Charles Leclerc, Ferrari, Circuit de Catalunya

Analysis: Can Ferrari use its veto to stop F1 lowering the budget cap?

2020 F1 season

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On Friday the FIA announced it had introduced a new “safeguard” regulatory clause through amendments to article 18.2.4 of the International Sporting Code. It applies to all FIA motorsport categories unless specifically superseded by other covenants, such as the Concorde Agreement, and empowers the governing body to make swift regulatory changes by majority vote under exceptional circumstances.

“The safeguard clause will overcome the current requirement to obtain the unanimous agreement of all competitors to amend regulations within an individual FIA championship, cup, etc… allowing the FIA, under certain exceptional circumstances, to modify regulations with a shorter notice period and with the agreement of the majority of the competitors properly entered for the FIA championship, cup, etc. concerned”, the FIA bulletin stated.

However it does not follow that the amended clause provides the FIA with sweeping powers to make arbitrary changes to F1’s regulations as any such changes would need to satisfy the definition of the key phrase, namely “exceptional circumstances”. One such change could include reducing spending caps as outlined in the yet-to-be-introduced financial regulations – a move Ferrari has vociferously opposed.

True, these are exceptional times. But it could be argued in court that the use of such powers to lower budget caps which are due to come into effect in 2021 at the earliest does not apply as 2021’s circumstances remain unknown, and thus cannot yet be considered “exceptional”.

There are two further issues: Ferrari’s controversial power of veto – more on that below – plus an agreement entered into between the FIA, F1 and all teams on June 13th 2019. The latter states that all parties specifically waive their right to challenge the 2021 financial regulations, including the adoption of “the cost cap amount determined as set out in Article 2.2(b) of the attached draft of the 2021 Formula One Financial Regulations (Sch. 2)”. This cap has been set at $175 million, plus certain defined exclusions, which a number of teams would like to see reduced.

Lando Norris, Sebastian Vettel, Circuit de Catalunya, 2020
McLaren have challenged Ferrari to accept a lower cap
Which raises some questions: Will substantially reduced 2021 budget caps really help struggling outfits to make payroll at the end of this month or next? Will potential changes to budget caps save those teams which may be in dire straits because of poor management, rather than solely due to the consequences of the pandemic – or will such measures simply prolong the inevitable?

Intriguingly, the financial regulations (budget cap) are mentioned in the ISC only in article 11.9.5.b, under the header “Authority of the Stewards”, which states “all matters relating to the FIA Formula One Financial Regulations fall within the exclusive [note!] competence of the FIA Cost Cap Administration and of the FIA Cost Cap Adjudication Panel”. The question is therefore whether the budget cap is at all covered by the ISC.

Despite the use of “all” and “exclusive”, the FIA clarified to RaceFans that these terms refer to the stewards’ authority only, and that the ISC applies to all regulations.

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That said, the bulletin states: “In addition to previously announced changes to specific championship sporting and technical regulations [note: no mention of financial regulations], the World Motor Sport Council has now approved the introduction of a safeguard clause in the International Sporting Code.”

Yes, it is absolutely ludicrous that it costs of upwards of $300m to field two cars for two hours on 20-odd Sundays and there should be every imperative to reduce that amount. But doing so under the auspices of “exceptional circumstances” when the full effects of any reduced cap will only be felt at the end of 2021 may leave F1 open to legal challenges for the reasons outlined above. Is that really what F1 needs right now?

Ferrari’s veto, a copy of which has been seen by RaceFans, is clear in its intent: To protect the legitimate rights of Ferrari, with an addendum clarifying that any FIA body, including the World Motor Sport Council and the General Assembly, is bound to uphold these rights.

Thus, as things stand, the veto overrules all ISC and F1 regulatory clauses. While it could be argued that the financial regulations apply only from 2021 onwards and are thus beyond the scope of current (2013-2020) contracts and regulations, Ferrari has been promised future “protection rights” [veto] in presentation material seen by RaceFans, which specifically cover “Principal Financial Regulations” amongst other covenants.

Although the actual hard copies of these agreements have not yet signed, this is primarily due to hiatus imposed by the pandemic, and could be argued accordingly.

