News and views on motorsports

Sunday, June 07, 2009

The Budget Cap

I hate this idea of a budget cap. I really do. Maybe because it radically changes the face of grand prix racing and I hate the idea of racing changing even further because of Max and cohorts. Perhaps I hate the fact that to my mind, its just a deceitful way arguing that the teams should not need to receive more money from Bernie and the CVC dogs. Maybe I hate the fact that Max argues there are is no technical innovation in grand prix racing and yet it was he who framed the current rules so tightly that innovation is not permitted. There are even provisions in the sporting regulations that state that any innovative advantage a team has will be removed after a year! Yeah, perhaps I just hate the disingenuousness of it all and I really want to see the end of Max, FOM and CVC.

Putting all these other bigger issues aside, I do wonder whether the budget cap in and of itself is such a bad idea. I have to agree with Mosley on one thing. If applied, it is at least ensures fairness (though I think fairness can also be achieved by other means). But whatever, on the face of things, those folk from Norfolk who want to revive the Lotus name, could theoretically be fighting on the same terms as Maranello. If you ask me, I think Maranello is afraid of this. For if everyone is on equal footing, then its down to creativity (if this is allowed as well, but I'll come to this later). Time was when Ferrari were getting beaten by so-called garagistes using only Cosworth DFV engines and old Enzo hated that. And so would Luca di Montezemolo. Ferrari builds its brand on grand prix mystique and here's a chance that the myth would be destroyed. Not good. And I would say it also applies to a lesser extent but still significantly to other car manufacturers in Formula 1.

However, we should not let ourselves get carried away. As I said before, this is only in theory. Whilst a budget cap allied to greater innovative freedom seems like a great idea here are some reasons why it would not work in the long run.

Budget caps are impossible to police

Seriously, do the teams or anyone for that fact want a bunch of FIA people to rummage through their books? And even if they were allowed, so what? Auditors have been rummaging through people's finances for ages but still you had things like Enron happening. Sarbanes Oxley? Pffft. Such regulations simply creates more loopholes for hanky panky.

When they implemented currency exchange controls, banks simply created currency swaps and derivatives on those. When it comes to money, there are very creative ways of ensuring that it gets where it needs to go and of course there are creative accounting techniques that have been practiced for hundreds of years.

Whats to stop Mercedes for instance to place their CFD and wind tunnels under Mercedes trucks or AMG for instance? In return, Mercedes High Performance Engines could do some "research" work for those divisions. After all engine expenses are spared from the scrutiny of the FIA. Whats to stop Mercedes HPE from transferring the results of such CFD and wind tunnel work back to McLaren? Nothing would stop McLaren from claiming that they innovated and "discovered" this all on a miniscule budget because of the genius of their engineers. Are the FIA going to send auditors to the entire Daimler Benz empire?

Likewise, are the FIA going to send auditors down to Nissan in Japan to investigate possible Formula 1 chassis work? In fact, whats to stop Nissan doing it out in the open? If Nissan wanted to build a grand prix car simply for pure research purposes, there would nothing the FIA could do to stop them. Nissan are not competing. Its the Renault Formula 1 team that does so. And if Renault "inherits" or is simply allowed to "view" the results of Nissan's research, does this in and of itself constitute a breach of regulations?

Both McLaren and Ferrari have road car divisions separate from their teams. In the case of McLaren this goes even further to encompass other vehicle and technological enterprises. There's no stopping either of these teams parking grand prix development expenditures to these other operations.

Such things are not confined only to the large manufacturers. Any team can practice such creativity. Lola for instance builds racing cars for other formulae and series. Who's to say what expenses are incurred for the grand prix team and what expenses are attributed to development of chassis in other formulae? Only Lola's accountants know and you can bet they ain't saying. Other teams could also set up similar situations very easily. They could for instance sell engineering services to other entities and organisations for non-financial consideration.

I'm certain the FIA will look into all of this. Max is quite a clever bastard. But he should know that budget caps will exist only in name. Teams will find even cleverer ways to cicumvent these caps. In the end, I feel that the so called cap will simply be abandoned, the way horsepower limits (300 bhp) were abandoned in rallying.

