Why F1 must resist calls for a ‘two-tier’ budget cap

As revealed here previously, the team teleconference originally called by the FIA and Formula 1 for last Friday has been rescheduled, and will now be convened today at 1pm BST.

According to sources, the reason for the delay is two-fold. First, the ‘big three’ teams had submitted lengthy written proposals to the FIA and F1 after the previous meeting. These needed extensive analysis and due consideration, which was not possible within the timeframe. Second, a Technical Working Group meeting had been held the day before, and technical delegates needed time to feed technical proposals for 2021 back to their teams.

However, the primary agenda item centres on the budget cap due for introduction in 2021, and here the 10 teams are wide apart, by as much as $75m off a base figure of $175m. Ferrari and Mercedes are believed to be holding out for as much as possible – although they are allegedly prepared to move down to $150m. By contrast, McLaren is pushing for $100m, as team principal Andreas Seidl confirmed yesterday.

“I think 100 million is a good number to run Formula 1 team in the way we want to see Formula 1,” he said during a media teleconference, “because it’s important that Formula 1 is still having the fastest car on the planet [and that] Formula 1 is still seen as [being] the leading edge in terms of technology.

“I’m convinced that this is possible with a budget cap of a $100m.”

Contrast that with Ferrari’s position, outlined by team boss Mattia Binotto: “We are discussing a budget cap reduction but we should not forget in doing that exercise that we’ve got different structures, and different assets.

“There are teams which are constructors like Ferrari and other top teams, where we are designing, developing, homologating and producing each single component of our cars.

“Other teams are customers, buying some parts, and do not have the same structures. So when discussing a budget cap we must not forget we have different situations, and it’s important we find common ground which suits the different situations and maybe the answer is not a single budget cap equal for all the teams.”

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Although no numbers were quoted during that interview, a notional figure of $120m for ‘major’ teams and $80m for the rest were bandied about after the last meeting. But what’s the rationale for adopting this ‘two tier’ approaching instead of, say, splitting the difference between the $150m pushed for by Ferrari and Mercedes and the $100m preferred by McLaren and others, and settle for a cap of $125m – as argued for here previously?

On the one side the positions of Mercedes, Ferrari and Red Bull are understandable: they do all the ‘heavy lifting’ and thus incur development costs, which others in turn benefit from.

Yet, these two teams choose (operative term) to make their products available to others in order to generate revenue and make savings. They are not forced to sell to others and could opt to purchase or source the same components elsewhere if they so wished. That said, would they still incur research and development costs were they to adhere strictly to in-house usage? Absolutely.

Thus the question is: Why should F1 tailor budget caps to suit the preferences of individual teams. McLaren and Williams, after all, each produce their entire car in-house and choose not to sell components, so why should, say, Ferrari be given the double benefit of a higher budget cap and the resultant income?

A two-tier budget cap was previously mooted by the FIA in 2009 and became the subject of a court battle brought by Ferrari (!) against the governing body. If it were introduced now, would F1 revert to a two-tier ‘class’ structure, as it did in 1987, when separate cups were awarded for the top non-turbo-powered driver and team?

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The two-tier structure was an obvious failure. It was scrapped after a single season, and today only the most fervent fans recall the ‘Jim Clark Cup’ and Colin Chapman Cup’ were won that year by Jonathan Palmer and his Tyrrell team respectively. There is no reason to expect reviving the idea over 30 years later would be less of a failure, particularly given the sport’s greater professionalism now.

In any event there is no reason for concessions to be made for voluntary parts supply as the Financial and Technical Regulations make provision for such situations under the “transferable components” clauses, which provide for “fair value” transactions.

Another proposal likely to be discussed during today’s meeting is some form of financial equivalence formula to compensate teams for research and development and other costs. This is another concept F1 unsuccessfully tried before, in 2010-12, referring to it as the Resource Restriction Agreement. The RRA also bombed.

Talk of two-tier budget caps, different classes and resource restriction agreements begs the question whether F1 has learned from its past failures at all.

Although the goal is to reach a resolution during the Thursday meeting, sources suggest this is highly unlikely, and that at one or more teleconferences will be required. One source believes that the only way a tiered budget cap would be acceptable to all is for each team to have its own cap, which they effectively have now – and look where that got F1…

The FIA and F1 need to stand firm: an affordable budget cap to fit all, or chaos. History not only repeats itself, but informs the future, and in the current environment F1’s future is very much hanging in the balance.

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