Chase Carey, Autodromo Hermanos Rodriguez, 2016

Financial doping: Why Liberty’s budget cap idea is doomed to fail

CommentPosted on | Author Keith Collantine

Liberty Media took a major step towards becoming Formula One’s new owners yesterday as the FIA formally approved the change.

The American media giant has already indicated its plans include greater use of digital media, hosting more races, increasing sponsorship and growing the sport in new markets. Expanding the calendar aside, there’s not a lot to take issue with there.

But what about the pressing question of how to make the F1 field more competitive given the huge difference in wealth between the front and rear of the grid? Here Liberty’s plans could be described as optimistic at best: they’ve put the idea of a budget cap back on the agenda.

Start, Interlagos, 2014
F1 grids have dwindled
A budget cap has been pushed on several occasions over the past decade and was last dropped three years ago. The theoretically simple idea of capping how much each team can spend has an undeniable appeal. But is it a realistic solution? Surely not to anyone familiar with a few of the biggest headlines from the past 12 months.

Let’s begin with the automotive industry, which throughout 2016 continued to feel the aftershocks of ‘Dieselgate’. Volkswagen Group, whose brands include Audi, Seat and Skoda, was discovered in 2015 to have been cheating on their emissions test for years.

Their means of doing this a piece of cunning, F1-esque engineering. Volkswagen Group’s diesel engines were configured to detect when they were in a testing environment rather being driven on the road. This done they would alter their settings accordingly, producing reduced emissions for the benefit of the test which were around 40 times lower than the cars created on the road.

Meanwhile in the sporting sphere, Russia’s systematic evasion of anti-doping rules for its athletes displayed similar cynicism and ingenuity.

Supposedly ‘tamper-proof’ urine sample bottles were re-engineered so they could be defeated. At the 2014 Winter Olympics, held in Russia, bottle of contaminated urine were exchanged for clean ones via a secret hole at a testing laboratory. The home team duly swept the medals table.

Nelson Piquet Jnr, Renault, Singapore, 2008
Grand prix racing has not been scandal-free
These two cases strike close to home. That laboratory was in Sochi, home of the Russian Grand Prix. The Dieselgate net has already spread wider, ensnaring Mitsubishi, and may yet claim two F1-linked manufacturers: Renault plus Ferrari owners Fiat/Chrysler.

It would be comforting to believe the participants in our favourite sport would be above this kind of behaviour. But Crashgate, Spygate and the rest have taught us not to be so naive. Don’t believe your favourite F1 team is above breaking the rules? Remember how beloved Lance Armstrong was before we all knew about EPO, Andriol and the rest.

Some would dismiss these as being irrelevant to Formula One: Isolated cases of wrongdoing in specific and very different circumstances. But that would be foolish. The lesson we should learn is that cheating is inevitable when the reward is high enough and the obstacle is low enough.

Dieselgate and the Russian doping scandal demonstrated how the financial or reputational gains of winning was sufficient incentive for participants to go to great lengths to outwit the technological obstacles to cheating. Formula One offers a similarly high reward. And with a budget cap the obstacle to cheating would be so low you could trip over it.

Compared to doctoring a urine sample or designing a car which knows when it is being tested, hiding undeclared expenditure is a trivial matter. Motor racing history is replete with examples of manufacturers developing top-secret projects.

Ford GT, 2016
The Ford GT was a top-secret project
Only a dozen people had access to the room the Ford GT was built in. Mercedes’ Indy 500-dominating 1994 engine was designed in a truck rental facility away from the race team, most of which did not know about it. These all became public in due course. But what if a less scrupulous organisation wanted to keep them a secret to avoid the cost being counted?

A car manufacturer wouldn’t even need to go to these kinds of lengths to beat a budget cap. We are talking about companies whose research and development budgets dwarf even the cost of running an F1 team. F1-applicable hardware could easily be developed within them under the auspices of road car research, unconstrained by an F1 budget cap. Think how often are we told about the ‘road relevance’ of Formula One technology. Defeating a budget cap therefore becomes a matter of shunting figures around in a spreadsheet.

There are plenty of other reasons why a budget cap wouldn’t work. To them we should add this point: the creation of a budget cap will also be the moment ‘financial doping’ comes to F1.

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89 comments on “Financial doping: Why Liberty’s budget cap idea is doomed to fail”

  1. It seems simple enough to me – spread the WCC winnings such that the team in last place has enough to actually survive.

    1. The way they distribute money now is tantamount to giving championship teams in NHL or NFL etc. first pick in the draft. It breeds disparity and it makes in impossible to catch up. Your suggestion should be first on the docket.

    2. It’s so blatantly obvious which is why the new owners are so quick to divert the topic to cost cut instead.

    3. And take away the standard money ferrari gets just for being ferrari!

      1. Yep …..Liberty are clearly intimidated by the huge financial clout of Chrysler/Fiat/Ferrari and
        the other really big shout, Mercedes. I’m pretty sure Liberty know what the only real answer
        is, or should be, but haven’t the nerve to tell these giants the free ride is over.

        We all know the money should be evenly distributed, that every team should start each season
        on the same income from the sport itself, but Liberty just daren’t tell the big boys the party is over.

        Every day a little more of my enthusiasm for F1 seeps away……..

  2. My suggestion is 2 words:

    Draconian punishment.

