Ferrari, Yas Marina, 2017

Why a cost cap is no cure-all – and why F1’s big teams are fighting it

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Ferrari and Mercedes are at odds with Formula one owners Liberty Media over whether the sport should limit how much they can spend on their teams. But can the sport survive without a ‘cost cap’?

@DieterRencken explains how F1 got where it is, and asks whether the sport’s few remaining big spenders can be persuaded to embrace a change it has arguably put off for too long.

Until two or so decades ago any mention of Formula 1 budgets was met with dismissive shrugs: If you had to ask what a season cost, you were too poor to participate. The bravado had been fuelled by nicotine brands who had nowhere else to burn their billions, while talk of impending global anti-tobacco legislation ironically encouraged them to up their spends while they still could.

Those that weren’t in – such as West – entered in a hurry. Lucky Strike founded an entire team, namely BAR, in order to bring its roundel to a global audience. Budgets exploded, and teams went on massive expansion sprees, funding massive test teams (sometimes two), while paddock hospitality units were upgraded annually as a matter of course. It was too good to last, but F1 never was very good at reading social signs.

Mika Salo, Toyota, Circuit de Cataalunya, 2002
Toyota spent big on F1, to little reward
However, no sooner had tobacco funding been outlawed than F1 was sustained by an influx of motor manufacturers, all eager to prove their performance credentials. Thus they splashed out on teams: Ford/Jaguar acquired Stewart, Renault bought Benetton, Honda ditto with BAR and BMW with Sauber; others founded their own (Toyota), acquired equity in an existing team (McLaren / Mercedes), or ramped up their existing branding (Fiat / Ferrari).

Thus in the mid-noughties there were no fewer than seven car brands represented on F1 grids and, if anything, spending was even more frenzied. For example, Toyota commissioned two identical wind tunnels, both operating 24/7, while there was talk that the contract of a technical director contained a clause that the team fund his private aircraft in order to enable him to return to his family on non-grand prix weekends…

This time it truly was too good to last. Grey-suited accountants jibbed at signing off budgets measured in hundreds of millions for outfits that had no chance of placing better than seventh – or worse, found themselves beaten by independents operating on budgets half the size – and put team principals on notice to spend (substantially) less, or face closure of their operations.

The first to feel the heat was Jaguar, and thus the team proposed a form of budget cap, dressed up as an engineering efficiency exercise. The idea went nowhere for a few years – primarily as there were then still six other manufacturers willing to spend freely – and Jaguar’s owner Ford sold the team to Red Bull Racing on extremely generous terms. However, a seed had been planted in Paris…

Simultaneously the manufacturers had become dissatisfied with sharing just 23 per cent of F1’s retained revenues while the commercial rights holder – a bunch of banks who had acquired the business by default, but run dictatorially by minority shareholder Bernie Ecclestone – trousered the rest. Thue manufacturers pushed for increased slices of F1’s revenues, in the process demanding greater input into F1’s regulatory process.

Christian Klien, Jaguar, Shanghai, 2004
Jaguar were first to push for a cost cap
None of this sat well with the FIA, which feared the tail was wagging the metaphorical dog. A budget cap could provide a solution to various thorny issues: reducing barriers to entry for prospective entrants while taking the heat out of manufacturer team demands for increased revenues. Not to mention making it harder for manufacturers to out-develop their independent rivals by merely out-spending them.

Thus the concept of a $40m budget cap was proposed from 2010 onwards, with teams adhering to the restriction being granted greater regulatory freedom than those who refused to. Former Jaguar team boss Tony Purnell devised allegedly effective control methodologies on behalf of the FIA, but matters came to a head in June 2009 when the manufacturer faction threatened a breakaway series over the regulations.

A raft of ‘wannabes’ applied for entries, four of which were eventually selected. The record shows that one (USF1) was stillborn, Campos (HRT) lasted three fraught years, Lotus (Caterham) imploded in 2014, and Manor (Virgin/Marussia) staggered through two administrations before eventually being liquidated in 2016. Of the four teams, only one (Manor) scored points, taking over four years to do so.

