Budget caps – can F1 learn from the NBA?
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At the moment, F1 is obsessed with costs, but I can’t help feel it’s a little too arbitrary. Take the engine and gearbox rules – to avoid the big teams out-spending everyone else, no-one can use over a certain amount. One of the advantages of a budget cap would be to get rid of that and if your engine failed you’d have to buy a new one out of your limited funds and so the incentive to create a reliable engine would still exist.
The budget cap arguments have been done many a time so I’m not going to go over it. Suffice to say I think it’s a good idea, though the attempt to implement one was handled disastrously by the FIA last year. Any kind of transition must be slow and gradual and I have little faith yet in FOTA’s Resource Restriction Agreement as the teams will use the saved money on something else, like they do now with the testing ban.
Where the NBA comes into this is their use of a budget cap – there is a limit, but teams can go over it (the big teams usually have to because of players’ wage demands). The catch is in going over it they have to pay an amount (I’m not sure of the details) to every team that is under the cap, which they can then spend to nullify (or try to nullify) the big-spenders’ advantage in throwing more money around (which despite the Toyota and Honda debacles usually works in sport, it just doesn’t guarantee you beat everyone and not just a few). The problem is the big teams can usually cover these extra costs in their merchandise and ticket sales, which is why a hard cap will probably be introduced in the near future.
But F1 isn’t the NBA. It attracts more viewers, but I doubt the teams are as rich as the NBA franchises (I don’t know the figures, so I’m just guessing). So the big F1 teams would probably be unable to fully cover the costs of going over the cap by the ridiculous amounts we used to see them spend. And in an F1 grid that is being too influenced by pay-drivers, it would be a way of keeping the smaller teams afloat. Eventually F1 might have to go to a hard cap, but as a transition model it could work very well until the time came.
Any thoughts?
I think the best way to do it would be to offer incentives to teams that keep costs down. Like restructuring the way television rights are paid out, so that teams who spend less get more from FOM. Eventually, you’d have teams that become self-sustaining – the money they earn simply from competing would be enough to keep them going. The problem is that Ferrari and Red Bull and McLaren would be able to spend more and more even without the money they’d get from FOM.
An NBA team’s costs are 90% staff, though. (guesstimate) An F1 team is all about research and knowledge. Having a big spend doesn’t actually guarantee success in this sport, it’s something that’s necessary to get the best out of the people you employ to do the research.
The principle is the same though – to stop the biggest spenders buying up the best resources, whether it’s people or equipment. Though big money isn’t a guarantee of success, the teams who already had the pedigree dominated like crazy in the big-spending years.
I don’t necessarily buy that, though. The Honda team under Ross Brawn was able to develop a championship winning car with the same staff and the same resources that the previous year produced a back of the field loser. This year, adjusting to a loss of personnel, money and facilities, the team is a mid-pack makeweight. “F1 is about the clever beating the thick.” as has been mentioned. An NBA team needs a small roster of expensive “key players”. An F1 team is a much broader, more complex and more difficult beast to manage, work, and get the best out of.
Teams with “pedigree” had something that wasn’t born of money, resources, or history: they had management. Ferrari had Todt, McLaren had Dennis/Whitmarsh. Managing that team of people – engineers, support, manufacture, research, drivers, pit crew – is the key to a successful team. Vijay Mallya was a better manager than Spyker. Fernandes is a better manager than Kolles/Branson. Horner is a better manager than whoever was running Jaguar. etc etc.
That’s a little simplistic though – the turnaround came in a year of massive change, where Honda/Brawn had a massive head-start compared to the rest. It just establishes my point: with money, those ahead will get even further ahead. Had Honda had Virgin’s budget for 2009 they probably wouldn’t have had nearly as good a car in Melbourne.
I never said pedigree was born with money – but look what money and pedigree combined do!
The main reason behind the failure of budget cap introduction last year was inevitable and serious reduction of sponsorship costs of F1 team. Teams and Mosley could had easily agree and introduce budget cap gradually, but that was never going to happen – nobody wants to sell spots to sponsors at half or even less price. Resource Restriction Agreement acts differently and does not lead to mentioned above. That’s why teams signed it.
Oh, and i can’t really see any similarities between NBA and F1 in terms of finances.
I don’t see why it would happen. If the teams needed less money, they could have just one big name sponsor. And if they sold to more sponsors for half the price, who cares? If the costs are halved what matters if the funding is halved – merchandise, rewards etc. would still bring in the same money.
I could see the problem if teams depended on sponsorship to make a profit, but as far as I know they don’t – it all goes into the operating budget. The only issue is when a team sells to a sponsor for far less than the space is worth (I remember a story about Bernie along these lines, berating a team for doing just that).
But I don’t own an F1 team. Was this reason ever cited by the teams?
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