    1. Which can only happen if wrongdoing has been proven. This article explains why that is next to impossible.

    2. Due to varying standards between different international accountancy standards (not an issue in most places which practise budget caps, as they are in a position to define which one will be used, but the EU requires a choice of any allowed by a given state, and different states have different ideas of what standard(s) are allowed)*, it could take up to 2 years after the awards are handed out before a fair comparison between team budgets and expected FIA standards (presumably the French standard, since it’s based there). Some of the jurisdictions need court approval for investigations to result in any sort of enforceable penalty, on pain of the FIA getting a counter-suit from the relevant nation and/or the company being investigated. And the shortage of forensic financial experts is such that it would probably take 2 years after the relevant accounts are revealed for even the shortest investigation able to stand up in a court to be completed. So, you’d be waiting 4 years after the trophies are given out for the attempt to disqualify and throw the book at a competitor.

      Note that after the trophies are awarded, the FIA is forbidden from revoking them, and with such a long time frame, a manufacturer would likely have been, prepared for domination, had the domination streak and left/be about to leave anyway before any penalty was awarded. Not much of a penalty, especially as the FIA isn’t authorised to issue penalties above a certain amount (fines in proportion to actual damages, ban for a specific length of time not exceeding 5 years) due to being subject to national law.

      This is one of those rare rules where compliance is more difficult and expensive than cheating.

      * – For reference, that means there’d be accounts made up to British, American, Italian and Swiss standards for the main companies, and potentially other ones elsewhere for related accounts (definitely Austrian for Red Bull, German for anyone using Mercedes gear, French for anyone using Renault gear, and probably every country Vijay Mallya has commercial interests in). No company cluster as complex as a F1 team would get the same figures from any two of these standards.

      1. I can’t imagine there are many teams (or parts/subsidiaries/suppliers of a team) not reporting under IFRS/IAS (perhaps Haas using US GAAP?)

  3. @jodrell

    I am an accountant so I think equal income distribution is much better than a buget cap. A budget cap is certainly needed but too easy to get around with value shiftiing just like major corps like Google do (it costs x here, but you (other Google) buys for Y to shift income to lower tax bracket.

    Doesnt ELP get equal income distribution?

    1. Guess why the people who are handling the money are so interested in telling you you need less of it. It’s pretty simple. If they force the budget cap, everything above it goes to them, and they will just keep reaping more and more each year. If they opt for equal income distribution (which much better for the sport), it is likely that they will end up with much less money for themselves, and they sure don’t want that. Think about it. The whole company creates absolutely zero value. They’re in the business of making money from someone else’s hard work, and with that kind of mindset also comes the greed. If they were ever interested in creating some value, they would be in a different kind of work.

      1. Biggsy, the concept is a cap on teams’ budgets, not an income cap. Would not make any difference to Liberty income unless it benefits the sport (and hence increases their revenue from rights and sponsorship). Your statement is a bit like suggesting your employer will cut your pay if you cut back on household spending.

    2. @evilhomer No. ELP does performance-based distribution like F1, it just has a much lower slope. The last-placed team gets about 72% of the winning one.

      1. True although none of them get paid extra for being around for a long time and the rules don’t keep getting changed because the top teams threaten to leave the sport.
        Imagine if the EPL was F1…….. Chelsea would argue that “you are only allowed to use a maximum of 3 defenders” which would then become law. Arsenal would say “but we only like short passing” so passing the ball further than 5m would be outlawed. Then Man Utd would threaten to quit unless they started every match with a 1 goal lead….

        The money from the sponsors logos on the boards around the pitch would all go to the FA and cup finals at Wembley would be moved to Abu Dhabi. Teams in the lower half of the table would be made up of rich kids who paid for a spot in the team and the coverage would constantly show the advertising boards whilst occasionally catching glimpses of the ball before settling on a CGI “WE LOVE YOU SEPP BLATTER” written in the center circle……

        1. @petebaldwin
          Haha well that’s some vision for the future of football! :)

        2. Brilliant! At first I couldn’t be bothered to read this but the premise is actually true. F1 is awesome now but it needs an overhaul. How good would f1 be if it was run like football?

        3. Anthony Blears
          20th January 2017, 0:34

          COTD!

        4. Don’t forget about switching to shots of Posh Spice with kids dozen times during the match.

          1. we already have that infuriating practice in f1. i really don’t care how the driver’s partner is reacting – ever!

  4. The FIA have failed miserably to keep the costs down over the years. In fact it’s contributed in many ways, hybrid engines, no customer cars and exorbitant fees.

    It’s all down to the way the rules are written.
    The rules should make the playing field as level as possible for all the teams and they do not.

    FIA fail again.

  5. So, we shouldn’t have rules because people will just break them anyway?

    It’s at least worth a shot to help the smaller teams. If it doesn’t work, well they were screwed anyway.

    1. @pastaman Not if the rule is likely to leave them in worse position than not trying anything – and a budget cap is in that category. Instead of leaving the door open to utilising wider company interests that only big teams can use, a budget cap makes them inadvertantly mandatory, meaning even teams that wouldn’t have considered it will do so and leverage a much bigger income than they currently have.

    2. That’s what I thought too. Using this article’s logic, there shouldn’t be any rules about doping in sports because after all, people break them all the time.

      But I agree with Keith that it is impossible to enforce a budget cap in F1.

      1. But the reality is that it’s been proven to be impossible to enforce doping rules on cycling/athletics etc to date. It doesn’t mean that they stopped trying or that doping controls haven’t had any effect in leveling the playing field for clean athletes.

  6. Personally I wouldn’t want a budget cap, Formula 1 is a sport that’s the pinnacle of racing and the top teams are only there because they can spend so much money.
    Because of the massive budgets they also employ hundreds of staff and are able to squeeze every bit of development out of cars.

    I would like to see new teams build up over time and challenge those at the top but I don’t think a cap is the way to do it My, also probably impractical, idea is that the top teams should give 10% of their expenditure to the teams at the opposite end of the scale.

    1. Andre Furtado
      19th January 2017, 14:38

      If you can’t afford formula 1. Leave.