As for the manufacturer teams Honda, Toyota, Renault and BMW were all gone by the end of 2009. But not before they signed up to the 2009-12 Concorde Agreement, a cornerstone of which was the McLaren-devised Resource Restriction Agreement, which included controls on testing, wind tunnel/CFD usage and race crew restrictions/curfews, and aimed to control spend through a complex payroll versus purchase ledger matrix.

Yet, while the FIA preached cost saving, the CRH, from 2007-17 controlled by venture house CVC Capital Partners, annually extracted around half a billion bucks from F1…

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The RRA died in 2013 after first Red Bull, then Ferrari, questioned its effectiveness, with CVC’s offer of preferential bonuses and Strategy Group privileges to the Big Four teams (said two plus Mercedes and McLaren) slamming the final nail in the cost-saving coffin. After all, who wants cost caps when you benefit from $100m annual bonuses and first-tier regulatory input while independents struggle along without? (To understand the consequences this had on F1’s governance process, see this earlier article.)

Although the independent teams lobbied for cost savings by whatever means the majors resisted all attempts at introducing regulatory controls, arguing they were not enforceable, while Red Bull Racing has long pushed for savings via technical and sporting regulations designed to curb excessive spend. Given the vastly different business models operated by the ten current teams, there simply is no ‘one size fits all’ formula.

Chase Carey
Liberty Media wants to bring costs down
Thus things went relatively quiet until Liberty Media acquired F1’s commercial rights from CVC in January 2017. As a (NASDAQ) listed company, Liberty’s primary focus is its share price, which entails turning ever-increasing profits, and thus dividends.

Profits are a function of income less costs and, with team revenues being Liberty’s largest cost driver – devouring about 50 per cent of F1’s current $1.8bn annual turnover – it stands to reason that reducing team payouts and bonuses impacts rather healthily on Liberty’s bottom line. Thus a sudden surge in interest in cost caps, particularly as income is likely to fall in the short and medium terms as Liberty restructures the sport.

The problem is, though, that a series of bilateral agreement dictate F1’s regulatory and fiscal structures through to the end of 2020, so unless all teams voluntarily agree to reduce costs the chances of cost caps being introduced within the next three years are effectively zero. After all, turkeys don’t vote for Christmas.

Whenever talk has turned to post-2020 regulations, Ferrari and Mercedes have threatened to exit (‘F1xit?’), with mutterings about F1’s ‘DNA’ and threats of dumbed-down technologies underpinning their arguments. Ferrari president Sergio Marchionne has been the most vocal, although Mercedes CEO Dieter Zetsche has stated the two companies are “100% aligned on our thoughts and our strategic actions in Formula 1.”

Last week McLaren group executive director Zak Brown urged Liberty Media to get a grip on the cost of competing in F1. “Costs are totally out of control,” he said, describing F1 as “probably the only industry in the world, let alone sport, that has not addressed costs in today’s day and age.”

“That need to happen, I think that needs to happen as the highest priority.”

Zak Brown, McLaren, 2017
Zak Brown is another cost cap supporter
A further problem is that the major teams will resist any attempts at regulatory cost control, for they fear their leaner rivals used to operating to modest budgets are likely to run rings around once-bloated organisations that have suddenly been forced onto crash diets. Without putting too a fine point on matters, the majors probably employ more heads in their staff canteens than does Haas in its engineering department.

Finally, any reduction in budgets will result in commensurate headcount cuts. Force India’s Robert Fernley reckons it costs around £80m to design, build and race two cars per season, including engines, tyres and test sessions, but excluding marketing costs, and driver and executive salaries. Indeed, in 2017 the team finished fourth behind Mercedes, Ferrari and Red Bull on a total budget of approximately £100m.

Given that engines and tyre costs are fixed, that race team headcount is fixed, that wind tunnel and CFD activities are controlled, and that testing is controlled, it stands to reason that the costs for the equivalent activities run to roughly the same level, regardless of team. Yet, according to estimates, Mercedes spent £290m on its 2017 F1 programme, excluding the engine operation.

