Daniel Ricciardo, Red Bull, Red Bull Ring, 2018

Force India expect cost cap will have limited effect on top F1 teams

2018 F1 season

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Formula 1’s planned cost cap will only have a limited effect on the performance of the sport’s leading teams, one of their rivals has predicted.

Force India’s chief operating officer Otmar Szafnaur expects the sport’s richest teams will react to Liberty Media’s planned spending limit of $150 million by cutting spending in non-essential areas.

“The first thing they’re going to do is stop spending on areas that don’t yield performance,” Szafnauer told attendees at the Motorsport Industry Association’s Business Growth Conference 2018 at the team’s base today.

“The engineering folks that are in this room do help with performance so I think what you’ll see is when you go to a nice factory like Mercedes the grass won’t be cut three times a day, they might reduce it to once a week. They’ll stop spending on areas that have no impact on performance.”

However Szafnauer considers the cost cap a “necessity for the sport” which will help midfield teams such as Force India become more competitive.

“Everyone knows we can’t help ourselves,” he said. “It’s not about saving money, it’s not about making money in racing it’s about going faster. Sometimes we over-spend.

“A cost cap is welcome such that somebody can help us so that we don’t over-spend just trying to chase that little bit of extra performance at the margin. And usually marginal performance costs you a lot more than performance at the beginning.

“So we welcome the cost cap from an industry perspective. But selfishly, from a team perspective, we’re not even close to the mooted cost cap of $150 million. Hopefully that’ll bring the other teams closer to us in what they can spend.

“It’s no secret that there’s a direct correlation between spend and performance. I’m not sure the correlation is one but it’s definitely positive and it’s close to one. So I think that will bring their performance closer to ours.”

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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...
Keith Collantine
Lifelong motor sport fan Keith set up RaceFans in 2005 - when it was originally called F1 Fanatic. Having previously worked as a motoring...

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  • 17 comments on “Force India expect cost cap will have limited effect on top F1 teams”

    1. Otmar says the top teams’ performance won’t be impacted by a cost cap, e.g., a limit of $150 million per year, and that top teams can meet this cost cap by cuttting out spending that doesn’t impact performance. Well if that’s the case, then that implies that for top teams, who are spending approximately $350 million per year, only $150 is driving performance while $200 million is not. On its face that seems ridiculous. What’s more, this implies that the midfield teams, who are only spending $150 to $200 million, should already be competitive with the top teams, assuming that the mid field teams are focusing their spending $150 million of spending on the $150 million that drives performance, and not “mowing the grass three times per day”. His statement is analytically-challenged.

    2. I dunno, I don’t think you can have it both ways. I agree with the principle that Mercedes and the other top teams are where they are because they’re spending more than other teams are able to on performance. I highly doubt Mercedes are spending the same as Force India on performance but the rest of their budget is taken up maintaining their lawns.

      1. @mazdachris, I agree that the logic does seem a bit confused and the arguments he is putting forward are sometimes contradictory – it seems strange to argue that a budget cap “will bring their performance closer to ours”, but then seem to suggest that it won’t be that effective by suggesting that the larger teams won’t be that heavily impacted if they instead focus on cutting discretionary spending.

        Whilst it’s been mooted, the whole logic behind the logic cap still seems rather confused and still seems to have a fair number of loopholes or areas where there is still not a clear picture of what is happening. If midfield teams are already struggling financially, but their costs will not change and their spending is still under the budget limit, the benefits to those teams seems fairly limited.

        Meanwhile, if wage bills for larger teams such as Mercedes, Red Bull or Ferrari are a significant chunk of their costs, but wages for drivers and high profile personnel are also exempted, it will weaken the impact of a budget cap and raise the question of how much, if anything, it will trim off their performance.

        It still feels like the idea is not really being executed in a clear way, and does seem to point more towards a system by which Liberty Media can squeeze down on payments to the teams rather than any sort of “rebalancing” of the field as a whole.

        1. Congrats, anon, you win my cynic’s admiration of the day prize. ;-)

          That $8 billion Bernie car loan must be paid off – by increased revenue or by lower costs – to Liberty. Or both.

          1. @jimmi-cynic, I feel as if I should be responding with a cynical remark about winning a “cynic of the day” prize :-)

            As you say, the debts that the business has taken on need to be repaid somehow, and Liberty themselves have their own expenses that have to be paid one way or another.

            Whilst, on the one side, they have some scope to increase revenues by doing things such as expanding the calendar – hence Dieter’s note in the build up to the British GP about Liberty discussing increasing the number of races by 10% – or by their online subscription service, we know that the circuit owners are pushing for lower fees and a larger cut of the revenues from the race weekend on their side, reducing potential profits from hosting fees.

            With that in mind, the most obvious alternative method of increasing profitability is to reduce the amount of revenue paid to the teams – a budget cap becomes attractive in that situation as it then gives Liberty the justification to cut their payments on the grounds that the teams cannot spend more and they can top up their payments with a bit of additional sponsorship money.