      1. Hi glynh,

        It’s interesting you use the words “pinnacle of racing” because that is what F1 should be but it is not. You see much better racing in other formulae. F1 is more a pinnacle of wealth and marketing and its a shame.

        F1 is also too expensive to be called a “sport” any more, because it isn’t a level playing field. Sure there are other expensive sports but none with the exposure of F1. It’s a competition, yes, one where the winner is the one that can spend the most.

        Lets frame rules which allow competitors to be competitive with off the shelf parts again and make F1 the “pinnacle of racing”, with REAL racing where any team or driver could win. Now that could be called a “sport”.

        1. A few points to consider. F1 is the pinnacle of motorsport there is no other championship that exists where continual improvement is allowed let alone encouraged. Yes racing is closer in other divisions that is true, but put any other racing vehicle up against an F1 car and it will get mullered. The Manor of the back of this years grid is faster than the championship winning car of 10 years ago.

          F1 was described in the 1990’s as “business that becomes a sport at the weekend”. Football teams rack up massive debt, fail, have the debt written off and then re-launch the team. At least in F1 there is a rule; make sure you run the team in a manner whereby you are financially responsible. If you don’t have £30m to go racing for the year don’t sign up. What would be nice to see is the top 4 teams pay £1m a year into a “slush fund” that when a team hits hard times they can have access to. Teams do not go bust every year in F1 so this is fesible even if no one will actually do it. We do need a fairer distribution of funds BUT making sure that companies do not come into the sport just to grab money and then leave again. NFL has had this in the past and the fans in America will tell you how that went down.

          We want companies and teams with a passion for this sport like the fans have.

          1. Hi Ed,
            Points taken, but with the greatest of respect I think your viewpoint crystalizes the problem.

            It depends how you measure the value of motorsport and what determines F1’s status as the pinnacle. You seem to be saying that F1 is the pinnacle because it is the fastest and that F1 cars will muller other cars. And to do this you need to spend at least £30m, but the more the better.

            However it is in fact possible to build a car that is faster than an F1 car at a fraction of the cost, you just need to change the rules a bit (wider tyres and bigger engine and wings. So it’s the rules that are the biggest determinate for speed. Not money spent.

            F1 is talking about budget caps to keep the sport affordable for the lesser teams and not only that, but to allow them to be competitive. As we have read, this is NOT possible, too many loop holes. So no amount of monetary control can work. Not caps, slush funds or differing distributions. The big spenders will always find a way to spend their way to success.
            What is required is a change to the rules pertaining to the construction of the cars so that money has much less of an effect. This is not easy but it is possible and can be the only workable solution to the current CRISIS. The aim should be that a unit or component freely available at a reasonable cost should always give the performance within a few percent of a custom build one. An example would be if a custom engine exceeds the performance of an off the shelf one by more than a few percent, the following season the boost allowed for custom engines is reduced. Therefore a team creating its own components would gain an advantage but only a small one and at a high cost. Also if the rules are designed to favour driver input over technology and aero this would also reduce the effect of money spent.

            This will allow smaller teams to be competitive and attract sponsorship. The best funded and organised teams would still probably win it would just be much closer.

            Let’s have some close, affordable, fast and entertaining racing again.

      2. Technically, on that basis even Mercedes (the highest-spending team) cannot afford it as failed to break even.

  7. A budget cap requires some imagination but isn’t impossible.

    Each team has one F1 registered company and 1 factory/office, everything that isn’t produced on site and paid for by that company must be offered to all teams at the same price. That way sponsors have a choice of giving money directly to a team, or providing skills/components to the whole grid.

    Obviously requires some serious auditing at the office/factory to confirm the origin of all components and designs, but the sport has plenty of money to pay for that if it wanted.

    1. The moment “each team has one F1 registered company” is said, it excludes every team due to structural requirements to get the funds to participate in F1 in the first place. Anything close to being that expensive has to have a parent company as insurance. Further, any team which has any other business whatsoever is generally expected to separate the risky F1 team from that other business. Anything selling components elsewhere has to be separate from the rest of the team (so all teams supplying to other teams – including all engine manufacturers – must have at least two, and often more, separate F1-registered companies).

      Also, very few specialist companies can offer their skills/components to the whole grid at the same time, especially the ones the small teams depend upon to participate. So all this does is ensure no teams can participate in F1. Sorry.

      1. That’s fine, there can be a parent company or companies that goes out looking for sponsorship, gets the funds, does the hospitality, what ever else is likes (anything not directly related to designing and building the car), that company then “sponsors” the company that builds the car up to the budget cap. Engineers and technicians salaries and all the other factory related costs must be paid by the company that designs/builds the cars.

        Yes a specialist company might not be able to supply a service to the whole grid, but provided they offered their service to everyone and allow the highest bidder to sign the contract then that’s fine. If there any changes in their service then they have to offer it out to the whole grid again.

        Under a budget cap there don’t have to be any “small” teams any more, every team can be capped to the same amount!

        1. @samandrew, there are still problems with the system that you are suggesting when you look at the operating structure of certain teams.

          Take McLaren, for example – whilst you have McLaren Racing, which operates the race team, elements of the electronics systems are designed by McLaren Applied Technologies. However, McLaren Applied Technologies is a particularly complex company – that company is responsible for supplying the electronic systems behind the standardised ECU used in F1, as well as manufacturing bespoke elements just for McLaren.

          Asides from that, MAT also produces the standardised engine control units that are in use in NASCAR and Indycar, whilst also producing the motors, transmission systems and ancillary electrical components for Formula E (some of which includes elements of design work which originated in work done for the McLaren F1 team). Individuals often tend to undertake elements of design work across all of McLaren’s activities in that company, so it would be rather impractical to effectively partition them off from each other.