That begs the question: How does Mercedes incur the differential of around £190m? True, the team has substantially higher marketing costs, while Lewis Hamilton costs considerably more than Sergio Perez, but such factors do not explain a three-fold difference in budgets.

However an analysis of team headcounts shows that in 2017 Haas operated to a budget of £100m and headcount of 225, while Force India’s numbers were £100m / 400 respectively; by contrast, Ferrari estimated headcount (excluding engine division) was 960 (budget estimate: £350m), while Mercedes’s staffing runs to 860 heads. That is almost four times Haas’s number, and over double Force India’s complement.

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Clearly then Ferrari, Mercedes and Red Bull (£215m/700) can afford to out-develop the independents, who have little change left after designing and building their cars for a given season, and hence their increasing performance deficits as a season wears on. Where Force India can afford to spend only £20m on development per season, Mercedes can blow £210m and still operate within budget.

Thus, apart from any commercial considerations, from a pure performance perspective Liberty would do well to limit spending, for that would tighten the field. The question is, though: “What represents a reasonable level for the pinnacle of motorsport?” Set the cap too high, and it becomes meaningless; too low, and F1 is in danger of losing its cutting-edge glamour.

Either way, it is clear that Liberty needs to introduce cost caps simply to balance its books, and thus a figure of $150m (£125m) – exclusive of marketing, engines, tyres and driver / executive salaries – has been bandied about. That would enable each team to build and race two cars, leaving approximately £45m for in-season development and testing.

All inclusive, a front-running team should have change from a £180m. Although a Force India or Haas may not be able to (immediately) raise such budgets, a budget cap would at least level the field and deliver closer racing. What’s not to like? Plenty, if you’re a major team, and even more so if you’re an employee within one of the privileged outfits, for budget caps will make staff lay-offs inevitable.

TeamHeadcountVariance
Mercedes860*460
Ferrari960*560
Red Bull700*300
Force India400**0
Williams575*175
Renault620*220
Toro Rosso400**0
Haas225***-175
McLaren690*290
Sauber360***-40

Potential total staff reduction: 1,790.

* Predominantly in-house
** Mixed out-sourcing and in-house manufacture
*** Predominantly out-sources

Consider: an overall budget of £180m would restrict teams to around 400 heads maximum, meaning Mercedes would need to retrench half its staff, and Ferrari almost 60 per cent of its payroll. Red Bull would face a reduction of at least 30 per cent, as would McLaren, which runs to similar numbers.

“We are not against a cost cap as long as it can be policed in the right way and [is introduced sensibly],” said Mercedes Motorsport boss Toto Wolff in Abu Dhabi.

“[But] we are not going to cut our workforce by 30 per cent from one year to another and we are not going to give up a performance advantage that we have lightly, so there needs to be something on the other side.”

What that “something” is remains unclear, but, again, it is clear that a long hard slog awaits before F1 adopts a concept that has been kicking about for over a decade, but now has a commercial imperative.

A glide-path has been proposed to take the sport through to the end of 2020, but that suggestion is, of course, too logical for F1. So arguments will likely wage back and forth until December 2020 at which point those teams that are potentially hardest hit will simply refuse to subscribe to budget caps. Liberty is unlikely to back down, simply as it cannot afford to.

The irony of the situation is, though, that a lot more heads will be retrenched if one or more team exits F1 completely, while the question must be asked: Could F1 really term itself ‘the pinnacle of motorsport’ if Ferrari and Mercedes race elsewhere?

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Clearly Liberty needs budget caps as much as F1 needs to control its spending, but too many open questions remain, including the level of cap, how to control spending limits, and what penalties should be applied in the event of breaches. After all, fines levied on excess spending are pretty meaningless when teams have a spare £200m saved.

Equally, budget caps do not even begin to address the question of F1’s inequitable revenue structure, which arguably disadvantages the disenfranchised teams more than unlimited spend does, simply as the various non-performance-based bonuses paid by the commercial rights holder to major teams encourage excess spending.

