Nico Rosberg, Mercedes, Circuit of the Americas, 2014

Top teams still not convinced budget cap can work

2014 United States Grand Prix

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Nico Rosberg, Mercedes, Circuit of the Americas, 2014Top teams remain sceptical over the viability of a budget cap because of the difficulty of enforcing it on their complex business structures, according to Mercedes’ executive director Toto Wolff.

Amid renewed debate over how to reduce teams’ expenditure to prevent F1 losing more competitors, Wolff outlined why he believes a cost cap wouldn’t work when manufacturers like Mercedes, Ferrari and Honda are involved.

“If you look at the budget of Marussia and then you compare the highest spender – whoever it is, Ferrari, Red Bull – we are talking about a gap from 70 million to 250 million,” he said during today’s press conference. “So if you want to start with a cost cap, how do you do that?”

“Where do you cap it? And if you cap it on the lower end, well, do you make two-thirds of the people redundant in the big teams? How does it function? So that’s one point.

“The other point is how do you control it? I think the competition is so fierce at the very top that the cost cap was never implemented because there was no way of policing it and controlling it.

“Some of the teams have various set-ups, various companies all around the world, multinationals behind them in Japan, in Germany. In Italy it’s all in one company – if you look at Ferrari they have a severe issue of being transparent enough coping with a cost cap, if you have everything in one entity and you’re building road cars and you’re building engines and you’re building various race cars from GT to Formula One, how does it function? Because it is competitive we need to have clarity how you control that.”

However Force India owner Vijay Mallya challenged Wolff on both points.

“I respectfully disagree with what Toto said about cost cap leading to redundancies of workmen of the big teams,” he said. “The same thing applies if small teams shut down. The same redundancies occur then as well.”

“I don’t think there’s rocket science involved in people sitting down together, find a mechanism – it doesn’t necessarily have to be policing, it can be self-certification – of [restricting] what they spend.”

However Mallya conceded it was a challenge to reconcile the scale of difference between budget at the front and rear of the grid. “I agree that when one team spends 60 million or less and another teams spends 250 million or more it is perhaps difficult to bridge this gap,” he said.

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Keith Collantine
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30 comments on “Top teams still not convinced budget cap can work”

  1. Alright, ditch the budget cap then – but bring on the fairly distributed revenues, so even the small teams can survive without a budget cap, Mallya, Kaltenborn and Lopez had way stronger arguments about their opinions in the press conference.

    1. @hunocsi Wolff’s explanation is in line with my point of view. Of course I don’t want to see teams going out of business but I do not believe a budget cap is realistic.

      Some have likened it to salary caps which exist in other sports but given the degrees of complexity of the teams involved – particularly the manufacturer-owned ones – the differences in their ownership structures and the many ways expenditure could be hidden, I don’t believe you could police it. The kind of ‘self-certification’ Mallya refers to is never going to be sufficient because there will always be claims one team is over-spending and gaining an advantage. The sport would be in a permanent cloud of innuendo about someone getting around the cap.

      The sport can bring costs under control through the rulebook. For example, the limits on staff numbers at race weekends needs to come down, there should be restrictions on how often teams can upgrade their cars – and of course there should be no changes to the sensible restrictions on engine development. The new V6s turbos are good for the sport but they have come at a huge expense which has crippled the small teams.

      And, as many have said, the other side of the coin also needs to be addressed: the grossly unfair distribution of revenue is a scandal.

      1. Alex McFarlane
        31st October 2014, 23:25

        And also, the sport’s rules need to be determined and governed by the FIA, and not the teams themselves (e.g. the strategy group)

      2. @keithcollantine I don’t think enforcing a budget cap is realistic either. I agree with a lot of things Mosley said a few days ago: split the money (more) equally and don’t let the cost of different parts go up so much as the current power units. These would allow the smaller teams to have a chance against the big teams, and if someone is targeted by more sponsors, then they can gain the extra money compared to the lesser teams from there. I don’t think this way many jobs would be in threat and this would allow a way more sporting level playing field.