          Keith may talk about intentional cheating, but as teams develop alternative strands to their businesses that feed off their work in motorsport, there is also the question of unintended breaches of a budget cap that could result from undertaking work for a third party that happens to then feed back into work in F1 as a side result.

          Using MAT as an example, knowledge gained from development work which McLaren carries out for Formula E on motors or battery management systems could then, in turn, be adapted for use in F1 – the work would have been conducted for Formula E, but the individuals who worked on that project could then in turn transfer their knowledge and potential design solutions to F1. In those circumstances, McLaren could be acting entirely in good faith and with no intention of cheating, but it could be argued that they would accrue a benefit for their team because of those other activities.

          Equally, no team on the grid has the capacity to entirely manufacture their own car and all of the associated components entirely within house (for example, both Renault and Ferrari subcontract part of the development work on their energy recovery systems to Magnetti Marelli, whilst Mercedes subcontracts part out to Zytek).

          The majority of the teams carry out development work at other wind tunnel sites – the Toyota Motorsport Group facility in Cologne being one, but others, such as Adess, have been involved as well. Often, those third parties will not just undertake aerodynamic testing, but will take an active role in designing aerodynamic components as well – Adess is one such company that does that, along with outfits like Aerolab.

          Even more complicated would be the case of Haas, where you have some components being designed and manufactured by Ferrari (such as suspension components), along with wind tunnel testing being undertaken in Ferrari’s facilities, but other elements of the chassis are designed by Dallara (which also constructs the final chassis).

          Haas also designs some of the components in house, some of which is done in the US and some through a team of engineers which are on secondment to Dallara through Haas’s Italian division – their design work is split over multiple different companies working in entirely different jurisdictions, and trying to narrowly define just one organisation as the chief designers is fundamentally impossible in their case.

          You have a whole host of interconnected companies which have sprung up to support the teams and undertake elements of development work, and you can’t package all of that development work into a single commercial entity.

        2. @samandrew The moment the restriction is expressed that way (as in, the non-primary companies are allowed to do anything at all without offering it to all other teams at the same price), it opens up loopholes that big teams are in a much better position to exploit than small ones (and wouldn’t be picked up on for years afterwards unless the team was careless), thus negating the point of restricting team structures. That is the paradox of the structural approach to financial transparency.

          Ultimately, the only way budgets can be cut successfully in F1 is if all the competitors want to do so – at which point, no rules are required, just guidelines for new teams as to what is and is not considered acceptable among the established ones (to prevent accidental breaches of expectations).

          (The solution proposed for the supplier-limitation issue is interesting, though it would again strongly favour wealthier teams and oppose the point of a budget cap).

  8. If certain teams weren’t given incredible amounts of money simply for turning up, then perhaps those teams spending incredible amounts of money would not be so much of an issue. A budget cap (something which I feel cannot be policed regardless, unless I can be convinced otherwise) is not the solution to this problem.

  9. I’m also going to add to this that part of the problem is that some teams are able to borrow more team than other teams only 3 places behind them can obtain total (including through incurring debt), and that the regulatory structures heavily reward pouring vast quantities of money into incremental improvement in minor areas defined by loopholes (rather than spreading it across vast areas of creative space).

  10. Imposing budget caps on well-capitalized teams like Mercedes, Red Bull, Ferrari and so would force them to fire hundreds of highly-skilled, well-payed, securely-employed people each. It would force the entire industry into decline. (not to speak of the impact on said people and their families.)

    And for what? So that teams that are OK spending at the current levels are forced to take a profit instead?

    1. It’s great that those in the top teams have job security, but what about the people at the other end of the grid? I’m sure the Manor employees are loving not knowing if they’ll be paid at the end of this month.

      If a budget cap makes the sport more competitive, you might see more teams being created down the line, resulting in more jobs.

      1. How many extra $70-80 million per year teams like Manor do you need to make up for all the losses forced on the industry by barring Mercedes, Red Bull, Ferrari, McLaren, Toro Rosso and even Williams from spending money they have and want to spend?

        1. Oh, forgot to list Renault there, too.

        2. It depends where the budget cap is set. It could be set at at Manor’s level (which would limit every other team’s ability to spend), or it could be just below Mercedes’ current spending level (which wouldn’t affect anyone else’s spending), depending on how strict one wanted to be with it.

          If Force India was used as a benchmark (as it’s an upper-midfield team making progress), you could say that it is spending $105 m a year, so perhaps the limit could be set to $110 m for inflation reasons (I doubt any budget cap could be implemented without contract renegotiation, and therefore could not start prior to 2020). It’s difficult to say how many teams would have to pare back at that point, since nearly every team is having to borrow to spend what they are spending. What I can say is that, unlike the present system, every team could have their expenses covered entirely by TV fees, with about $100 m of change.

          If you wanted to ensure teams still had motive to look for sponsorship (and thus not fund the entirety of a budget for any single team), it would be possible to, say fund $90 m through the TV system, ask each team to find $15 m (which seems to be in everyone’s capability, even in a series yet to recover from recession) and have $280 m left over to (among other things) reward engine manufacturers for offering engines (I assume in this system that engine manufacturers would still recover part of their fee from the customers themselves, but be required to charge a moderate amount).

          Force India has 360 people and doesn’t have any engine-making staff. Mercedes has just over 1000 staff and Ferrari just under 1000, but both include engine departments that have customers, so one would assume some of the staff would be funded by that activity. The interesting thing here is that some teams that spend less have more staff (for example, Sauber has about 470 staff despite spending $25 m less than Force India each year). Teams with enough internal investment to design and build more of their own things would, in general, be able to have more staff. There would, however, be more redundancies than hirings unless at least one new team arrived on the scene.