The bottom line is that a budget cap is not the silver bullet many believe it to be, and alone will not correct F1’s many ills. In addition, over 1,000 highly qualified heads who devoted their working lives to F1 are likely to be laid off (see table), all in the name of shareholder value. Is that a fair trade-off?

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Dieter Rencken
Dieter Rencken has held full FIA Formula 1 media accreditation since 2000, during which period he has reported from over 300 grands prix, plus...

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  • 57 comments on “Why a cost cap is no cure-all – and why F1’s big teams are fighting it”

    1. I find it interesting that people keep saying a budget cap is needed rather than focusing on what I’m assuming is the easier alternative, which is to frame the rules so it’s cheaper to build a car. For example, eliminate the cars dependence on aerodynamics and the cost of designing and building a car would probably drop dramatically. Similarly, a simple engine formula would result in an engine that’s cheaper to build and cheaper to buy.
      That being said, as Ferrari stated when they most recently threatened to pull out, Liberty have to decide what they want F1 to be. Over time it became a place for automotive innovation and technological competition which the manufacturers clearly like and want. Liberty have to decide if that is to continue or if F1 is to move in a cheaper and less manufacturer friendly direction.

      1. I find it interesting that people keep saying a budget cap is needed rather than focusing on what I’m assuming is the easier alternative, which is to frame the rules so it’s cheaper to build a car.

        I absolutely agree.

        Liberty have to decide if that is to continue or if F1 is to move in a cheaper and less manufacturer friendly direction.

        How is cheaper less manufacturer friendly?

        1. I equate cheaper with fewer opportunities to innovate. One of the returns manufacturers get from F1 is developing new things for their production vehicles. A cheaper series will likely take that away.

        2. The engine rules do not really help either. Perfectly good new engines get thrown away and good parts of used engines get ditched in the skip too.

          Why not allow engines to be fixed to a certain degree?

      2. @velocityboy I find it interesting that there are people who, after decades of trying to bring costs down by technical regulations with no effect at all, still think that is a possible way to reduce budgets.

      3. @velocityboy, I do not mean to come across as overly harsh, but when you say “a simple engine formula would result in an engine that’s cheaper to build and cheaper to buy”, why would the former necessarily lead to the latter? I mean, in a series such as NASCAR, where the design of the engines is extremely rudimentary by modern standards and aerodynamics are effectively fixed, there is a significant disparity in budgets and the few biggest teams think nothing of spending over $100 million a year (the biggest, Hendrick Motorsport, is rumoured to be running closer to $200 million a year).

        If you still create the same incentive for teams to spend heavily, then a simplistic engine or aerodynamics configuration will not really make much difference – teams will still spend heavily to eke out those potential advantages, and potentially all you might achieve is displacing that spending to a different part of the car instead.

      4. @velocityboy,

        Over time it became a place for automotive innovation and technical competition

        That is how it began, its raison d’etre, not an accidental wander down the wrong path. F1 is a technical development series, always has been and always has to be if it is to survive. With the current tyre and aero regulations the racing is nowhere near as exciting as it could be so it falls to engine development (and unfortunately aero) along with driver skill to maintain interest.

      5. eliminate the cars dependence on aerodynamics and the cost of designing and building a car would probably drop dramatically. Similarly, a simple engine formula would result in an engine that’s cheaper to build and cheaper to buy.

        so f2 then?

    2. Who did that chart?!? Half the bars aren’t labeled!

      1. @falken I couldn’t see this at the first then realised it was only happening at certain screen widths. This has now been changed. Note that you can also check the data labels and values by tapping/clicking the columns.

    3. The budget cap will be extremely difficult to police.

      For example, Red Bull Racing procure technical services from Red Bull Advanced Technology. With latter being “independent” of the race team, essentially a registered vendor, I dont see how the FIA can delve into its the operations and finances.

      The structures of the bigger teams on the grid will be as complex. Whatever happens with regards to the budget cap, lawyers and accountants will figure out a way to circumvent the regulations, thats why they exist.

      1. And that’s precisely what worries me. Money spent on the 2018 season might not be accounted for until 2020. And when after two years, it is found that Team A overspent in 2018, will the FIA change the Championship results retrospectively?