        1. @keithcollantine And probably there should be a look into who’s in charge of what, because the power the big teams have through the Strategy Group is unfair and the FIA doesn’t seem to have enough as Bob Fernley suggested today.

      3. What about a new Concorde Agreement? I think currently all the teams have seperate agreements with Bernie, with a new and fair CA they could include a fair distribution of the revenue and cut these payments for the tradition teams like Ferrari.

      4. Capping the budget won’t work at all but the distribution of money more fairly would help at least to the smaller teams.

      5. I would add a cap on how much manufacturers can charge their customers for engines @keithcollantine. Sure, its bad to do it now, instead of having had that sorted before they came in and contracts were signed, but limitiing it to say 15-20 million EUR/year would mean that even if the engine manufacturer spends more, its their own concern.
        That way you could also get closer to a cost cap of sorts, because the engine cost would be the companies internal business.

        As for the budget cap. I am not too sure I agree with the argument of things being to complicated and too easy to hide things when multiple companies are involved.

        From my experience of what can be tracked through finances its actually not hard at all. And when no (or too low) cost are invoiced compared to others, its all too easy to define a benchmark cost for things. That is something that tax authorities do all the time and something that internally global companies do for themselves as well.

        Its curious that when Wolff was still mainly involved with Williams he did not think it too complicated but now he does. Maybe what changed his mind is being able to spend as much then.

    2. Alex McFarlane
      31st October 2014, 23:17

      Agree absolutely. I don’t tend to watch the TPPC, so this is the first time I’ve seen Lopez, he owned that conference, and the other two were strong as well.

      Toto Wolff, and to a lesser extent Eric Boullier, looked more and more uncomfortable, shaken even, as that conference went on. I suspect deep down they know they haven’t got a leg to stand on but have to take these positions in order to satisfy the corporate interests that they are paid to advance.

      1. There’s still some uncertainty over who exactly owned Caterham and how the various companies are structured, if the administrators are having this much trouble working out the ownership and financial details of one of the smallest independant teams in F1 imagine how difficulf (and expensive) it would be making sense of and regulating a manufacturer team like Ferrari.
        Budgets caps would only lead to endless legal battles that could potentially cost more than we’re trying to save and the only winners would be the lawyers.

        1. Alex McFarlane
          31st October 2014, 23:49

          Speaking of Ferrari, it was alluded to in the conference that they would be one of the easier teams to regulate because much of their work is done in-house, as opposed to someone like Caterham, who subcontract a lot of work to outside companies.

          I don’t believe an absolute cost cap can work, but it’s almost as if there is no will whatsoever from any of the big teams to look at ways to control costs, which in the long run could actually reduce costs for them too.

  2. “If you look at the budget of Marussia and then you compare the highest spender – whoever it is, Ferrari, Red Bull – we are talking about a gap from 70 million to 250 million,”
    This is a very telling statement in itself. To be a top team you must turnover 250 million a year, thats insane. It is unnatainable for many millions of individual people to become a millionaire, let alone 1/4 of a billion. There is a very small amount of companies that can afford to sponsor a team with that sort of turn over, no wonder McLaren are struggling to attract title sponsors…. F1 needs a cost cap mechanism, because, it seems to be playing out like an economy that sees the gap between rich and poor widen year on year. Perhaps its time for Bernie to cash in on Ferrari/RBR’s success and tax them, imagine the money he could rake in….

  3. I certainly wouldn’t trust Ferrari or Red Bull to honour a budget cap.

    It has to be Bernie who fixes it, anyway. Stops Ferrari’s ridiculous 2.5% and rearranges the prize fund, then makes sponsorship financially viable again with free-to-air TV and all races with crowds.

