F1 flag, Red Bull Ring, 2018

Analysis: Teams urged to back budget cap and prize money changes for 2021

2021 F1 season

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Formula 1 commercial rights holder Liberty Media and the sport’s governing body, the FIA, are presenting a united front as they press teams to accept a drastic overhaul of the sport’s financial structure for 2021.

A team boss who attended last week’s Strategy Group summit in Geneva told RaceFans the two are “totally aligned” behind wide-ranging changes to the technical and sporting regulations, including the introduction of cost controls, after current agreements expire at the end of 2020.

The source described Wednesday’s meeting as “positive”. It was notable for being the first attended by Mattia Binotto since his appointment as Ferrari team principal.

The scuderia has previously threatened to leave F1 if it does not approve of the intended shape of the sport beyond 2020. However Binotto was “almost apologetic for some of the things that went down in the past” last week and displayed none of the resistance to regulatory and commercial changes shown by his predecessors, according to our source, speaking on condition of anonymity.

“It seems there’s been a big change at Ferrari…” he added.

RaceFans has learned from multiple sources that further tweaks to the proposed budget cap was discussed. Although three-year glide paths are to be retained from 2021 to enable teams to downsize systematically, allowances of $15m for engines will be applied, and excluded from the cap.

The proposed spending limits have been reduced accordingly: from $200m in 2021 to $185m; from $175m to $160m the year after; and from $150m to $135m in 2023 and beyond. However the full list of exclusions such as executive salaries, driver remuneration and marketing, hospitality and “other” costs from budget caps still needs to be defined.

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Appendix 9 of the current F1 sporting regulations provides for two-car, full-season engine supplies at €12 million – approximately $13.6m at current rates – for 2018-2020, payable in four instalments.

Kimi Raikkonen, Ferrari, Autodromo Hermanos Rodriguez, 2018
F1’s richest teams are heading for a pay cut
Teams also discussed expanding the schedule of listed parts (components which teams are required to hold the intellectual property to) and the introduction of additional standardised (or prescription) parts in 2021. The goal is to reduce the dependence of ‘B teams’ on major teams by forcing independents to manufacture more performance-differentiating parts in-house.

Teams will be permitted to sell non-listed or prescription parts but, in a significant development, they must be prepared to supply all entrants on the same basis if called upon to do so.

This proposed change is expected to affect Haas and Racing Point (previously Force India) in particular, who currently source non-listed parts from Ferrari and Mercedes respectively. It may also have consequences for Red Bull, who are currently gearing up to supply sister squad Toro Rosso now both teams share the same Honda power units.

The extra expenditure incurred by independents with the changes is intended to be covered by the introduction of a more equitable revenue structure. The ‘Big Four’ – Ferrari, Mercedes, Red Bull and McLaren – are said to have accepted the concept of reduced revenues as “inevitable”, although “a bit of argy-bargy over money is expected going forward”.

As outlined previously, in the absence of any formal agreements for the post-2020 period, the regulatory process is governed by the FIA’s International Sporting Code, which requires that major regulation changes “which affect the balance of performance between automobiles” are formalised at least 18 months before the start of an applicable season. Therefore 2021’s sporting/technical regulations need to be approved by 30th June 2019.

RaceFans understands further meetings are scheduled on 30th and 31st January in London.

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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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  • 48 comments on “Analysis: Teams urged to back budget cap and prize money changes for 2021”

    1. What’s in it for the FIA? How much do they get from Liberty to support forcing well-funded teams to fire thousands of people to increase Liberty’s shareholder value?

      1. FIA is raking in the money as it is; the longer the sport lives, the more they collect.
        @proesterchen

        PS “thousands of people”. hyperbole!

        1. Not at all. Just the numbers.

          1. you might want to go back to school then ;)
            @proesterchen
            According to @dieterrencken‘s RacingLines articles the top 3 teams have 2760 employees amongst them. If they were to go back to budget cap levels (e.g. current Renault) they have an excess of less than a thousand amongst them.
            And the new rules (more money for the small teams) allows for part of this to be picked up by the smaller teams.

