearing any arguments of why it is impossible. And here is the other thing: if one entity is not compelled to be there as a supplier, they don’t have to be, its called a free world.

            And the only way you are going to affect the budgets by standardizing parts is if you standardize ALL of them, but we already have GP2, but there is this other wish for an innovative constructor series. If teams wanted they could get FIA to run F1 to GP2 rules, but they don’t.

            Oh yes, we don’t live in idyllic world, thanks for informing me. I’ll stop improving anything I was at this very moment, what’s the point… it’s not like its going to get any more close to an idyllic world by making it so, step by step with methods and tools proven to work…

          • Ben (@dysthanasiac) said on 5th May 2014, 2:07

            @mateuss

            “I am still not hearing any arguments of why it is impossible.”

            Let’s start with your idea about forcing suppliers to offer components to all teams at the same price. If I’m a smaller team, and I have access to the same parts and practices as the larger teams, I’m going to buy as many of them as I can afford. It just makes sense. But, in the process, F1 becomes IndyCar Europe.

            More likely is a scenario whereby suppliers post their wares at astronomical prices and with such specialized specifications that they’re only suitable for their intended customer. In order to redress such imbalances, they’ll offer their customers “disposition rebates” at the end of the season. The teams’ corporate parents will post such payments under the generic heading “income” just like they do for everything else.

            Speaking of which, have you ever looked at financial report from any company, public or private? If not, I highly recommend it. From the UK’s Companies House, you can buy such reports from every F1 team based in the country. You’ll see that nothing is as itemized as you’d like it to be. Income from all sources is pooled together as “Income.” Expenditures are sometimes listed as “Capital Investments” or “R&D,” but never more specific, as those data are considered trade secrets. For that reason, moves by the FIA to require such more illustrative reports will likely result in many teams simply leaving the sport altogether, especially those at the top with large corporate parents, because you can’t be competitive in business if everyone knows exactly how you conduct yours.

            Teams would also have the option of simply transferring their articles of incorporation to a business-friendly country like Switzerland, Luxembourg, or The Bahamas. From there, they can just flat-out lie about their expenditures with no fear of punishment because authorities would have no access to the team’s records.

            Ecclestone has promised to pay a bounty to anyone who reports wrongdoing under any budget cap, but he knows just as well as anyone that reliance on such disclosures is a dream. Spending more money than is allowed in a sport isn’t illegal, therefore whistleblowers would have no legal protection from lawsuits stemming from the release of data that would surely constitute a breach of a non-disclosure agreement.

            I once asked someone who works in the (F1 racing) industry as an accountant if a budget cap would be tenable, because I can’t understand why it keeps being brought up. His response, and I quote, “It would be neigh on impossible.”

            The FIA knows it, too. That’s why we saw a raft of components proposed for standardization last week, as it’s the only effective way to cut costs. I fear it will amount to the death of the sport, but oh well. For some reason, people have it in their heads that F1 teams need to stand on equal footing. It’s weird.

          • Mike (@mike) said on 5th May 2014, 4:22

            You know it’s in the suppliers interest to sell parts to an F1 team right?

            people have it in their heads that F1 teams need to stand on equal footing. It’s weird.

            in terms of more than four teams being able to compete? Yes i would like that.

          • BasCB (@bascb) said on 5th May 2014, 9:00

            I see a lot of comments that just show a lack of knowledge of accounting, and cost control / distribution.

            For example

            More likely is a scenario whereby suppliers post their wares at astronomical prices and with such specialized specifications that they’re only suitable for their intended customer.

            from post above. This is not going to happen. Because the mechanism to keep that in check is already being used (started with the engine supplies for the V8). That is the oldest trick in the book and its easily countered by having the FIA (in the case of F1, market regulator in wider world circumstances) check the grounds for making an unreasonably (high or low) price from their customers/would be customers. This exact mechanic was used in a whole boatload of cases with tech-transfers of patented things between all over the world.
            Thing is, trying to cheat a bit for more profit is not as bad for share-holder value as cheating to win in a sport.

            As for the proposals from the bigger teams last week – they are more like the big teams trying to “buy over” the smaller teams because they fear having to adhere to a budget limit than any fear of how to police.
            Just think about it, would RBR, Ferrari and Mercedes really protest as much if they were signing up to something that would NOT threaten to take away them essentially “paying to win” by using far more resources?

