Formula 1 Management intends to introduce a budget cap in a series of stages, beginning with a “soft” cap which will come into force next year.
This will pave the way for the introduction of a full budget cap enforced in the regulations by 2021. This will put a “ceiling” on the amount teams can spend, according to its managing director of motorsport Ross Brawn.
“With the FIA and in consultation with the teams we are progressing well on the economic initiatives,” he said. “Work on the mechanism of a cost cap is going well.“At the moment we are looking to introduce it in a soft form, with dry runs in 2019, and 2020 and then it will be become regulatory in ’21. I would say that barring some last-minute discussions that’s pretty much finalised now.”
The cap is expected to be set at $150 million. “The ceiling won’t be achievable for all teams, but it will reduce the differential between the teams that are at that limit and those that aren’t,” Brawn added.
“At the moment I think a top team spends twice what a midfield team spends and if we reduce that margin to around 10 or 20 per cent, then there is something for the midfield teams to aspire to. There will still be an aura around the big teams, but a midfield team doing a great job will be able to compete.”
Brawn admitted the plight faced by Force India, which went into administration ahead of the Hungarian Grand Prix weekend, shows F1 must take action.
“We only have to look at the situation Force India finds itself in to understand how crucial this is. The financial burden on teams is not sustainable in the long term and we are taking steps to put a limit on how much a team can spend.”
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Swindle94 (@swindle94)
22nd August 2018, 19:46
The big teams are ok with this? No way they want to give up an advantage unless they already know a loophole to the cost cap.
anon
22nd August 2018, 23:09
@swindle94, if it is anything like the proposal for a cost cap which was suggested earlier this year, it would mean that there were multiple areas which were outside of the cap. Driver salaries and the salaries of certain key senior staff figures, for example, were exempted, so a team like Red Bull can still buy in star designers like Newey and not worry about breaking the cap.
In reality, I do wonder whether this really is going to have that much of an impact given that the midfield teams are already running below the proposed cap level, whilst the larger teams will potentially be able to exempt a number of those items that would push up costs.
Furthermore, will Liberty Media choose to redistribute the prize money more equitably now to further reduce the budget disparity? I cannot help but wonder whether what happens next is that Liberty Media will say that they are “evening up the playing field” by removing some of the bonus payments for the larger teams, but might choose to take that money for themselves rather than redistributing it amongst the smaller teams.
After all, they could argue that the larger teams wouldn’t be able to use that money anyway under the budget cap, not to mention that it would technically be reducing the differential between the larger and smaller teams – just not necessarily in the way that some fans might have wanted them to do (i.e. by providing more support to the smaller teams instead).
Meanwhile, some have talked about intentionally breaking the cap and, given that teams inevitably push regulatory bounds off the track as much as those of the cars on the track, it seems inevitable that some of that will happen. It is particularly problematic given that any breaches of the cap will almost always be picked up retrospectively – it might take months, or even years, before a questionable transaction is picked up, by which time it might be far too late to take any action.
It might be especially the case if it is near the end of the season and the championship battle is tight, especially now that the official prize giving ceremony – where there is the official confirmation of the winners of the WDC and WCC – now takes place so soon after the last race of the season. The temptation to push or break the bounds when pushing right to the limit on development would be there, especially if there was the possibility of then having time to hide until long after the FIA has awarded the title at the official prize giving ceremony a week or two after that last race.
The FIA has currently never dared to take retrospective action against a title winner so far, even when drivers or teams have later admitted, or even openly boast, about how they broke the rules. Would the FIA be prepared to take retrospective action against a team that broke the rules and won the championship by breaking the boundaries on the spending cap?
It would almost certainly make people then ask if other drivers or teams should be retrospective stripped of their titles given they cheated as well – for example, would Nelson Piquet be allowed to keep his 1983 title even though Brabham were cheating that year (Bernie quite happily admits it, although saying that whilst Brabham cheated, so did everybody else that year)? It might open up a lot of questions that the FIA might rather not want to have to answer, but at the same time it would come under considerable pressure to take action.
Another concern is that it sound like Liberty is rushing some changes in because of the current situation with Force India, which creates the risk of the regulations being vague or incomplete when the 2019 season starts because they have been brought in before they were properly thought through.