      2. @jaymenon10 The technical regulations are difficult to police. Of course there have been some cheats, but F1 is a lot more fair and balanced because of those regulations.

        1. @patrickl

          This obviously isnt about technical regulations. On the technical side, a physical end product will exist, be in the form of a part or software (bit more complicated i.e. 1994 Benetton), making more it more difficult to cheat. As we’ve seen, teams may get away with it for a while, but rivals will protest, or the FIA will pick up on it.

          On the financial side, there is no physical evidence, its all numbers, that are easily manipulated. Even with tight restrictions in various aspects of the world’s economy, accountants easily circumvent these regulations/restrictions. Why do you think the biggest corporations in the world pay next to nothing in taxes?

          1. Because the rules are too often made to allow them to do so – the corporations influence the rule making with party donations, lobbying and off course with states rightout offering them tax breaks etc. for “claiming” a company HQ. Much like how CVC agreed with special payments and the “strategy group”

      3. The employee numbers for str, Haas, Sauber and FI all include external staff doing work on behalf of the teams already. This is not an issue @jaymenon10 they already report such mixed staff counts

        1. They report it because they don’t have a reason not to. As soon as there’s a cost cap, teams will just procure services from befriended companies at very cheap prices. A cost cap is simply unenforceable.

    4. Vettel fan 17 (@)
      14th February 2018, 14:22

      Interesting article. The bar chart shows the big gap between budgets for the “big three” and the rest. F1 may never find a solution that pleases everyone.

      On the staff, if F1 limited cost, wouldn’t this encourage teams to join. If so, those old staff can all be employed, so they keep there jobs.

      @DieterRencken keep up the good work :)

    5. I’m not against a budget cap as long as it doesn’t take away the things that make F1 what it is in terms of not just performance but also technology & development. If anything I think the only way a cost cap should be introduced is if it includes an opening up of the regulations rather than closing them down via introducing more spec parts & less areas of development.

      The main focus in more recent times is ‘closer racing’ but to a lot of people (Myself included) the performance, technology & development side of F1 is equally as important (If not more so).

    6. Food for thought no doubt. I think that long term some kind of cost control and better revenue sharing is necessary to have a more competitive field. One of the reasons the big teams get a bigger share is that they spend so much, right? Seems like a vicious circle. I know the analogy doesn’t really stick because the spending is so different, but in the years since the NHL brought in a budget cap over a decade ago (adjusted each year to overall league profits and paired with revenue sharing) it’s difficult to argue that hockey has ever (in my living memory anyways) been healthier or more competitive. In any case, one way or another F1 will need to level the playing field if it hopes to keep its current viewership, let alone attract new fans, or keep teams interested. How long will smaller teams keep on participating if it’s bound from the outset to be a losing venture? I mean if Force India spend 100million pounds(!) to finish fourth and I’m impressed by how they do so well on a ‘small’ budget something’s out of whack. Reduce costs, but loosen design restrictions…

      1. @maciek the NHL, NFL, NBA have salary caps which are a much different than a budget cap. The larger better funded teams in those sports will have better facilities, better equipment and better employees (better doctors and physio people for example) than the smaller teams.

        1. @velocityboy sure, like I said, the analogy doesn’t really stick; I don’t know much about the NFL or NBA; in the NHL your point about facilities is somewhat true, but as far as better equipment and especially better employees that doesn’t really hold; the whole point is that the teams that are successful today are successful because they’ve been good at being imaginative and sniffing out talent and taking the broad and long view on development; you can still throw money at a star coach or GM, but that’s no guarantee of anything and you can’t buy a championship team; you just have to look all the big rich teams that haven’t had a sniff of the cup in years if not decades. I know it’s not the same realities in motorsport, but in general if you can make the potential to succeed equally (or at least more) accessible to all participants, you will likely end up with better competition and a better sport.

    7. A great read. It’s interesting that the team operating most closely to the cost cap line in terms of budget and headcount, Renault, finished last season a lowly 6th (and with arguably only the 4th quickest car).