            PS – the real risk to the thousands of job is this.

            1. Why stop at the top three? By the numbers you cited, 8 of the 10 teams are currently above the new 2023 budget goals.

              Even more instructive might be this article:

              https://www.racefans.net/2018/12/29/analysis-how-f1-teams-spent-2-2-billion-in-2018/

              So the ownership wants to reduce spending across Formula 1 teams from $2.2 billion to now presumably $1.35 billion, a reduction of almost 39%. That same article puts the current employment across all 10 teams at just under 5900 people. (not counting the 4 engine operations)

              So I guess our difference in opinion is whether a 39% reduction in spending will be done with a less than a 34% reduction in headcount.

            2. The trick is @proesterchen that many of the employees will easily find employ in smaller teams (who will get a larger share of the money after 2021 and can stock up) and then part of the people will end up in FE where teams are growing, or in other motorsport series

            3. @bascb

              Apparently, the trick is for the ringmasters to shrink the circus by 40% (fire some clowns, slaughter an elephant or two) so they can take home more of the gate.

            4. Isn’t making the most out of anything just for yourself the more or less institutionalized trick in our “capitalist” society @proesterchenchen?

              Oh, and I really have to question your premise there. If we follow your thinking – less money spend means less people means less “circus” – then the purpose of F1 isn’t to make money for FOM (ok) but it doesn’t have anything to do with offering a good sport / show / event to viewers/fans/participants, not even anything about developing clever new technology or something. Instead you reduce F1 to a working environment for (mostly) engineers.

      2. I think the FIA has been supportive of budget caps for a long time, it is the only way to see competing in the sport be viable over the long term. And since their deal with Liberty lasts for another 80 or so years (remember a 100 year lease), why wouldn’t they be aligned @proesterchen?

      3. @proesterchen First of all, the excess spending and thus hiring by the top teams has been over the top for too long. There are people employed just because these teams can hire them, not necessarily because they ‘need’ them, other than to suit their bloated ways. But companies restructure, merger, downsize, etc etc and sometimes there are job losses. That’s just natural. The people you are referring to will not necessarily be ‘fired’ as you like to put it. You are making it sound like Liberty and FIA are relishing seeing people booted to the curb. As was pointed out months ago, the lesser teams will be bolstered with the new budget plan, and may be able to hire some of the workers that the big teams have to package out. Also I would say because they are likely good people, the top teams will find places for employees in other areas of their companies, even if it is not with their F1 team. They may also take their F1 experience and go to other racing series. If Liberty has their way they would like to see a few new entrants to F1, and those teams would love experienced workers. No need to make downsizing for the top teams sound so draconian for the employees.

        1. They may also take their F1 experience and go to other racing series.

          indeed @robbie – both @dieterrencken as well as @hazelsouthwell and several drivers like Vandoorne, or Suzie Wolf have mentioned that they met a whole bunch of familiar faces in the FE paddock, so it is clear that these people will hardly end up unemployed.

      4. I’d say like many of us they expect /hope it will lead to a more even playing field, and more sustainable, perhaps even profitable, mid grid teams @proesterchen

        1. So you’re more concerned with the Misters Stroll and Haas not paying as much for their respective pet projects rather than the hundreds of people at each Mercedes, Ferrari, Red Bull and McLaren who face losing their job not because it is not productive or those companies are no longer able to pay them, but because the commercial rights holders of a show they are all competing in want to dictate these team’s spending in a ploy to increase their own share of the revenues to satisfy shareholder demands?

          1. This is not about a Stroll here. Or even about a Mr. Haas – although it rather is about the Mr. Haases of this world.

            This is about making it a good / viable / even profitable idea for investors / entrepreneurs / enthusiasts to build up a team, invest resources and achieve both sporing successes as well as make enough money to not have to fill up the pot every year with gigantic amounts of money. In other words, to enable a team to build up more value than just the brand name and the physical assets.