I would therefore not be surprised if we end up seeing instances of teams unintentionally breaching the cap because they are confused about what exactly is and isn’t classed as a restricted item, or if we see a lot of arguments in 2019 because of loosely worded regulations that can be interpreted in multiple different ways.
That is something that I think is more likely to happen and potentially being a lot more damaging than deliberate cheating, since it is more likely to stir up anger against such a system if it was seen as unjustly penalising teams (especially if it impacted on a smaller team rather than a larger one) – we see it happening with technical and sporting regulations, so I would not be at all surprised of the risk of a similar issue happening now.
Phylyp (@phylyp)
23rd August 2018, 1:28
Seeing as that’s Liberty’s standard operating procedure for many changes, I wouldn’t be surprised if the risk you mention (or something similar) occurs. The good news is that by calling it a soft cap, Liberty can call “backsies” on any error that occurs.
Nice comment, anon.
Rhys Lloyd (@justrhysism)
23rd August 2018, 13:22
They’ve been discussing the budget cap for months. This is hardly knee-jerk.
Garns (@)
23rd August 2018, 14:39
Good comment Anon, some really good points there.
I am very conflicted with the budget cap.
It will make things so much better for smaller teams and new entries to F1- both very needed at the moment. We have past champions like Williams that are quite simply awful at the minute, despite being 3rd or 4th in 2014. The Force India in the same spot the past few years yet struggling to stay on the grid. Not great.
But if introduced the big 3 or 4 will find a way around this with costings and cheat the system anyway. History has many example of big time teams willing to cheat to win, F1 still does it now with regulations so the teams will certainly do it with money?
F1 is the pinnacle of Motor Sport but we have to keep cost low to keep the smaller teams in- again a conflict in comments. I don’t know.
Fer no.65 (@fer-no65)
22nd August 2018, 19:57
Knowing F1, the soft cap will last longer than expected, and they’ll switch to a supersoft cap later on.
JJ
22nd August 2018, 20:03
I should think they’ll pit for hypersofts as soon as Ferrari threaten to quit.
Phylyp (@phylyp)
23rd August 2018, 1:28
COTD = chuckle of the day, JJ :-)
JungleMartin
22nd August 2018, 20:19
:)
Jimmi Cynic (@jimmi-cynic)
22nd August 2018, 20:28
@fer-no65: Yes. And the hypersoft soft budget cap. And then the capless Ultrasoft budget cap.
Joao (@johnmilk)
22nd August 2018, 20:35
They will have a mandatory cap switch during the weekend, and each GP will have different type of caps, hypersoftcap, ultrasoftcap and as you say supersoftcap and softcap.
They will have a hardcap, but no one will use it
BlackJackFan
23rd August 2018, 4:18
And teams will have to use two types of ‘cap’ during each weekend…
Shimks (@shimks)
23rd August 2018, 11:14
Nice one, @fer-no65! :O)
ZUKMaN
22nd August 2018, 20:05
Now we need a new trophy for accountant championship.
Dan_the_McLaren_fan (@dan_the_mclaren_fan)
22nd August 2018, 20:26
Maybe they should solve the revenue distribution first. It shouldn’t be ok for a top team to receive much more money than the budget of the slowest team. If a bad team doesn’t get a lot of money from the FOM, it doesn’t matter if the fastest will spend less money, because it will still be in financial troubles.
Jimmi Cynic (@jimmi-cynic)
22nd August 2018, 20:41
@dan_the_mclaren_fan: Well…technically, F1 is a technical sport – ideally it’s a meritocracy. The best teams are rewarded for their great performance. I wouldn’t want the poor teams rewarded for their poor performance at the same level as the top teams. However, certainly could be more fairly distributed – on performance alone would be my choice. If people feel strongly about a certain team’s legacy, then buy some overpriced team swag.
The irony of sport is that Ferrari probably makes money from F1 – a single sponsor – a seemingly outlawed tobacco sponsor, Phillip Morris, gives them $200M a year. The F1 legacy money is just the gelato on top.