    1. The problem with Free to air TV is that very few free to air broadcaster really has the budget for F1 now.

      If we take the UK for example, ITV dropped F1 early at the end of 2008 because they were going through budget cuts & could no longer afford F1 & when I say that I don’t necessarily mean in terms of paying FOM I mean in terms of there own broadcast costs.

      When we look at the BBC they fell into similar problems. I was told back in 2009 than when BBC got the contract the BBC F1 team contacted ITV to find out how much it was costing them to produce the coverage & was shocked when they found out what the figures were because they massively underestimated the costs of producing the broadcast when they made the decision to get the F1 contract.

      Sending the crew out to cover every race, Renting/transporting the production equipment, Producing the broadcast for every session, all the required satellite time & everything that goes with it all costs money & its much harder for a FTA broadcaster to be able to afford those costs.

      One of the problems with Channel 4 is that while I gather they could just about afford to buy a Multi-Year F1 contract, Finding the budget to actually produce the broadcast would be fully reliant on finding a title sponsor for the coverage because they don’t have the budget on there own.
      Channel 5 don’t even have the budget to buy the coverage let alone produce it.

      If we look at Sky, There sending out something like 80 people to every race & are sending out a couple production trucks to produce the main program & all the additional content feeds that are put out across the various platforms as well as additional equipment to give them full access to the various bits of archive footage & to do the analysis on the Skypad & other programming.

      No FTA broadcaster can afford that & thats a big part of why sport in general on FTA is in decline not just in terms of quantity but also in terms of quality. Even if they can afford to buy the rights, They just can’t afford the production costs.

      F1 going back fully FTA at this point (In the UK on ITV/Channel 5/Channel 5 at least) would almost certainly be back to a bare-bones program. Little pre/post race, No additional content feeds, Several Ad-Breaks & I doubt you would see practice sessions.

      1. The BBC could easily afford F1 though Roger A (just look at what they spend on buying other “entertainment”). Rather it was a political decision not to.

      2. No, it isn’t that Free to Air broadcasters don’t have the budget for F1, it is F1 management don’t want to live withing the amount Free to Air broadcasters are prepared to offer. If F1 management were prepared to live within an amount that Free to Air broadcasters were prepared to offer, and they stiplulated that all races must be broadcast free to air in that country then you would have Free to air broadcasters tendering for the rights.

  4. I don’t think a budget cap is the answer, Toto explains why and there isn’t really anything more to say about it. If you can’t enforce it then don’t.

    However I think the prize money distribution is the thing to look at. None of the big teams actually need the prize money, and they’d compete for championships even without that incentive because they get money from sponsors who want to see their team up front. So why not just distribute the prize money evenly across all teams, like a salary for competing? Or at least maybe make the gap between 1st and 11th much, much smaller…

  5. Alex McFarlane
    31st October 2014, 23:41

    Gerard Lopez summed up the diminishing returns on F1 brilliantly.

    A GP2 car costs around 4 million euro to run, whereas the top F1 teams are spending in the region of 250 million for what in reality is just a few seconds gain in performance. Such a staggering difference can only come about because the concentration of wealth at the top hyper-inflates the cost of competing at the front end of the grid.

    After the press conference Sky F1 had a review of the 1977 season, and the diversity, depth of the grid and competition amongst the field of those years is something that seems utterly surreal compared to what we’re seeing now. It’s probably no exaggeration to say that the sport today bears no resemblance to what it was and probably shouldn’t be called Formula 1.

    1. It might have started out fairly competitive, but although Scheckter did briefly pose a threat to Lauda, Lauda did wrap the season up fairly easily in the end.

      The Lotus 78 was fast but fundamentally flawed and chronically unreliable, the M23 that McLaren turned up with was obsolete (Hunt described it as a museum piece) and the M26 only vaguely more modern, Tyrrell were using the P34, a car that Scheckter had described as junk and Brabham were hindered by the Alfa Romeo V12 being badly overweight, thirsty and unreliable (Murray was immensely relieved when Alfa Romeo eventually left to found their own team, since he hated the Alfa V12).
      The only car that could pose a threat for Lauda in the early part of the season was the Wolf WR1, but Wolff didn’t exactly have the resources needed to develop the car (he axed the team in 1979).