      The simple fact is that f1 teams spend what they can and then a bit more and have done so since time immemorial. Something has to be done but I agree that cost caps are not the answer. The teams need to come together with FOM and the FIA and have a good honest discussion about what they want the sport to be and how the sporting regulations, technical regulations and commercial rules should be best framed to achieve this. It’s never going to happen of course so I suppose all we can do is watch and wait for it to all go pop again as it did in the winter of 2008/2009.

    8. The teams are allocated 50% of F1’s EBITDA. Liberty Media (“LM”) is allocated the other 50%. The teams use their half of the funds to design, engineer, construct and race the cars. LM uses their half to cover their cost of capital. LM has about $8.5 billion of invested capital (in F1), which has a cost of approximately $700 million per year. But this capital is not invested in assets that benefit the sport, rather it was simply the pay-off to Bernie, CVC, Waddell & Reed, etc., which turned their aspirational enterprise value into a hard financial obligation. The assets on LM’s balance sheet are nothing but goodwill and as much depreciable intangible assets as their accountants would allow (to lower income taxes). In other words, LM has almost nothing invested in assets that are required to bring this sport to its fans: race cars, circuits, engine and chassis manufacturing facilities, transporters, etc. The only hard assets provided by LM are TV cameras, cabling, TV production editing and mixing boards, and the Paddock Club, i.e. tents, fancy place settings, food service equipment.
      And to make matters worse, this drain on 50% of the sport’s EBITDA has forced the sport to adopt a dysfunctional and unsustainable business model. Race promoters lose money every year, and can only persist with government largesse. Most fans can’t afford to go watch the sport in person. Many fans can’t afford to pay to even watch the sport at home, or are unwilling. Some teams struggle to make the grid, relying on pay drivers, which erodes the perceived quality of the sport amongst fans who already feel they pay too much.
      The operating costs of the teams is an issue, but there is a bigger issue, which is that the sport should not have a CRH that must suck-away $700 million per year and providing very little in return. This situation is intractable. The right solution would be for the teams to break-away and form a new series, one which they own (a la the NFL, NBA, MLB, etc.). Yes, they would lose Monaco, Spa, etc., temporarily. But LM would be forced into bankruptcy and the new series could buy those contracts for pennies out of administration. The financial structure of the sport is the issue.

      1. Exactly, it is far past the teams to get rid of LM or CVC or Bernie or whatever parasite that is sucking the life blood out of F1.

        Concord ends after 2020, GET RID OF LM THEN BY ANY MEANS NECESSARY.

      2. @Gary +1

        A 700 million pound elephant chicane that travels with F1 every season.

        Bernie’s legacy: world’s greatest used car salesman.

        1. I won’t profess to know much about the ins and outs of this issue, but I have a feeling LM went into this eyes wide open, know exactly what their financial responsibilities are, and plan on growing the sport and the audience and increasing revenues beyond where they’ve ever been. Yes they have inherited issues and they know that. The issues spelled out above all exist thanks to the BE CVC way, and I think even before CVC came along. I’m sure LM will have to live with these issues for a time and will also have plans of their own that, as I suggested earlier, will slowly get them in better shape. They have always said this is a long term venture, and I would suggest nothing will have caught them off guard once they took over the reins.

      3. Exactly, Bernie’s greed and the teams naivety laid the grounds for the demise of F1 right from the very first agreement the teams entered into.

      4. I don’t know where you get your “50% of F1’s EBITDA. Liberty Media (“LM”) is allocated the other 50%” information from: The teams share around 68% of F1’s underlying revenues of around $1,35bn (turnover of around $1,8bn minus around $450m operating costs), which equals +$900m shared amongst the teams and $450 to the commercial rights holder.

        The last time it was split close to 50/50 was pre-2013, when the numbers were in fact 47,5%/47,5%/5%, with Ferrari being paid the additional 5% on tip of whatever the team earned in results payments.