Mattia Binotto, Chase Carey, Shanghai International Circuit, 2019
Liberty is failing F1 by letting Ferrari keep its veto
Given that any budget cap reduction would most certainly affect the legitimate rights of Ferrari, the company could invoke these clauses and argue that it has a number of legitimate cases. Whether Ferrari would go to that extent – particularly during these straitened times – is a separate issue. But such action cannot be ruled out, particularly given that it previously threatened legal action over budget caps and other regulatory matters.

The changes to ISC article 18.2.4 are utterly necessary in order to facilitate speedy technical and sporting rule changes to ease F1’s return to action after statutory restrictions are lifted – and could even be considered crucial to the process. But whether they can be applied sweepingly in view of Ferrari’s veto powers is doubtful.

The problem therefore not the ISC or its clauses, but the existence of an overriding veto that has absolutely no place in a global sporting activity, and should be withdrawn, previous promises or not. Possibly article 18.2.4 should be further amended to void the veto by majority vote, but of course Ferrari could invoke its veto over that amendment…

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18 comments on “Analysis: Can Ferrari use its veto to stop F1 lowering the budget cap?”

  1. I have never quite understood how Ferrari are able to continue racing within a sanctioned WC and still maintain an awarded power of veto! It seems entirely wrong to me. With a new ‘concorde’ in the offing i would’ve thought that all other teams within the championship would only be making their signature available, subject to the removal of this veto. Why haven’t they taken up this golden opportunity to place all competing teams on an equal basis. Would this site consider approaching all the other team principals for comment?

    1. We have in the past, variously – example:

      Yet, Liberty and the FIA saw fit to agree to it for 2021.

      1. Thanks for the response Dieter. I was unaware of that article you kindly reposted. What I still fail to understand is that it is actually legal!!! I recall that this was discussed quite a few years ago and tested under the requisite EU rules and regs. With Britain now leaving the EU does the veto remain legal? It seems to be all wrong that a competitor in a World Series can have a veto over the ‘rules and regs’ if it is deemed that changes, possibly agreed to by the nine other teams is deemed not be in Ferrari’s best interests. How can that scenario not be anti competitive?

    2. Why haven’t they taken up this golden opportunity to place all competing teams on an equal basis.

      All teams in F1 are equal. Some are more equal than others.

    3. It is very simple …the amount of audience and interests which Ferrari brings is far higher than any other team . I am from India and most of the F1 community here watches F1 race just because Ferrari is there . Some younger generation does started following Mercedes and Redbull ( just because of Max) other than that no one cares/Knows about other teams.. It may take another 5-10 years to change this situation.

  2. Let Ferrari have an increased budget cap, but impose some other technical / performance or testing limitation based on a multi tiered budget system. A basic trade-off between $$$ and running time or weight or …???
    Not unlike what was the case a number of years ago when some teams opted for Friday running and others did not. I have been trying to recall what the trade-off was, no luck. I am sure there will be someone able to clarify this.

    1. A basic trade-off between $$$ and running time or weight or …???

      Great Idea, @rekibsn.
      Every $ Ferrari wants to spend above the budget cap they need to carry in coins as extra weight on both cars for 1 GP.

    2. I’d have to look up the specifics, but the teams were given extra running time on the Friday of a GP weekend in exchange for limiting their total number of test days during the year.

      Most teams that agreed to this option were the poor teams that wouldn’t have done much free testing anyway, but I believe Renault was a surprise team taking up the option. They felt that the extra running at the actual track they would be racing on in 2 days time was quite valuable (… or they were just being cheap.)

  3. Yes, it is absolutely ludicrous that it costs of upwards of $300m to field two cars for two hours on 20-odd Sundays and there should be every imperative to reduce that amount.

    No, it isn’t. When you consider that these are 2 top notch, state of the art prototypes, that are used to test and develope new technologies.

    Especially, when you consider that fielding 25 guys to play a football match 50 times a year costs $1 billion for the top teams.
    Even the lowiest Premier League football team has got a higher budget than Williams or Haas utilize.
    Really for what it is, F1 is cheap, and the stars of the sport (mechs and engineers) are woefully underpaid compared to other sports teams.

  4. F1oSaurus (@)
    28th April 2020, 18:59

    This whole agenda aimed at bringing the budget cap down even further before it’s actually started is just preposterous.

  5. The whole article is based on the assumption that this amendment is being made to sneak through a lowering of the budget cap and then just turned into yet another ‘Oh no Ferrari has a veto!’ What if…hatchet job.

    To my mind this is exactly what the veto is and should be used for. To protect Ferrari (and any other large team for that matter) from being forced into firing staff with very short notice to meet some knee jerk arbitrary figure.