            Hiding stuff by having cost/resources transferred to sponsors is not all that easy either, because most of those sponsors themselves have to adhere to international accounting standards, and can even find themselves prosecuted on criminal charges if they falsify records (which they would be doing if they do not include details of such a deal), so those would be the easiest for the FIA to find out about. And if there is a budget cap, the FIA can mandate for teams to file their accounts with a reliably authority like the UK-Companies house. Switzerland and Luxembourg are as reliable in this accord – they share data with the EU and US authorities to keep some level of bank anonymity.

    • JCost (@jcost) said on 4th May 2014, 14:33

      @pmccarthy_is_a_legend the thing is, F1 needs the development race and existing restrictions are already protecting those who strike gold at first attempt (Mercedes this year) because other take much more time to climb the mountain dud to lack of testing and like Ron Dennis said, if you cannot afford F1 you should try something else.

      A good fix would be better money distribution, I just don’t think a restrictive cost cap will improve the sport at all. Cut 40-50% of Mercedes, Ferrari, Red Bull or McLaren budget? It’s almost like telling Apple, Samsung, Sony and HTC they need to respect a mandatory budget to develop their competitive products…

      • johnny stick said on 4th May 2014, 15:39

        JCost I completely agree. The best near term solution would be to better redistribute the wealth from the prize money while the cost cap is further studied. Let the top teams spend more of their own money and give the financially challenged teams enough funds to compete. Just having more FIA funds given to the poorer teams may even help bring them additional sponsors.

      • PMccarthy_is_a_legend (@pmccarthy_is_a_legend) said on 4th May 2014, 17:00

        @jcost

        I think it is not so much as F1 “needs” the development race, it is more that the development race is an attractive aspect of F1 that we have grown accustomed to. I totally agree with you as far as the money distribution goes. The current commercial structure of the sport is nothing short of an aberration and it definitely needs addressing too (don’t get me started on that!). But better distribution of the money and a budget cap are NOT mutually exclusive. Yes we want both. With both in place, hey God forbid, some teams might even start making a profit! And once others start to see that you can be relatively competitive in F1 AND make a profit them that becomes more attractive to new entrants. A stronger field means better racing, which is what me, you and every F1 fan wants. Remember Bahrain this year, that was exciting wasn’t it? Why? Because there was great racing, that’s why.

        • JCost (@jcost) said on 4th May 2014, 21:16

          @pmccarthy_is_a_legend Indeed. Maybe more money flowing into small teams will keep them in the fight better than try to force an elephant to eat like a springbok. If rich teams need more money, then they can dig their own pockets.

          FIA can add their “spec” parts to slow down spending but they would ruin the sport if they transform F1 into GP2.

  3. bull mello (@bullmello) said on 4th May 2014, 4:20

    Furthermore…

    @pmccarthy_is_a_legend – said: “This nonsense about it being impossible to police such a system is just that, nonsense. And people eat it right it up, its incredible. It is a powerful minority who is against it, and they are doing a good job of convincing everyone else, fans included.”

    Sometimes your words border on insulting the intelligence of other F1 fans with whom you disagree. There is no powerful minority influencing my opinion about this or anything else. Quite capable of making up my own mind and as a fan of F1 since 1965 I have come to my own personal conclusion that this method of cost reduction would be detrimental to the sport. Good race results on the track while spending less money than your opponents is its own reward. That is positive reinforcement. Penalties after the fact for spending too much in an extremely expensive sport is negative reinforcement and destined to fail.

    • JCost (@jcost) said on 4th May 2014, 14:35

      Couldn’t agree more.

    • Mike (@mike) said on 5th May 2014, 4:23

      Penalties after the fact for spending too much in an extremely expensive sport is negative reinforcement and destined to fail.

      Under that logic, would we have rules?

      • bull mello (@bullmello) said on 5th May 2014, 5:13

        @mike – The rules now pertain to what takes place on track, not in accounting ledgers.

        • Arthur Andersen said on 5th May 2014, 9:37

          @bullmello why are you so opposed to a cost-cap that you’re willing to manifest all manner of extremely irrational, overly emotional but logically-fallacious objections to it?

          Red Bull fan?

        • Mike (@mike) said on 6th May 2014, 5:52

          @bullmello

          The rules also pertain on how you can make the car.

          If Mclaren were found to use exotic and expensive materials for their engine, they would be penalized. This is the exact same scenario as you provided. That’s negative reinforcement is it not?

          So should we scrap the rule?

          A direct comparison is when Sauber got penalized after the fact for have angles on their wing that was not correct. Was in Australia, possibly 2009 I think.