    9. *You mean 1.000 highly qualified personnel will be redistributed to the smaller teams, of the payout structure changes too. Even without the changes, the sport will grow in the long term, so the smaller teams have more budget to hire personnel. I think you make it more dramatic than it will be in reality.

      1. Your medication is working very (maybe too) well.

          1. I think he means you’re being way too optimistic, to the point that you’re not being realistic. Just a bad joke, it seems.

    10. Equal distribution of prize money. That’ll immediately raise budgets of smaller teams. No special deals with any other “historic” teams. Let increase in exposure and sponsorship money be the reward for using equally allocated prize money more effectively.

      Let the teams eat the cost of going above and beyond their share of the prize money. Not even MB and Ferrari have unlimited budgets.

      1. @thepostalserviceisbroke That really does nothing. The small teams would get 30 million extra and the big teams 30million less. That’s a drop in the bucket.

        1. Not Really. If the bottom seven teams got $30 million more, the top three teams would get $70 million less each.

      2. I don’t think the distribution of prize money should be equal. I don’t agree that smaller teams who have put everything together to qualify to enter and therefore theoretically sustain themselves in F1, should start out by holding out their hands for more and more. And the big historical teams are the draw. Fairer distribution however should, and it sounds like will, happen. I think what happened in more recent years, was that after entering F1 under certain terms and expectations, smaller teams then found themselves caught out with the new expensive Pu’s that move the goal posts. They need help now, and I’m sure will get some, but I sure don’t think they deserve to have their path paved in gold.

    11. Roth Man (@rdotquestionmark)
      14th February 2018, 17:27

      Policing aside. Set a budget cap immediately at the budget of the highest team (Ferrari’s). Then leave it there for 10 years. That way inflation will slowly help all the other teams reach that budget over time without any immediate hit to Ferrari.

    12. Very interesting article! The budget cap is simply too difficult to implement without having casualties…I don’t know, maybe an idea is to provide additional benefits for the teams that remain on the budget cap, maybe allowing them to have x test days more per year than the teams that aren’t adhering to the cost cap, or letting them have more freedom to use the cfd resources on their cars as a benefit.

    13. A glide-path has been proposed to take the sport through to the end of 2020, but that suggestion is, of course, too logical for F1.

      Again, another brilliant read. With every Rencken article, my rage and fury at CVC Capital’s whorish business style increases tenfold. They sucked the blood out of F1 for a decade.

    14. With the constant propaganda on this blog against a budget cap and the oddly rosy look on how “redistributing the prize money” would help fix the budget chasm, I’m probably the only one here in favor of a budget cap.

      Even if it’s difficult to police it will have a much bigger impact on bringing budgets together than anything else. Or rather, nothing else has worked.

      We have teams spending 3 or 4 times as much as the smaller or even mid field teams. How on earth can you expect any competition for the win other than from those three teams who are willing to spend up to half a billion a season?

      Taking Ferrari and Red Bull’s bonuses away and giving them to the smaller teams is also not going to do anything meaningful. That’s tens of millions when we have a gap of hundreds of millions.

      I seriously hope they set a more reasonable cap though. Start at say 400 million or 300 million and work down from there over the coming decade.

      BTW Those estimated budgets look off. Most estimates are much higher for the top teams with much less of a gap between the three as well.

      1. @patrickl I don’t think you’re alone. I think a budget cap would be good too but it’s just that we get so bombarded with how that would never work or would be impossible to police etc etc, I just figure from my armchair I can’t possibly know what will happen and will just leave it to Liberty and the teams to figure out, naturally. All I can do is continue to watch…continue to be a fan who is part of the audience which is where it all starts anyway. Without audience all the rich folk inside F1 have nothing. And I think there are some exciting things to come.

        1. Your comment: BTW Those estimated budgets look off. Most estimates are much higher for the top teams with much less of a gap between the three as well:

          The numbers are based on official Companies House returns for British teams, and insider info for the balance. So if the numbers are “off” the teams are guilty of false reporting…which I doubt.