    2. Well, that’s a bit of good news, it seems.

    3. Nothing fiscal is in it for the FIA; the fact is that it’s ridiculous – and not sustainable – that 1500 people are required to field two cars for two hours on 20 Sundays per year. It’s a question of F1’s survival, not backhand money.

      1. Of course if the costs are less insane we may get 1-2 more teams joining which will absorb those jobs lost at bigger teams.

      2. What would be really interesting to know if the information is available anywhere is just what the 500 odd employees that some teams have actually do?

        I find it mind boggling that teams actually need that many employees – surely you can only have a finite number of aero people, mechanical engineers, fabricators and so on.

        Any chance of getting some sort of typical breakdown (in say % of total workforce terms) @dieterrencken ?

        1. To a large degree the numbers can be estimated as Companies House filings diffentiate between admin, engineering and management headcounts, and race operations staff numbers are limited by regulation.

          Where it gets hazy is in engineering/ manufacturing and marketing/hospitality departments as some teams sub-contract some of these functions – Haas and RP/Force India being prime examples. Contract staff are also used by some teams during peak periods.

          There is no fit-all answer.

      3. @dieterrencken

        It’s a manufactured crisis. Manufactured to allow the ownership to retain a laughably out-sized piece of the revenue pie while depriving the teams and the people actually putting on the show of the fruits of their efforts.

        the fact is that it’s ridiculous – and not sustainable – that 1500 people are required to field two cars for two hours on 20 Sundays per year.

        The fact is that that this isn’t a fact. You can do it, and successfully, as Force India have shown time and time again, on a much smaller budget and with a considerably smaller group of people.

        1. And how many races have they won in 20 years with 400 people? How many has Sauber won since being forced to downsize after BMW left?

          1. But that’s moving the goalposts considerably, isn’t it?

            No one is guaranteed success at this, not the garagistas of old, and not the bottomless-pits-of-money works entries.

            1. @proesterchen Exactly. No team is guaranteed success. Why do you expect teams to guarantee all their workers their jobs for life? Things change all the time. Change is needed badly in F1.

      4. Exactly Dieter. The FIA tried to bring in budget caps for exactly that purpose long before Liberty took over and stopped the commercial rights holder from being the stumbling block it had often been with Bernie in that respect.

    4. Teams will be permitted to sell non-listed or prescription parts but, in a significant development, they must be prepared to supply all entrants on the same basis if called upon to do so.

      I really like this; never been a fan of the B teams as it evolved.
      Not sure if it is really worse now, but there were too many examples last season where a B-team (or contracted driver) let the A-team-driver past a lot quicker than the other drivers.
      How can F1 ban moveable aerodynamic parts, whilst allowing moveable chicanes? ;)

      1. Don’t see the difference between not being able to sell certain parts, and being able to sell the parts only if your direct competition can just order them from you as well.

        Same difference.

        1. The suggestion being made would be that there is an ability to apply pressure of ‘non supply’ in one example but not in the other and that impacts on track action.

      2. I think it is rather a bit preventive @coldfly as well as a reaction to the trend to use components from others.

        Both to make budget caps work (without limits it could be a way to “spread” cost elsewhere) and with a view to putting a limit on the scope of cooperation. Haas was on the edge for most, FI / Stroll was rumoured to want to go as far or even further if possible, and with RBR and STR sharing the same engine, surely it would have become an issue with Red Bull Tech supplying both of these teams with parts.

        The huge difference is @proestschen, that for example Red Bull tech cannot “hide” cost in that they sell parts on the cheap for their own teams (making it easier to fit inside the budget cap limit) but asking a lot more from others. Nowhere does it say you have to sell “on the cheap” at all. Just at the same price as you supply others. They can make it as expensive as they want / need, but not sell one for cheap to say STR but ask McLaren for double that.

    5. Hi Dieter – “a bit of argy-bargy…”
      I was amused to see this expression… It’s about thirty years since it was coined (perhaps longer) but I’m surprised it’s still in use outside London… I love expressions like this but I wonder how many of your non-British readers understand it. ;-)

      1. Its late 19 Century in origin (Scots as it happens)

        But life would be very dull if we all had to use only words everyone would know…

      2. I’m a non-British reader and enjoyed seeing it. I’m familiar with it because David Hobbs used it quite a few times while part of the NBCSN broadcast team here in the US. I miss him and his funny phrases!