Technical Innovation Causes Safety Issues As Cars Get Ever Faster

As I said before, the only reason why there have not been any innovations in grand prix racing lately is because the regulations are framed in such ways as to prevent these innovations from happening. Max has long argued that this is for cost and safety reasons. History will show that the cost savings never materialised much. But Max could always count on safety as the reasons for killing off technical creativity. He would argue (and he would be right) that the cars would be going too fast for their own good.

As it stands, despite ever tightening regulations, engineers have found ways of making the cars go even faster. Any limits placed on them have been temporary. Eventually development catches up and cars go even quicker than ever. I suppose the FIA can argue this is possible because of the hundreds of millions that go into 24 hour development. And so they want to place this budget cap. In exchange teams get more liberal regulations.

However, if Max is correct, that with such freedoms, engineers and teams would not need the close on half a billion dollar budget to go faster, then in the end, the FIA would still need to curb their creativity and thus the speed of the cars for safety reasons. How are the FIA going to achieve this? Tighter budget caps? Would it still be considered grand prix racing when teams are limited to only say 5 million dollars or less per season? That would just be ridiculous. Sports car teams spend more. The only practical way would be for the FIA to write ever tighter technical regulations and all this will do is curb creativity. Once again, whatever monies are available would simply be spent refining existing technology rather than producing new ones.

Lack of Rule Stability Will Raise Costs Anyway

Lets face it. One of the reasons why budgets in Formula 1 have gone sky high is because bloody Max has changed the rules according to his whims every couple of years. In some cases, he's changed it year on year. Such rule instability forces teams to deploy massive amounts of financial resources for development. Now who's to say that if Max gets his way and teams sign up unconditionally, he would settle down and stabilize the rules. Especially given safety concerns. He'd keep on changing the rules and I argue that even the little teams will be complaining. What would happen I feel is that teams would argue that the budget cap be relaxed in order to properly respond to these rule changes. And there goes the farm on budget capping.


I believe the FOTA teams are looking to make massive cost reductions to their operations. And I believe they are in a better position to suggest more practical and economical ways on how these can be achieved. For this to happen in the long run, there must be rule stability. And this is the thrust of the FOTA argument. That rules are managed and constructed in consultation with the teams and not simply on the whims and fancies of an ego-maniacal FIA president.

If you ask me, I don't think the FOTA teams are worried about these budget caps, or at least they shouldn't be. Better spend their time in finding not only new technical innovations but also financial innovations and creative organisational and commercial structures to circumvent such nonsense. Who's to say that they aren't doing this right now?

However, as the loud mouthed Flavio has recently said, what FOTA requires is transparency and rule stability. This is an essential ingredient to cost savings and is something that Max doesnt seem to understand or realise. And if those traitors Williams and the oh so wannabe Vijay Mallya and his Force India team had the foresight they would see that unconditional surrender to Max will in the end be folly and detrimental to them in the long run. I argue that all these hopeful new entrants should also place stability and transparency conditions not just on the FIA but also the FOM on whom their lives will depend on.
I am surprised that Williams, Force India and others seemingly take such a short term view of things. In the long run, they will be back on the table arguing against the FIA once more.

As for Max, it would seem that here is a man who wants and needs to be in complete control and be able to dictate the regulations as he pleases. I do believe though that a lot of the motivation for it is commercial and even political. Commercial pressures come from Bernie and the CVC dogs. Political pressure would perhaps come from environmental lobbies and governments. To satifsfy these pressures, I think he doesn't at all mind to be seen as the ruthless dictator and perhaps he even enjoys it. In the end I feel that he simply wants to satisfy his ego as being the man who changed and "saved" grand prix racing. There cannot be any doubt that he himself is engaging in legacy building.

And so the practical way forward is to perhaps to let Max be seen in public as the victor in this standoff. After all, car manufacturers and teams are in different businesses and not in the business of politics. FOTA should perhaps capitulate and be seen to have been humbled by the great dicatator, Premier Max. Then, work with Bernie to come up with a new Concorde Agreement that this time guarantees rule stability. I'm not sure how they would get more money out of Bernie and CVC but thats a different story. In the meantime as I mentioned FOTA teams can simply restructure their organisations to circumvent these silly budget caps. In the long run they should realise that budget caps will (in substance but not form) disappear anyway. And all that would remain (if they played it smart) is rule stability guaranteed by a new Concorde Agreement.

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