    15. Budget cap is good in theory, as long as it is high enough, but the concerns with policing it are real. Creative ways to go around the rules and subsequent finger-pointing in all directions would be inevitable. There always will be big teams and small teams, but there should not be enormously big teams and teams on the brink of bankruptcy. And fair or possibly equal distribution of revenues (with no under the table bonuses) should help with that. Another option would be having teams with budgets of say 200 million and more fielding three cars and teams with budgets under 120 million with one car…but that would at the minimum end the constructor championship as we know it. There are no easy solutions but I believe that equitable revenue sharing should be the first step.

    16. And just another note on the extravagance of yesteryear. Recently, David Hayhoe pointed out to me a line from the 1994 regulations: Each two-car team is allowed 64 fresh engines per season. In other words, two engines per car per race then and one engine per car for seven races today.

    17. >> budget cap
      >> in F1

      Been following this since early 80s. It can’t be done. It can’t be done by means of technical regulations (as has been proved endlessly) and it can’t be done by a mere cap, as is being demonstrated.

      The real question, to me at least, is: why? We have Indy and NASCAR and WEC and all the electrical new series. There’s no need for a cap in F1 (yes yes I get Liberty must earn money and smaller teams complain like chickens and whatever).

    18. The ferrari number includes engine staff. Its very hard with teams like rb fer and merc just to know who works in racing and who does marketing.

      1. It does not: Ferrari’s total F1 headcount (incl engines) is 1400, so 460 for engine operations. The same applies to Mercedes and Renault headcounts: the engine complements of 450 each were excluded from the tables above in order to provide like-for-like numbers.

        As for marketing costs and heads: These are mainly carried by the mother company.

    19. A cost cap is kind of like an ambulance at the bottom of the cliff. The article suggests that one of the biggest spending differences between major and minor teams is in season development. So stop in season development.

      But trying to control team spending is hardly low hanging fruit for Liberty anyway… A much easier problem to solve is the prize money situation. Liberty simply needs to decide is F1 a heritage preservation trust… In Which case they can keep paying the red team for just being a team in red that’s been around a long time. Or are they in fact a sporting competition, in which case they should distribute revenue based solely on performance.

    20. @dieterrencken I’d have thought one obvious sweetener for the big teams would be to allow/encourage them to run a second team, with a significant amount of data sharing allowed. Ferrari and Mercedes both have enough headcount and money to operate two teams under the suggested restrictions. Ferrari could field an Alfa Romeo team, and Mercedes could split Mercedes with an AMG team. RBR already have Toro Rosso, so you’ just need to allow them to work more closely than they do currently – something akin to the first few years when TR ran one-year old RBR chassis and aero designs.

      Big teams still get the chance to dominate by (if they do their jobs well) locking out four top grid spots. Indy teams get to compete on a far more level playing field. Fans get to enjoy seeing more cars on the grid with more opportunities for talent rising up from other series’. It’s a win win win.

      1. That was considered, but would out teams such as Williams, Force India, Haas and Sauber out of business and turn those operations into lackeys of the big four (or five).

    21. A very well written article.

      Thank you!

    22. “mid-noughties”
      really?

    23. Brilliant article.
      The problem with F1 it’s not the big teams, the problem is the shareholders. F1 shouldn’t have shareholders, the teams should own it.

    24. I think 150 would be fair indeed, it was the middle ground I thought about before even reading that the amount suggested was indeed 150.

      Force india is beating teams with more money than them already and since years, proving that if the budget difference is not too insane or if the team with most budget fails on other departments they can be beaten with less budget.

      Therefore, if ferrari, mercedes, red bull were limited to 150 and force india could continue to afford 100, I wouldn’t exclude the possibility of beating one of the 3 in a season where one of the top 3 cars isn’t up to the typical standards (ferrari 2016, red bull 2015, ferrari 2014).

      And obviously 150 is still 50% more than force india or haas can afford, it’s still a decent advantage for top teams.

      Ferrari is the one who would be seriously limited, over half of their budget, mercedes quite a lot too, not that much for red bull and mclaren, so I think the hardest to convince would be ferrari and mercedes.

      And ofc the having to cut on people is a problem, don’t know what to do about that.

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