      2. Some of the suppliers are dependent on small teams to fund services to big teams (without necessarily supplying the whole grid). It would be expected for one job loss (be it from a large or small team) to have a knock-on effect of 2-3 job losses in the supply network.

  11. Personally, “one size fits all” is a bad plan. Each F1 team has different strengths and weaknesses, and a plan that doesn’t support that concept is doomed out of the gate.

    I’ve said for several years that one solution (admittedly not bulletproof) is the idea of a “research budget”. Each team gets research credits to spend during a season, and the cost of various types of R&D is abstracted out to “credits”. The lower you finish in the championship, the more credits you get.

    To encourage cooperation among teams, the smaller teams should be able to “spend” their credits at bigger teams– so if Manor wants to run some tests in Mercedes’ wind tunnel (preferably full sized), Mercedes exchanges wind tunnel time for credits– which Mercedes can then spend.

    Ideally, it would also let the teams spend their budget on the items they need– One team might need more aero R&D, one team might need more simulation time.

    This also assumes some cash payout rearrangement to help the smaller teams.

    1. “Each team gets research credits to spend during a season, and the cost of various types of R&D is abstracted out to “credits”. The lower you finish in the championship, the more credits you get.”

      Suffers exactly the same problem as budget caps in general.

    2. I’ve just had a thought that might make this one fixable:

      – FIA issues credits for R&D out (however it chooses to do so).
      – These cover requests for knowledge imported from outside the F1 entity, even if they are from a parent organisation or something (this would require registration of the racing organisation as well as the Concorde Agreement licensee, but that happened under at least one version of Concorde so could happen again).
      – Make it so that requests for knowledge are worth the same as obtaining that knowledge through the same means internally
      – Require explanation for all R&D credit expenditure, and ban any method of obtaining the covered forms of R&D not accounted for
      – In cases of doubt, a committee could assess what it would take for a team to obtain that information itself, and state that the indicated number of R&D credits is to be charged

      It’s not foolproof, but because there are no competing standards of R&D accountancy (as there are for financial accountancy), it stands a chance. Especially since a version of this (covering fewer activities) already exists and does not appear to be being breached. The big problem, that also exists with the current version, is that there’s no clear way of stopping someone who’s committed to conquer and run (revoking R&D credits for the following season is useless if the team isn’t there after they are caught cheating).

      (I’d also be inclined to issue the same allowance of R&D to every team in the interests of sporting fairness).

  12. A budget cap, while seeming to be a nice idea, is neither needed nor feasible.

    Get income distribution sorted, and most of the problems are at least mitigated. My own suggestion would to be to allocate an amount for the teams, then spread half of that equally. Distribute the other half as prize money.

    Without the teams, F1 doesn’t exist, so bloody well pay them for keeping the sport in existence!

    1. @drmouse, Yes, it’s the money being bled out of the sport that is causing the problem which is why no business expecting to make a profit after paying $8 Billion for F1, will ever fix it. But wouldn’t it be nice if a billionaire F1 fan decided to buy the rights and set up a non-profit organisation to run F1 and other motorsports, it could be called something like the International Autosports Federation.

  13. It is more important that all 11-12 teams have a budget which makes them able to run 2 cars without threat of banckrupcy all the time. It’s not that important to limit the budget for top teams, but to make sure every team has the minimum budget needed to race. There will always be 2-4 fast teams, 2-4 middle and 2-4 slower teams. No cap will “fix that”.

    Top team boards will make sure that after they have spent huge amounts of money for couple of years without results, it will eventually stop.

    1. It eventually stops, true (Toyota and BMW stopped theirs after not getting results), though the differing nature of how they stopped (Toyota after 7 approximately fruitless years, BMW after 1 year of unexpectedly bad results combined with recession) makes it difficult to plan for.

      Nonetheless, I agree with your general point. If a top team spends £1 bn, does not impair the ability of any other team to exist or substantially impair their ability to obtain reasonable success*, then that £1 bn is not a problem (and potentially a benefit). A team whose spending does impair the ability of other teams to exist or obtain reasonable success is a problem, and a problem to be solved. (Not all solutions necessarily involve the team spending less, however).

      * – By which I mean “staying with the pack and not being left behind by it all the time”. Once in the pack, it’s essentially down to the team in the pack to find a route to greater success.

  14. I love how much money goes through F1 and yet they feel a budget cap is a more logical idea than distributing the vast income around more evenly….

    1. They need agreement to distribute the money evenly…

  15. do liberty have the guts to enforce budget cap against the biggies?, i dont think so.

  16. Budget cap lol. It is like giving Wolves a lamb to babysit…

    Teams would bypass it with vigor, and in the end we would observe an accounting race. One would bypass resource restrictions better.

    Teams should simply get 113 M for frist spot down to 100M for last spot. That is it.

    Also throw in a clause, the team must be on average within 3% of winning car laptime, every % off pace 20% less revenue.

    Sport has what, 2 billion revenue? Teams should get around 70% or more, but pretty sure from memory they get way less now.

  17. Liberty media should know better, you cannot keep a company from spending money if it wants to.

    In my opinion it would best if FOM money is divided equally: each team gets 1 share, each PU manufacturer half a share, and the tyre supplier half a share.

    You could argue, what is the point of winning then? Winning shouldn’t be about money alone, teams should do it for the sake of winning and the fame that comes with it. Winning will also have financial benefits no matter what. Winners get more TV exposure, more marketing opportunities and therefor better sponsors.

  18. If the cars were simpler you could make it compulsory for all parts to have audit trails (where was it purchased, what material was used, which team member(s) manufactured it) so FIA delegates could select a sample and trace the costs and determine the reasonability thereof. However, the administrative burden on the teams would be huge and they would probably still be able to fool the FIA delegates.