      Yes, the grid may have been bigger, but then again the private entrants for a number of races weren’t exactly what you’d call high quality competition – many of them were reusing old and semi-obsolete cars or, like Kojima, were very badly designed (other teams were actually asking Kojima not to race their car because, even by the standards of the time, the car was considered to be a death trap). The field was diverse, but was the quality of the competition necessarily equal to that?

  6. ColdFly F1 (@)
    1st November 2014, 0:11

    In principle, and in previous comments, I agree with Wolff. How can one police the technological development done somewhere else in the company? How can you assess the salary of a driver when paid for by a sponsor/daddy? And even travel costs are not 100% clear (small example: works drivers typically use local dealer cars for free when at a race). How to value the software written (partly) somewhere else in the big organisations?

    However there might be a hybrid way, and find a 20/80-rule solution:
    – driver salary – leave them out (if Honda wants to pay Alonso $40M good on him);
    – key technical parts (like PU, gear box, tyres, etc. etc) – set a standard value (even arbitrary), but make exactly the same parts available to other teams (this if Merc spends more on their ICU, then this will also be available to other teams using their engine without making it too expensive);
    – count/limit travelling staff (no need to check all their expenses then)
    – limit testing days (like now, but do not restrict too much)
    – the remainder is basically the engineering and manufacturing ‘at home’. Those costs are easier to police than doing all at once.
    – If there are other major cost drivers like wind tunnel time, then that could be limited as well (set a limit to the days, of award a fixed rate per day). But like testing it should not be too restricted.

    Not easy, but doable, and preferred over F1 without smaller/independent teams.

  7. It bugs me that the “too difficult to do” excuse is being used. If it was believed that a team could gain 5 seconds a lap, even if it was hard, the teams would do it. At the very least put some effort into finding a solution. Don’t quit after a few months and say it is too hard without really trying.

    Is an equal share of revenues more easily accomplished? Definitely. And I think that’s where the solution has to come from to start.

    I find it funny that Mercedes are using the “it will cost too much” excuse when talking about unfreezing the engines, but don’t put any effort into finding an viable spending solution for the sport as a whole. I’d have more respect for them if they came out and said “we earned our speed with our engine, within the rules, and want to keep it” than the excuses theyre serving up now. Renault and Ferrari should have done better, plain and simple.

  8. maarten.f1 (@)
    1st November 2014, 0:45

    Is a budget cap truly impossible? Of course the tops teams are going to say so, after all, it’s not in their advantage to have a budget cap. Perhaps Wolff is right, perhaps not, I don’t know enough about it to have an informed opinion about it. But in either case, he’s biased when it comes to this.

  9. A budget cap is pointless or an unreasonable expectation. Because there is a wide disparity in sponsorship income, you can’t ask teams to not spend such money or try to acquire it.
    The solution is…
    1, Manufacturer teams must be restricted on what they can charge for their engines and must make them available to other teams.
    2, Simplify the rules and make them stable for a few years at a time.
    3, Revenue should be shared in such a way that the winning teams don’t make more than double what the team coming last gets paid.

    Manufacturer teams don’t come into F1 to make a profit or run the team on sound economic principles. So rewarding them even more for their wasteful habits is detrimental to the health of the sport.
    A team like Redbull can spend what they like because it makes for good advertising. And they get rewarded with other teams paying their advertising budget.
    Perhaps the payment structure was developed to prevent teams from just showing up and earning money instead of being competitive and making the effort to win races. But it has backfired because it makes it impossible for teams further back to make any progress up field.