    1. @asanator do you have an alternative proposal to put the sport onto a more sustainable financial footing then?

      It is inevitable that all teams, from the biggest to the smallest, will have to accept that they are going to face a significant cut in their revenue. Even if, in a more optimistic scenario, the sport can at least run enough races to secure its full TV revenues, the loss of race hosting fees means the sport is still likely to be seeing revenues cut fairly significantly, and that is going to cascade down into payments for the teams.

      In the case of Ferrari, Dieter put their cut of the prize money at $205 million – now, if their prize money was scaled down by about 25% for 2020 (which is potentially optimistic), that’s a $50 million cut in prize money. Even for a team as wealthy as Ferrari, that is a sizeable cut in revenue – like it or not, the likely cut in revenue means even the wealthier teams are probably facing a need to cut staff anyway.

      1. do you have an alternative proposal to put the sport onto a more sustainable financial footing then?

        There is a budget cap already agreed for next year so the sport in general has already made moves to make it more sustainable. If the teams receive reduced income, lowering the budget cap even further makes no difference. A number of teams were not going to reach the cap anyway so it doesn’t matter where it is set to them. They will either have to make redundancies due to the reduced income or will operate on a reduced budget. All lowering the budget cap does is force the bigger teams to make redundancies where they may not have needed to. Especially if they had already planned a workforce reduction to meet the existing 2021 cap.

  6. The present situation vis a vis Ferrari and their veto and enhanced renumeration is simply the result of the successful manner in which they have played the political gaming inside F1. They have been much more forceful and assertive in negotiating than the various entities who sat at the table across from them. They have been the big winners in every way except, for the most part, on the track.

    How have they been able to accomplish this? By threatening, directly or indirectly, to leave the series.
    F1 has historically caved in to this bargaining position. This was, and is, a mistake.

    In order for the sport to reach an equitable situation on track and to establish a healthy financial position for all the teams the governing body must be able to control the conditions under which the series is conducted.

    Nothing else is really reasonable. And, considering the unprecedented and global affliction now upon us, if the FIA is unable to rest some ultimate control of the formula away from Ferrari and the top teams……… is unlikely they ever will.

    29th April 2020, 3:41

    Can you imagine? Toyota drivers would basically have been driving bulletproof cars back then, or even war tanks!

  8. Ferrari’s veto, a copy of which has been seen by RaceFans, is clear in its intent…

    In most contracts there is some sort of understanding on how the contract will end, for example one party agrees to pay the other an amount of money, so what are the terms to end this contract? Say, for example, the agreed way was for the FIA to pay $1M dollars to Ferrari … well that’s cheaper than Ferrari’s annual bonus, so why not just buy them out? Maybe it is better for F1 if the FIA or Liberty Media or whoever just said “We’re out of this contract, here’s you $1M, there’s the door if you want to use it”.

  9. There is no financial value – there was an end date in return for a long term commitment to F1. That end date is 31/12/2012 and was extended under the current agreements to 31/12/2020 – and that is scheduled to extended again by the incoming agreement, to 31/12/2025.

    1. @dieterrencken Thanks for the reply. As far as I can tell the wording you used to describe the contract doesn’t actually say Ferrari have a right of veto, it just says they have a right to be treated within the rules, which is what every team expects when they join this racing series. I don’t read that in itself as giving Ferrari the right to veto the introduction of a budget cap, nor to veto a reduction in the budget cap if circumstances required it, which they do. However, I’m sure there’s more to this than what was said, and that lots of lawyers have looked at the contract to see if the veto exists or not. As far as I can tell Liberty Media have plans for F1, and this contract is “the fly in the ointment”. If there’s no payment required to end this contract then at the very least Liberty Media need to tell Ferrari they will be offered the same contract as everyone else when they offer the teams their new contracts. I don’t think anyone would benefit if Liberty Media were to terminate their contract right now, but from the sounds of it the current situation isn’t acceptable either. Something has to change. The easiest change would be for Ferrari to accept the changes Liberty Media are proposing.
      It must be very frustrating for Liberty Media and the FIA, when they are having to deal with teams about to “go under”, that they having this old legacy contract obstructing them from trying to keep the series afloat and making it a credible racing series. As far as I can tell, everyone wants Ferrari in this racing series, but they want them in with the same rights and privileges as every other team.

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