          Should we scrap the rules on wing angles?

  4. GB (@bgp001ruled) said on 4th May 2014, 7:15

    i think this is the first time i
    agree with Keith about the best caption: a trully great caption!!!

  5. Diego (@ironcito) said on 4th May 2014, 7:28

    A budget cap is unenforceable, as others have said. Even without malicious intent from the teams, there are things like economies of scale, overlapping research and shared costs. Many (all?) of these teams/companies also develop stuff for other formulas, for sports cars, etc. There would be a lot of gray areas. Say that the electricity bill arrives at Maranello, what part of it is from its F1 operation?

    Furthermore, even if it did work, I believe that it would cause a brain drain from F1 as a whole. Teams would be pressured to pay as little as possible to their employees (I assume that salaries would be included in the cap) to free up money for other things, so it’s likely that talented individuals would eventually move on to higher paying jobs elsewhere.

    • anon said on 4th May 2014, 13:27

      I wouldn’t say that the ‘brain drain’ is so much of an issue as the indication from those involved in motorsport is that the salaries that F1 teams pay aren’t that much higher than in other motorsport sectors.
      Most of the pay goes to a few high profile designers (e.g. Newey, Oatley etc), with the average designer getting about the industry average for the automotive sector. If anything, some designers might be financially better off in the US, particularly in NASCAR, rather than in F1.

  6. Toxic (@toxic) said on 4th May 2014, 8:20

    The budget cap is not the problem. The problem is the cost of F1. You can force as many caps as you want but if FIA will keep changing the rules every year we will never get there. How many rules have been changed from 2008?
    There is only one solution to this problem. Leave F1 alone. Don’t introduce any changes to technical regulations all the time. If they were stay the same for 5 years the costs would have to go down. Of course it would be more difficult to get that extra tenth or so which would increase the cost but at least the teams would know where the costs go into. The changes to the rules are the biggest spend out there. With stable regulations the cost of different parts would have to go down and teams could spend more on performance rather than manufacturing new solutions every year.

    • DaveFLO said on 4th May 2014, 19:37

      You could never have a stable set of regulations for a 5 year period because new technologies come about, Teams find areas of development & the FIA will need to change things around that.

      Until this year’s engine changes most, If not all the other rule changes between 2009-2013 were changes to either improve safety (Lower Noses) or to ban things which were adding to costs due to the amount of development been put into them (Blown diffusers for example).
      F-ducts were banned but that was a FOTA agreement & nothing to do with the FIA.

      Had the FIA changed nothing between 2009-2013 the costs would not have gone down as teams would still have thrown all there money into developing areas like blown diffusers, Hot blowing, F-ducts etc….

      Also worth noting that between 2005-2008 the rules remained stable (Apart from moving to a spec ECU for 2008) & costs went mental during that time as teams threw everything into finding any performance gain no matter how miniscule. Its why things like flaps, winglets, dumbo-ears & those silly BMW tower things started sprouting up everywhere.
      They added miniscule gains but cost a fortune to develop.

  7. AlexT (@alext) said on 4th May 2014, 9:05

    Spending money is really good for the economy around Formula 1. Spending money means demand, work places, development of technology. I guess the smaller teams should just do a better job, attracting sponsors, selling intellectual property to road car use, like williams is doing. I guess Real Madrid affords to buy good, expensive players because they win competitions, because they created a product and sold it well. Thats competition and if you want to stand out you need to do the best job. What would be the point for Mercedes to have so much experience with cars, to have all those good people working if they would have the same budget as Marussia? We already have lower categories with a level playing field.

    • Tifoso1989 (@tifoso1989) said on 4th May 2014, 10:00

      I guess Real Madrid affords to buy good, expensive players because they win competitions

      Real hasn’t won anything international since 2002, in the last decade they won 3 times the Liga and 2 times the Coppa del Re and i don’t think that with those national titles any team could afford buying Cristiano for 93 million Euro ,Gareth Bale for more than 100 million Euro Kaka for 68 million Euro…. Real, Barca, Osasuna and Bilbao for obvious reasons are not considered by the Spanish law as enterprises like the other clubs,they’re still considered as non lucrative associations (the law was introduced in 1990) and as a consequence of that they don’t pay taxes.
      You will wonder how then Real is buying players ?? It’s simple loans, whenever Perez wants to buy a player he get a loan from the generous Spanish banks. Real and also Barca are still having millions of euros of debts to the Spanish banks who actually have no power to force them paying.