      3. Thanks guys – nice responses.
        Never knew the Scottish connection. And I’d forgotten Mr Hobbs’ use…

    6. Hello !

      Will there be any provision to allow for 1 or 2 extra teams to join the circus, meaning decreased revenues for either Liberty or the teams ? Is that even an issue for the FIA ?

      1. There is space. Don’t see the FIA would object or Liberty (they don’t share the profits with the teams; the teams divide a pool)

        Do the teams retain a veto on new teams?

        1. The pool would be divided by 12 instead of ten, so they have every reason to object – but they don’t hold a veto.

          1. Ferrari’s veto doesn’t extend to teams then?

    7. Goodbye F1. It will be nothing more than Indycar+ from 2021 :(

      All this push to give everyone a chance, Where everyone can win with constant action for the low attention span generation has been the death of F1. It’s this more than anything else that is the problem. F1 is as F1 has always been & those who are trying to mould it to what they think F1 used to be is what’s done more harm than anything else.

      1. You’re overthinking it. F1 is not about to be IndyCar nor ever will be.

      2. It will be “Corporate Americanised” configured for leverage, profit and control.
        Bernie’s dream come true! The teams finally submitting to budget caps that allow the rights holder to make handsome profits. The FIA seemingly having handed rule making to the leaseholder!

        Will they remember the EU commission ruling that originally forced the FIA have no part in commercial dealings, that in effect created the 100 year lease agreement as a compromise. They seem to, as they now have income from gifted share ownership gifted by Liberty . They have moved part of themselves to Switzerland out of reach of the EU.

        Will the cost cap be enforceable? Will most of the F1 stories be about finance in a few years’ time? F1 engineers spend their lives stretching bending and finding holes in the Regs, why would anyone imagine that the new hordes of team accountants will be any different?
        With multi year development going on all the time it is impossible to define what is in this year or next, or a project from last year now resurrected? Will the accounts be ready with in a year after the season finishes? They certainly are not at present and several are parts of main company finances. Only by completely isolating teams from their parents and allowing them one single bank account can any confidence be had. But then the list of exclusions will be subject to normal F1 rule bending stretching and individual interpretation, things will become promotional or managerial and a thousand twists and turns will surface. The current tech regs are often written from the wrong end by trying to ban specific devices, but then circumvented by others which have the same effect. Whereas it is the effect that needs banning with the onus on the team to prove it does not exist.

        1. @rpaco You’re probably right, but that doesn’t mean they shouldn’t try.

    8. “[…] the full list of exclusions such as executive salaries, driver remuneration and marketing, hospitality and “other” costs from budget caps still needs to be defined”.

      Translation: They’ll make sure that only the people at the floor pay the price for the wonderful budget cap. This drives me mad.

      1. Yeah, this the only point that seems conspicuously nebulous. I foresee a bunch of people suddenly becoming executive or having executive status at the teams as a firm to bypass the budget caps. Or the creation of a plethora of executive positions to give teams an advantage over another. Lets hope they clarify these points.

      2. Have to have exclusions you could wreck the cap just on 2 drivers and the team boss otherwise.

        1. So be it and let it show the path to the competitors.

    9. Blab, blab, blah, blah, the only way to fix F1 is to make the revenue share fair, and that means the commercial rights holder not keeping more than the average teams share of revenue, can’t happen due to the Bernie and Max sweetheart deal. F1 is doomed to the death of a thousand cuts.

      1. @hohum: Spot on. Smaller cut of the revenue pie for the budget-capped teams.

        The budget cap isn’t so much to make F1 more viable for the teams, but that’s a nice side-effect. The cap is make F1 more long term sustainable and profitable for Liberty.

    10. I don’t like the idea of a cost cap. Championships will be won with accountants, not engineering/driving.

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