No matter how FOG decided to split the team’s share of pot, the share isn’t big enough. 10 teams X $150M = $1.5B. What did FOG pay the teams last year? Around $940M…a considerable shortfall.
The solution would be for Liberty/FOG to take a smaller cut or vastly increase F1 revenue. Or both. Tough all the way round. Thanks again, Bernie, for your $8B legacy.
Robbie (@robbie)
23rd August 2018, 13:54
@jimmi-cynic Pretty sure you’re way over the mark with that $200M number annually from Philip Morris to Ferrari. I just searched about a dozen articles from when the two last re-upped their deal in 2017, and it took that many to even find a number mentioned (ie. it’s under wraps I would say) but one suggested $40M, and that is the number I thought I had read last year too. I would think that if it was $200M per year there’d be quite a bit more resistance by the other teams to this subliminal deal, and/or all cars would have subliminal cig ads if it was that lucrative and easy to get away with.
But of course teams make money being in F1. They are there marketing their sponsors brands as well as their own. It is certainly not just about what they get directly from F1 in TV money, performance money, and legacy money. Have we not heard that the global impact for Mercedes being in F1 with their current profile has been pegged at about a billion a year in marketing value? They sell more cars by being in F1. A lot more. Or they wouldn’t be spending the money to be there. Haas entered F1 largely to expand their global contracts for CNC machinery which were doing fine in North America but needed more exposure globally.
Jimmi Cynic (@jimmi-cynic)
23rd August 2018, 19:32
@robbie: Pretty sure don’t know the actual value…but some sources reported $160M/yr and here as well. Joe Saward stated as much as well.
If PMI only puts a paltry $160M into Ferrari…that’s still over the proposed cap. No matter. Ferrari gets away with more moneyed mischief than any other team on the grid – it’s their legacy and birthright.
mrfill
23rd August 2018, 15:31
Isn’t the Philip Morris deal that they sell on all the advertising space available and get paid for doing so? Acting as an ad agency in other words. PM may pay 200m and only sell 100m or they may sell 300m. In either case Ferrari know exactly how much they will get and don’t have to worry about falling short, which seems rather more sensible than the way other teams carry on, especially when sponsors are thin on the ground. Ask Zak…
Silfen (@silfen)
22nd August 2018, 21:59
Because of the contracts with the teams under the Concorde Agreement, that cannot be changed until the end of the Concorde Agreement in 2020. So probably it will change in 2021 as proposals for a redistribution are already shown to the teams.
Karl
23rd August 2018, 10:22
Combine the targets: Cap at 150M, any overspends get deducted from prize money and distributed equally to teams that stay under their cap.
JohnH (@johnrkh)
22nd August 2018, 20:50
Um seeing that Force India was about the only thing owned by Mallya that has not collapsed until recently and only after several yrs of questionable business dealings involving other holdings. Then taking into account Force India achievements on track, I think that quote from Brawn to be a load of tosh.
Also lets wait and see what the main players have to say and do about this.
Euro Brun (@eurobrun)
22nd August 2018, 21:21
So how long until a team relocates to China or India to help lower costs under a cost cap?
I’d laugh if the team formerly known as Force India chose to relocate to India!
Velocityboy (@velocityboy)
22nd August 2018, 22:19
It will be especially interesting if a team suffers several crashes in a season through no fault of their own. Who’s going to take the cap hit for building new cars? I can see the teams suing one another over this and going to arbitration to determine who is paying and what the cap hit will be. If you’e an accountant or lawyer there may be jobs opening soon.
Harry (@hwhite)
22nd August 2018, 23:11
I imagine this will be covered in the regulations.
Cristian S (@crystakke)
22nd August 2018, 21:42
They should introduce a cap similar to what the NBA uses. Like, NBA teams have a set amount of $ to use on player salaries, say $100m. This varies by a few million from year to year (almost always increasing). Now, teams can still go over the cap to sign free agents using some annual or bi-annual exceptions, or to sign their own players to contract extensions or acquire players via trade. So a teams total salary can hit $150m. Teams that are over the cap are paying a tax, first year is equal to the amount over the cap, then it’s 1.5x the next year and then 2x the year after that and so on. The point is to make even rich teams pay and FEEL it for overspending on players. All the money collected from this gets divided among the teams under the cap.