      • craig-o (@craig-o) said on 4th May 2014, 10:53

        Real have made some absolutely useless transfers over the years, like Kaká and Modric. Compare that to say Toyota F1, who apparently had a budget similar to Ferrari, yet all they achieved between 2002 and 2009 was a handful of podiums and a few pole positions. Some teams are more effective with what they spend compared to others. That’s why I’ve always had respect for Sauber, for usually bringing a car capable of podiums on a budget which is nowhere near the big boys.

        Just like in business, you need to spend money to make money, but you have to spend money effectively.

      • AlexT (@alext) said on 4th May 2014, 13:25

        Ok, maybe Real Madrid isn’t the most fortunate example, but you got the point. They wouldn’t be Real Madrid if they would have players worth 500.000 pounds instead of 100 million. It adds to the show . The point i was trying to make is that if Formula 1 is a economical entity and everything can be governed by books and through accountancy, then i guess they can take bank loans, guarantee with what they have, invest, get better results, make more money, pay them back… What Craig O is said is also true you need to spend money effectively. Everyone starts small but with hard work and good management you end up big.

  8. Robbie (@robbie) said on 4th May 2014, 12:50

    More and more I believe that cost caps will only be deemed important or necessary if/when F1 is truly in trouble. So to me F1 can’t be in trouble. When you have basically the ‘have’ teams in a group voting out cost caps while the very teams that need the cost caps to become relatively more competitive aren’t in the group and get no say, there’s too much of an imbalance there.

    The big teams can obviously afford F1 and see no reason to help the lesser teams become more competitive. The big teams with money, if restricted from spending it in certain areas, will only spend more in other areas, because they have it to spend.

    F1 will have to be collectively in trouble, or collectively want lesser teams and new teams to be more competitive, assuming they deem that is what would help the sport, in order for there to be real change in how F1 works from the costs aspect.

    Big teams have shown they don’t even need a major sponsor to survive, while the teams crying for cost caps have to hire drivers only there for their money. That’s not a big enough dicotemy yet, or cost caps would actually be a much bigger issue and not one that keeps getting bantied about only to be re-swept under the carpet.

    ‘Where there is the will there’s a way’ and ‘Necessity is the mother of invention’ are a couple of sayings that come to mind, and right now F1 is doing well enough that the will is not there, nor the necessity, for figuring out capping costs in F1.

  9. Velocityboy (@velocityboy) said on 4th May 2014, 17:28

    The budget caps discussion seems rather silly when one considers that the proposal for customer cars was shot down. How better to ensure that smaller teams can race cheaply and competitively than to have them purchase an entire car from a big team? As there is a constructors championship, the team that built the car would have an additional source of points towards that championship so there could be an incentive to sell cars and even if they are dumbed down a bit, it would be better and cheaper than the small teams designing their own. Additionally the FIA have ruled several times that teams can not get a title sponsor for each car, which again seems contrary to the idea of helping smaller teams with a limited budget. Minardi argued for the right to have a title sponsor for each car saying ti was easier to find a sponsor to give 50 million than 100 million and the FIA rejected it. Others have argued the same point and been shot down. So I would say that rather than trying to come up with a system that would likely be very expensive and unenforceable, there are other ways to address the problem of the smaller teams not being able to compete with the bigger ones.

  10. Sauber (@mumito) said on 4th May 2014, 17:50

    Come on guys! Nobody expects Sauber to be WCC. Not even Monisha! But we do expect some kind of justice. Whats the difference in prize money? Nobody expects Caterham cashing the same check as Ferrari, but…..9 times??? RedBull Earnings where around 1 M. Yes…they invested near 300 M to make 1M. Ferrari economics are a little bit better. I’m OK with that. Their big revenue is exposure. But what happens with FI? Toro Rosso??(Do not forget we have 11 teams only because RedBull uses TR as a guinea pig. The big 3 (RB, SF and MB) needs the rest of the grid. Look at once Big Teams….Williams…yes they’re in good shape today….but after a terrible period. Lotus….The promising 2012 and 2013 turned into the need of hiring Maldonado over Hulk.
    If you still think everything is OK…think twice. Only 4 teams have chosen both drivers. The other 7 survives with “the lesser evil” this is…choosing the best pilot among the ones buying a seat (MAS, MAL, PER, GUT, SUT, CHI, KOB, ERI etc). Even young drivers test are being sold for half a million.

    The time of taking care of illness is when you can do something about it.
    Tomorrow It may be too late. 5 teams 4 cars each. That’s where we are heading.

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