    1. It’s not manufacture cost that are the real issue as far as I can see, but R&D costs. It just isn’t feasible to judge the reasonability of a dollar value placed on an idea.

  19. The idea of a budge cap died way way way before its inception. And I mean way way way way way before that moment. But I would pay the teams in a different way. I would give 25 milions to Ferrari since they are the only team who really fights with the rest and it’s the only real team in Italy. The other one is just a decoy for another team, call it a testing team and nothing more at this point.

    But except that I would award 1 million euros for each title a team has won in the drivers championship but also 1 million euros to the engine manufacturer since there’s a championship for that also. But I would award this 1 million only if the engine maker is still in the competition if not that million goes to the initial pool.

    And based on each team, they would be awarded a number of x millions euros based on their own championship wins :P

    The rest of pot I would split in two sums, 1 sum for the 1-5 places in the constructors championship and the other one for 1-11, splitted in 11. Or 10 depends of how many teams we have in each season.

    Just the 1st five teams should get money at the end of the season since… only the 1st three places matter and the 4 & 5 th place just to have a number. 75, 60, 45, 30 and 15 millions euros 1-5 place. That’s 15+30+45+60+75= 225 millions euros. The rest sum should be around 800 millions of euros or something like that so well 800/11 = 72 millions of euros for each team. This seems the fairest system of payment at this point but it’s also the best one since each team get 70 millions of euro for doing nothing but competing. Which is decent at least. Except Ferrari some will also get some nice money, Williams and McLaren will get some (a lot thou) for their drivers championships won but also Mercedes and Renault + Honda as engine manufacturers will get some nice millions.

    Red Bull since it was powered by Renault will receive only 4 millions since 4 will go to Renault. Williams will get 7 millions of euro for the drivers titles, and McLaren will get 12 millions for the same reason. Mercedes will get 6 millions for the 3 duble wins for these last seasons + 2 millions from McLaren + 1 from Brawn GP and Honda will get 5 millions from the McLaren wins and Renault also 2 millions from their own wins + more from Williams and Benetton? Something like, I am sure we can sort this and see how it works.

    But I prefer also a change to the ticket prices and the TV prices also. I think F1 cam make far more money with cheaper prices and with a better but simpler online streaming system. Even with 1000 millions income, F1 can stay competitive for a long time, helping the teams to fight and survive and whatever in between but what we need is a plan. FIA has no plan or a real strategy behind it and that is the major problem of today’s F1.

  20. What would the function of a spending limit be? Would it be to decrease the expenditure of teams in technological development and thereby increase the closeness of competition on the track?
    How much does it cost to run an Indy Car team?
    What’s the stand-out difference between Indy and F1? Indy is a ‘spec’ series.
    GP2 and GP3 are ‘spec’ series that seem to attract full grids and have plenty of close racing.
    F1 has empty grid slots, immensely complex and arcane technical regulations designed to restrain technological development.
    Would the Manufacturer teams want to compete in a ‘spec’ series. Probably not. But who gives a hoot if the grids are full and the racing is good?

    1. An Indy Car team runs on $10million a year in total…. Mercedes spend over €450million euro’s last year (45x more expensive….) it’s no comparison really.

      Each F1 team designs and builds it own chassis + aero and develops it further constantly. Indy Car teams use spec chassis (same since 2012), semi-spec aero kits and 2.2L V6 twin turbo’s with 700bhp (car weighs 710 kilo’s, roughly the same as F1 but rougly 200bhp less).

      Now the real question is, is F1 racing also 45 times better than Indy Car…..?

  21. It’s so much simple to let bigger teams do what they want and charge some them money when they go above the limit of the rules. Let them run 300000km before the seasons starts. Take that money and give it to small teams. This will allow bigger teams to catch-up and small teams to grow up. This kind of socialism aproach that tries to bring equally through enforcing things down will never work.

    1. It’s not even close to simple – in fact, it would be exactly as complicated as the proposed system, for the same reasons.

  22. I am convinced Liberty Media had no idea what they were really buying. Their due diligence process was a joke.

  23. It works in American sports via a salary cap.

    The NBA for example generates $6 billion per season (TV, tickets, merchandiser etc). The league owners get half and the other half goes to team salaries. There’s 30 teams so each team gets $100m for player salaries. Each team has 15 players max. They can sign LeBron James or Kevin Durant for $35m a year but they then only have $65m for the rest.

    The league owners are the 30 owners of the NBA franchises (LA Lakens, Chicago Bulls etc). With their half of the money (split by 30 aswell) they run their individual team (Stadium and personel cost, marketing, etc. and of course profit). It’s roughly the same for American Football/Baseball/Ice Hockey each with their own nuances.

    This type of gouvernance ensures each team has more or less the same means to win a championship and the one that does the best job with them wins. This is the mindset Liberty is coming from.

    Now, in F1 Liberty does not control all the money that goes to the teams. Teams have their own sponsors and RedBull, Mercedes and Ferrari put however much into their F1 teams as they want. Also, the teams don’t make up the league owners like in the NBA (Altough Liberty has offered the teams the opportunity to buy F1 stock) so instead of working as one, teams compete against each other and therefor will always put their own interest before the sport and cheat if possible.

    Maybe Liberty can do something in the spirit of American sports via team personel or some thing along those lines.

    1. Yes. Soft budget cap works perfectly in every major sport, including NBA, MLB and NFL. Salary cap is a kind of budget cap. In these sports the salary is the largest single expense (around 50% of the team budgets). Liberty’s idea is based on the good US experience. When they say “budget cap”, they may think “cap the most important budget items” that can be policed and sanctioned. It may work.