So, F1 could do the same. Set a cap, allow for some exceptions to exceed it, like a team really wants to push in a year to win the title, but then make them pay a penalty that goes into a pool that gets divided between the teams under the cap. Some teams might still spend like crazy, but the little teams would get paid.
Velocityboy (@velocityboy)
22nd August 2018, 22:07
@crystakke using the salary caps of sports like the NBA and NFL is comparing apples to oranges. NBA and NFL teams aren’t designing and creating players. If the FIA wanted to cap salaries fine but they are planning on capping what a team spends to design and build their cars. I’m guessing it will also cover their travel, hospitality etc. This type of cap will likely mean that innovation will stop or the teams will get very creative with their accounting where they try to amortize a cost over several years to stay within the cap.
Garns (@)
23rd August 2018, 14:48
Yes but these are too easy to get around- you can make payments to subsidiaries or third parties and get around these caps.
Gonzalo Pacheco
22nd August 2018, 22:37
I would do it in other way: Want to spend more than 150M? You can, but there’s a tax percentage over that (say 50%) that goes uniformely distributed to teams short of that amount.
I don’t see any cons in that, but maybe there’s a loophole I am missing
Proesterchen (@proesterchen)
22nd August 2018, 23:21
Will the thousands of workers across the industry whose livelihood this pointless cap will affect also be “soft fired” from their jobs?
“Do your jobs as if you were no longer employed, they said. This is just a dry run, they said.”
Tristan (@skipgamer)
23rd August 2018, 0:13
So you’d rather the top teams continue to have such a margin in spending which can be clearly seen on the track?
Sure, people will lose jobs in the short term, but I hardly see it as pointless. With closer competition and less spending required to be competitive the idea is to attract new entrants and that will generate more jobs with more competition… Those with good experience could probably find themselves in a better position inside new teams.
I’ll be disappointed if this becomes a popular argument against reducing spending because it’s far from a pointless endeavour.
Andrew in Atlanta
23rd August 2018, 0:16
Yes, because there are thousands who could lose their position by this change. How about think, then speak. If the FEW teams who are over this amount, prob soley MB, Ferrari and Red Bull, stay within the limits and the money is shared other teams could hire those who are released by them. A net zero in lost positions, and being an ex-F1 team employee probably isn’t one of the things that would keep you from employment. But then you couldn’t wring your hand and feign concern.
Jay Menon (@jaymenon10)
23rd August 2018, 0:18
This will change nothing. Creative accounting is a thing, and normally, the more money you have, the better the accountant you hire.
Robbie (@robbie)
23rd August 2018, 14:09
Theoretically, the difference now under Liberty/Brawn is that the teams will be on board with this. I don’t want to sound naive and assume the teams are going to suddenly become angels about this, but at the same time I would like to think the teams recognize an urgency in F1 improving itself from several angles. There is urgency, we know that, as do the teams, and simply there is a new regime in charge that is going to force some changes, and/or already is enforcing a new direction…new way of treating all the teams…new cars coming etc etc. The teams know this is no longer the BE way, nor was that sustainable and they know it. I would like to envision that with agreement amongst the teams, the caps will not be so draconian, nor placed in areas that can’t be policed anyway, such that there shouldn’t be a need for paranoia, and for teams continuing to act like they can do what they want like it is still the BE era, sneakily shifting money around and what not. As Brawn said there has been much discussion with the teams and much progress made. As they have said all along, F1 is no longer about the top teams with all the power, rather all the teams are to be included and on board.
Garns (@)
23rd August 2018, 14:57
@robbie
I agree that teams are now probably realising this isn’t the BE era where every shady deal was ignored and also F1 needs a shake up with how they operate. But the caps wont work. In theory yes, practicality no, too easy to get around. I said just before they can have subsidiaries make payments etc but can so easily have third parties pay to other third parties, then inflate prices to an non-F1 section (look at Ferrari or Mercedes, this is very easy to do).
I guess it could be done but would almost need a full time FIA accountant (or two) at each team full time.