  10. Suppose they capped the cost at 70mill will that make the smaller teams win? Will a lower cap of lets say 50mill make the smaller teams more able to compete? I don’t think it will make much of a difference one because the manufacture teams will already have a benefit of receiving free engines, and those engines are developed by the engine manufactures so that cost will not be included in the F1 budget, unless F1 forces the bigger teams to have a smaller budget (which is less the engine price), this can be realistically done. However other cost associated with running an F1 team like simulator testing and wind tunnel testing will be harder to police, if Merc or Renault or Ferrari decided to build these for their other race car development (not F1) and then give F1 access to them for free but charge other teams for using them then the bigger teams get a few millions to spend developing the car which the smaller teams won’t get. How then does F1 control this aspect? Another point to make is that F1 teams cannot unlearn what they know, Merc RedBull etc already have a good car which will probably still beat Murussia and Caterham next year if Merc or RedBull didn’t change anything on them and if they decided to change anything they could just do small tweaks here and there which wouldn’t cost as much as what the smaller teams would have to spend to catch them. So at the end of the day they would still finish down the order and would still receive very little price money which will lead to the same problems we have now. Therefore, I believe the wrong questions are being asked. It shouldn’t be how can we reduce cost to make the teams survive but why other manufactures will not enter F1 even though they spend nearly as much in LeMans and is the current system of no testing more of a hinderance then a benefit. F1 needs to look at the manufacturers (Porsche, Audi, BMW, Toyota etc) and ask why they are not in F1, what made them leave and what can be done to make them return. If these guys can come back it will have more teams in the sport that have the resources to compete and will ultimately make the show better. If you need smaller teams they can have customer teams like they do in MotoGP or in LeMans. On the aspect of testing a reason for banning it was that it was becoming too expensive, however at the moment teams have to spend almost 20mill building a wind tunnel and a simulator and then have to spend additional cash to run them and even more cash to fix the discrepancies that wind tunnels have sometimes. All of these can amount to 30mill or 50mil depending on whether the team had to upgrade their wind tunnel because it was not working properly. Wouldn’t it be cheaper to build a car go to track rent it for a day and do some testing there, I doubt they would spend 40 – 50 mill in track testing. Sure the bigger teams would abuse this but a track testing time limit can be imposed so that smaller teams don’t get the short end of the stick.

    1. Another option is to have another class in F1 like they have the open class in MotoGP and give prize money to the open class top three or something.

  11. 1) Budget cap
    2) Even distrubution of money
    3) The slow death of F1.

    It’s a dificult choice.

    1. I wouldn’t say “even” distribution of money. I would say “fair” distribution of money.

  12. Exactly, the real issue isn’t the price money distribution, it’s the insane top team spending levels and the asymmetrical budgets that are a result of that.

    If the price money distribution is changed, nothing really changes besides enabling the poor teams to keep muddling along with their small budgets filling up the back rows of the field.

    If the budgets are made more equal, the cars will be more equal and then racing will be more equal and more exiting. Also, if the smaller teams can be more competitive, the price money will automatically be distributed more equally because of the better distribution of the points.

    Even if a budget cap is not 100% water tight. At least it can prevent budgets differing by a factor 3 or 4 as it is now.

    FIA really needs to hush the big teams and explain that if they can file tax forms, they can also account for their spending on F1.

    1. I disagree that nothing changes. If a small team gets another 30 million then that could help them be faster and if a big team loses all the special bonuses and the difference of money they get is less with the resold of having 100million less income then it means the difference in what the two teams teams spend will be smaller and therefore the smaller team has more chance to be competitive against the big team.
      That means it also has a bigger chance to get points and even outscore a big team if in a season a big team screw their design and a small team got it right and that also means that when that happens the small team will get even more revenue and have better chance to climb the ladder.

  13. Fikri Harish (@)
    1st November 2014, 14:45

    You know what? I no longer give a damn about all this nonsense.
    If they are so unwilling to even try to at least give the appearance of trying to fix this, then they can go down in flames for all I care.

    I have absolutely no idea what other viable solution there is other than a fresh start. How is it possible for a sport to be more depressing than politics?

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