    2. That works very well in American sports, where there are 1 or 2 financial systems (US and possibly Candian – which are designed to be compatible with each other to some extent) and the main budget items are easily measurable. You legally can’t hire someone in the USA, Canada or the other countries where F1 teams live without a contract containing certain fixed terms (such as an amount to be paid and the criteria for payment), and with sufficient trust, written contracts can be yielded to an impartial organisation – F1 does this with driver contracts, but for ruling on conflicts in who should drive what car rather than to limit budgets.

      Indeed, if it was specifically a salary cap being proposed, it would likely work. Even with all the different systems in place due to F1 being international (and other factors like cost of living – Toro Rosso can hire much more cheaply than Sauber, despite being a similar team, because it’s plain cheaper to live in Faenza than Hinwil), it is relatively easy to make equivalent the salary issues, compared with intangibles like R&D, outsourcing comparisons, and issues of multi-national manufacture that sometimes crop up in construction. However, there would be little point in doing a salary cap in F1 because the most expensive items (drivers, “star” team manager employees and chief designers) have performance levels that don’t necessarily correlate with salary, don’t always stick to the tasks expected by that role (Jordan once had a chief strategist whose “second” job was fixing bad design work to make it legal and raceable and “third” job was chief morale officer, for example…) and in the case of drivers aren’t even necessarily defined as expense items. Hence why more complex instruments are necessary if this direction is taken.

  24. This article biased as hell.

    1. @zukman, that is why it’s an “OPINION”, apologies if your comment was meant to be sarcasm.

  25. I was talking to somebody from an Indycar team (Who used to work in F1) about a budget cap a few years ago & he raised the point that it wouldn’t necessarily create more competition because the big teams would still have the best staff, facilities, equipment & resources as well as still been able to attract sponsors, manufacturer’s & the best drivers.

    He was on the view that the only thing a budget cap would do is stifle innovation because teams would be far less willing to funnel resources at developing new ideas that may not work as if they do & it doesn’t work they then have less available budget to fix it. Therefore they will be more inclined to play it safe & go the evolution route, Building on designs & ideas that they know work.

    He did also say he didn’t think better distribution if the funds would necessarily help in the long term because a team’s budget & what it needs to survive is dependent on how big the team is. $50m may be fine for a team like Manor to survive on now, But if they want to move forward they will need to grow & to grow they need to spend more to hire new people, build better facilities etc.. so in a year they may need $70m to survive & a few years later maybe they need $100m.
    If you decide that all a team like Manor need is $90m to survive then all your doing is locking them where they are as if they want to improve & move forward they will need to grow & that will require they spend more.

  26. The point about budget caps for F1 is that primary requirement for teh to succeed is the collective will of all the teams to do it! With that will, it would be very easy to accomplish and the details could be worked out. Without that will, it’s almost impossible. Of course this all points to the current culture (or lack of it ;-)) among the teams in F1. The only reasonable solution is more even distribution of the money among the teams – the same problem and solution that everyone has known about for many years. The same paralysis.

    1. Yep. If you ask the teams, it will never happen. If you want to introduce, police and sanction some kind of budget cap, it can work.

  27. “But is it a realistic solution?”
    Yes it is.

    Just as the technical regulations would have seemed untenable at first, but the FIA does take a reasonable good stab at it.

    Even if they don’t get it 100% air tight, it will be a whole lot better than having budgets that are now 4 to 5 times the size of the mid field teams.

    It’s really bizarre why this blog is so ridiculously entrenched against budget caps and doesn’t miss a single chance to blast the suggestion of a budget cap.

    Of course Ferrari doesn’t want it. They can’t even cut it when they have the biggest budget. So what?

    On the other hand, teams like Honda, BMW and Renault actually left because the budgets were just insane. Mercedes almost did too, but they decided to give it a go with a budget similar to Ferrari and Red Bull and they were lucky to pull it off.

    If an F1 team could be run successfully for $say 250 million, you’d see a lot more teams in the top region of the budgets. Which means … more competition at the top.

    The alternative is this ridiculous harping on about more equal prize money distribution. Like giving Sauber an extra 30 million is going to change a single thing in F1. If anything the gap between being a champion in F1 and being a “lets show up so we get some money” team like Sauber is way too small already.

    The alternative is keeping up the “cost cutting” which FIA has been doing over the last decades, because that ha had a huge impact. Oh wait, no it really had zero impact.

    But of course lets go back to the grand notion of giving Sauber 30 million more to Fix f1 once and for all.

    1. More or less I agreed.

      It could be done with some kind of “soft” budget cap. Soft cap: the established limit (on something) can be exceeded under a small and specific list of circumstances. A team must pay for exceeding this limit a specific figure that is determined on an annual basis. This “tax” can be distributed among other teams.

      They need a combined FIA and FOM (Liberty) action. The weak point in the whole budget cap question is Jean Todt. Teams will ask him to kill the idea. Todt is a very weak leader.

  28. Everything you do these days produces data from a computer. Find a way to geo-locate where the data is being produced (standardized encryption software?) and you go someway to identifying where the work is being done and how.

    If the budget is low enough, some of the big teams will leave, but for each big team that leaves there will be 3 wanting to replace them.

    Imagine a world where F1 was more accessible…

    1. For security reasons, any kind of sensitive information would not be geo-located at all (any system simple enough for the FIA to enforce would be simple enough for data thieves, which among other things would impair intellectual property rights and, among other things, get the cars disqualified for non-unique intellectual property). Sorry :(

  29. I think if they want to cut costs fairly they need to look at applying constraints to things that can actually be controlled in a black and white way, how much money is spent and where is not a realistic goal. I’d want them to look at what can clearly be controlled by the rulebook and apply it at areas where we see a big range from top to bottom of the grid.