Robbie (@robbie)
23rd August 2018, 17:41
@garns That’s fair comment but what I am hoping for is that the teams won’t be that sneaky nor need to be, and that they will understand the urgency and appreciate the spirit of what Liberty is trying to accomplish. I realize that sounds naive, but I do think this is a different era now and that the teams will agree to some extent to cap costs. As long as they don’t perceive their own business being encroached on too much…as long as caps are slowly brought in and are reasonable, I think the onus is on the teams to be fair to Liberty and give this a shot. If they want to just nod their heads and say yes just to get Brawn out of the room while they then behind F1’s back go ahead and do their own thing and hope not to get caught, I hope there are severe penalties, because they’d just be shooting Liberty and themselves in the foot and not helping get this entity up to where it should be in terms of audience and global excitement.
Garns (@)
24th August 2018, 14:08
@robbie
Nice comment Robbie. I wouldn’t say you are naïve but hopeful. I agree though, it needs to teams really getting behind this, I hope they do but behaviours in the past make me nervous, if you will.
But teams must realise its time to tow the line a little, it they don’t maybe Formula One wont be here in 10 years, that’s not being drastic but realistic.
I was so excited today when FP1 started up again (I am almost 42………no lets say mid 30’s lol), it shows how much I love F1, but they need to make a few changes so we can keep loving it.
Robbie (@robbie)
24th August 2018, 14:29
@garns Good stuff. Agreed. I think I feel like I sound naive exactly because of what you said…past behaviours. As stoked as I am about Liberty and the future, many around here still talk like it is the BE era, so I was bracing myself for a response from someone to say I am naive.
Phylyp (@phylyp)
23rd August 2018, 1:32
Any idea how the FIA will police the separation between engine R&D budget, from the car constructor budget for the 3 pure works teams, given that the cap is on the constructor, not the engine supplier?
For example, what’s to prevent any of those engine suppliers having the engine side testing out different engine cover & sidepod configurations on behalf of their own works constructor under the guise of “testing the thermal limits of the engine as installed”?
Jimmi Cynic (@jimmi-cynic)
23rd August 2018, 6:08
@phylyp: That’s easy! Mercedes, Renault and Ferrari all provide their engines free. To themselves. ;-)
Phylyp (@phylyp)
23rd August 2018, 6:54
LOL 😊, but I wouldn’t put it past the creativity of F1 teams to structure it in such a manner, @jimmi-cynic
Wayne
23rd August 2018, 6:21
Just let them spend what they want. Unban cigarette sponsorships etc. Let the cig companys pay an extra tax to advertise in motor sport.
mrfill
23rd August 2018, 15:36
and why not allow drug dealers to sponsor as well? They must have vast amounts of money washing around.
Escobar F1 ?
DB-C90 (@dbradock)
23rd August 2018, 9:31
I’m probably being lazy (it’s bound to be on here) but how many teams are even close to the $150 million?
If they’re not close now then why will the gap be any closer if the teams that are over (and under no obligation to reduce) stay over?
Sounds like the cap they’ll have when they’re not having a cap.
Strange…… but it seems to have buy in from the teams so I’ll keep an open mind.
Jere (@jerejj)
23rd August 2018, 11:18
But how policeable would this be?
Shimks (@shimks)
23rd August 2018, 11:22
@dbradock
Mercedes €450 million
Ferrari €430 million
Red Bull €350 million
McLaren €250 million
Renault €200 million
Sauber €135 million
Williams €135 million
Toro Rosso €125 million
Haas €110 million
Force India €110 million
https://www.f1today.net/en/news/f1/236949/budgets-for-the-formula-1-teams-for-2018
DB-C90 (@dbradock)
23rd August 2018, 11:28
Many thanks @shimks
Higher than I thought.
Captain Pie (@captainpie)
23rd August 2018, 18:57
@bdradock @shimks
A couple of good new sponsors or high paying drivers for teams like Sauber and Williams to be hitting that’s cap. Not too unlikely.
And you would think that maybe Toro Rosso will get assigned something from the pot that red bull aren’t spending under the cap too.
I wonder if Toro Rosso and Red Bull are going to concentrate on different areas of development and do some cheeky data sharing?
Captain Pie (@captainpie)
23rd August 2018, 18:57
@dbradock helps to spell correctly…