            It’s mainly the largest teams that will be in their sights given they get the largest payments, and given Liberty know that the narrative of big teams wanting to hold onto their advantages is unlikely to get favourable coverage in the press, they can use that to give them additional leverage in any discussions.

      2. I don’t think they meant to make the point that they spend the same on performance as the top teams.

        I think their point is that the top teams spend money foolishly in certain areas, and those areas will be the first to go if they don’t affect performance, such as landscaping. I personally feel a budget cap is easier to enforce than others feel. There are regulatory reasons the teams can’t lie about their expenditures, so not only would there be sporting penalties but penalties related to financial disclosures with the government.

        Personally I’d say let the teams spend a certain amount on performance. If they want to spend more on cleaning the windows and other clearly non performance items (like lunch for staff etc) let them. There will have to be a step down process with this as well.

    3. Let me ask something: What’s the situation at McLaren in all this?

      There’s no performance gains, and now it seems they will have to stop spending on Freddos too. Is that right?
      Things will get even more uglier if there is a shortage of Freddos at the team. God help them.

    4. Midpack Teams 2016: “We need a budget cap”

      Midpack Teams 2017: “We need a budget cap”

      Midpack Teams 2018: “We need a budget cap”

      F1: “Ok, heres your budget cap.”

      Midpack Teams: “…But it won’t do anything”

    5. A cost cap isn’t likely to change anything and yet people are clinging to it like it’s a life raft in the middle of the ocean. As a simplified example, if there are two teams who both decide they will spend 100 million on the initial build and 50 million on in season upgrades, one team is populated with super-geniuses and the other isn’t. When the season starts the odds are that the team with the best talent will produce a much better car than the team that doesn’t. Then during the season, the super-genius team will spend their 50 million on improving the car and the other team will spend their 50 million on chasing the problems with their car. The next off season, the super-genius team will spend their 100 million on improving an already good car while the other team will spend a large portion of their 100 million on fixing a bad car. The end result is exactly what we have now. I’d go so far as to say even if F1 became a spec series, the teams with the better personnel will do a better job getting their cars ready to race than the other teams.

      1. I don’t know why people overlook the fact that sometimes teams mess up horribly on the cars at the beginning of the year. For example, Ferrari 2014, redbull 2015 or even better yet 2009 season (for teams without the blown diffuser), had they not had the budgets to redesign their cars and start on the following years concept, they’d be stuck in that position and then people will still moan as you say. Someone will always get it right and the others will trail behind and if that margin is >1s as we have seen since 2014, it’ll take years to catch up.
        Also the top for have the capacity to invest massively in the 2021 regs before cost caps which will result in the status quo being maintained.

    6. Wouldn’t.

      1. ‘Would’

    7. Sometimes I think a cost cap is a good idea but other times I think all it’s going to do is cause controversy & have a lot of unforeseen consequences that won’t necisarily end up been positive.

      I am sort of expecting it to be something they introduce but end up backing away from within a few years after some big controversy or something that brings up how difficult (If not impossible) it will be to adequately police such a thing.

      I also kind of don’t think it (As well as a lot of the 2021 regulations) are going to have the effect that a chunk of the F1 fanbase seem to want/think they will, Especially longer term.

    8. Francorchamps (@francorchamps17)
      5th July 2018, 15:15

      The whole article doesn’t make any sense and is full of contradictions. Really weird.

    9. Apart from the incredible contradictions in the reasoning by Otmar, I’m getting really tired of F1 teams/people criticizing every proposed change to make the sport better without coming up with what they think does work. The 2019 aero regs are not going to help close racing, Ferrari doesn’t want any competition and is, therefore, blocking everything by threatening to leave and now making teams spend the same amount of money isn’t going to help competitiveness…

      It’s all so negative and change is pointless anyway, so let’s just stop with F1 altogether, yeah?

    10. I don’t expect the cap to level the field, but that shouldn’t be the point either. The point of a budget cap in Formula One would allow teams to survive long-term, to attract new entries by allowing for a reasonable and reliable cost prediction. Formula One’s current system is unsustainable and if not for Renault entering on a last-minute decision and Sauber “stealing” 10th in the WCC in 2016, we could be looking at an 8-team grid, the same situation occuring should Mr. Mateschitz not feel like paying for two F1 teams anymore. A cap is a good thing, even if Red Bull, Mercedes and Ferrari are still miles ahead after its introduction. This is one situation where we as a F1 community need to think bigger than whether we have “good racing” (for what that term is even worth) or whether Liberty Media cash in by justifying keeping a bigger share of the income or anything, the budget cap is about F1 as a sport securing its long-term existence, no more and no less.

      1. @klon, but, at the current proposed level, does it actually help stabilise those smaller teams financially?

        As Otmar notes, Force India are currently spending less than the proposed cap would permit them to, but are one team that is rumoured to be very stretched in terms of their finances. Introducing a cap is unlikely to significantly reduce their direct costs, and at the moment the amount of additional revenue they’d receive is still unclear, so overall their financial situation might not actually change all that much if a cap was brought in.

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