    The FIA proved they could control the rate of development when they put in the engine token system, I wasn’t for all the chatter about it and the penalties but they showed that they could control the number of developments over the season which was put in to prevent a spending war. Rather than use tokens and apply penalties for using too many what I’d like to see them investigate is limiting the number of specifications of parts that teams fit on a car at race weekends. What separates the rich and poor currently is that the rich test new parts all year bringing multiple specs of parts to each weekend for testing whereas the poor teams can only afford to develop and build a few specifications all season. I’m not saying that because Sauber only ran 4 front wing specs all year that Red Bull should only be able to run 4 but maybe that’s limited to 10 if they currently run 15 in a season for instance.

    The result of this would be that the top teams would have to be more selective in what they test at the track, lowering their development costs (I’m sure they’d try spend around it but CFD and wind tunnel time is already regulated) and providing a somewhat more level playing field to the midfield teams that can create innovative designs that normally lose out in the development race because they haven’t the resources of the top teams.

  30. I know I sound like a broken record on this subject. But, every bit of money spent on policing deceptive paper trails and badly enforcing ill conceived penalties is money not spent improving the sport to make it more competitive. Be careful what you wish for. The cure may be worse than the ill.

    1. In the NBA, MLB, NFL, annual financial reports are sent to the league comissioner (like Jean Todt for F1) and distributed to all team managements. If you cheat, such as you put false data or fake expenses in it, your team is seriously penalized, and there is a chance that somebody is going to the prison.

      1. @alexde – Apples and oranges. Those leagues have teams operating as franchises upon league approval with strict expense and reporting requirements. All franchises are operated within the US and Canada under similar legal structure and oversight. It is very difficult to get away with operating outside of this long established set structure.

        F1 has never operated under such tight restrictions. The teams and owners are located in many different parts of the world, many operating different businesses in different countries performing different functions for the racing teams. These different jurisdictions can and do have different legal structures, reporting requirements that may not mesh with or be easily accounted for forensically by the F1 financial police. It would much easier for a worldwide car manufacturer to perform research and development for their F1 team in a far flung place and call it something else financially to keep it mostly untraceable by the F1 financial police. Unless the F1 policing system is set up with spies and satellites to cover every square meter of the world they might never be able to detect subterfuge being conducted by f1 teams, especially the richest most diverse teams. Or, those teams may become disgusted with the hassle and just exit the sport.

        Strict budget requirements requiring forensic accounting that encourages cheating is nothing more than a waste of time and money that does absolutely nothing to improve the sport and will actually create more problems than it could ever solve.

  31. “cap” is not possible for at least 10 yrs; it is R&D responsible and the human greed;
    said it !

  32. Agree with the article. Budget cap won’t work. The token system for engines was I suppose meant to enforce a “soft budget cap” (reducing the engine spend by capping the number of developments – or tokens – one could use). However, that just resulted in providing a lasting advantage to the teams that did a better job in winter.

    It really is a catch-22 situation, we want close racing and we want budget caps and we also don’t want spec racing. Decide which 2 of the 3 you want and you will have to sacrifice the third.

    1. Equal prize money distribution will help to an extent but still, it boils down to a choice between 2 of the 3 pillars mentioned above.

    2. LMP2 manages to have two-and-a-half, so it is possible. However, it does this by having the cars be sold for a maximum price to interested teams (not a full budget cap) and itself has not been without controversy.

  33. Budget caps wont work and will never work. The significant cost of f1 is a result of the FIA constantly changing the rules supposedly to improve the show and safety. Was there a need to get rid of the V10 to go to a V8 then to a V6? Was there a need to change the chassis design in 2009? What was wrong with f1 between 2000 and 2009? Constant changing of the rules increases cost. There is a very simple way to reduce cost in f1 it’s called standardisation. Yes you will upset the manufactures and the top 4 teams but who cares? Standard tub designs by one manufacture, standard nose sections , standard rear wing pillars, standard brakes, standard ballast points, standard suspension. No FRIC… all these things don’t do a thing for the show. We could paint every car on the grid this red and the average block would struggle to pick who made what car. The biggest problem with f1 is the funding. The teams stuffed up years ago by not starting there own series. They had the power to walk away and should have. The FIA is like FIFA corrupt and enjoys stuffing everything up.

  34. I hate to cover old ground, but I was looking forward to Moseley’s 40m cap (w/ technical freedom) vs. unlimited spending (w/ tight constraints).

    I’d love to see how that would have played out. What would the cars have looked like?

    The overturning of this ruling essentially killed all 3 new teams. Food for thought.

    1. What killed Hispania and hobbled Caterham and Manor was not that the cap was withdrawn, but that it was falsely promised when it was never going to be feasible. The established teams knew it was not feasible from Day 1 and it cost Max Mosely his position in the FIA.

  35. So if a spending cap is unworkable, perhaps a limit to the number of people employed, which would immediately cut cost, could be considered. Not really – the all-cheating world of F1 would find ways around that easily.
    There is one, reasonably simple, possibility to help small teams. Stop forcing teams to field two cars and allow a team to enter just one car. It would be very difficult to cheat their way round that. And half a small team is better than no small team at all. There is no logical reason to insist upon a 2 car team.

    1. sunny stivala
      9th February 2017, 11:44

      “Ross Brawn believes it be good way to reduce costs, provided it was part of a wider plan that could include cost gap”.
      Ross Brawn has now put on a new type of hat, I remember Ross Brawn owner of Brawn GP being one of the teams which said “they will leave and start their own series” when a budged gap was being imposed on F1B teams, he was also one of the team owners that said “they will not talk to the FIA as long as Mosely was president”.

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