About the F1 Resource Restriction Agreement

[Paul]

But any team would gladly pay 100M for an engine if that meant they would gain enough competitive advantage to win the championship. And many would feel finding a loophole in the cost cap is a convenient way to gain significant advantage with a comparatively insignificant investment. Multiple teams have been caught breaching "spirit" of the rules, but they don't seem to be too bothered about possible upheaval since they already have an excuse on standby. And that would mean back to square one in a season or two.

[FoxHound]

With the news that Infiniti will be a "tech" partner for Red Bull, where does this all fit in with the RRA guidelines?

Red Bull F1, Red Bull Technologies, Renault and now Infinity.... this is a crushing monetary, staffing and resource advantage that I dont see ending.
3 double titles on the trot now, and with 2014 round the corner so to speak, Red Bull are best placed to continue this domination.
This will make the Ferrari/Schumacher years seem like a walk in the park.

[WhiteBlue]

Red Bull F1, Red Bull Technologies, Renault and now Infinity.... this is a crushing monetary, staffing and resource advantage that I dont see ending.

I don't see it quite that way. Why are Red Bull any better positioned than Mercedes AMG? Both teams are sponsored by an automotive manufacturer and have a works team deal. The fact that Red Bull Racing has a separate development company which they used to share with another team - Toro Rosso - has mainly historic reasons. They have used the compartmentalization to play with the limits of the FOTA RRA.

But that does not mean they will be allowed to take advantage when a budget cap is policed by the FiA. Mercedes also have a separate power train development company which was not considered under the FOTA RRA and Ferrari have activities outside their Gestione Sportiva that benefit the team without counting under the RRA.

A future budget and resource agreement will have separate limits for chassis and power train and will have much more stringent verification and policing. None of the top teams would be allowed to pull the tricks they have done under the FOTA RRA. So I don't share your concerns about Red Bull in terms of having a distortive influence.

Undoubtedly Red Bull follow a very clever business strategy. They have copied Ferrari's strategy to use F1 as their main advertising and marketing tool and have extracted huge advertising equivalents from the F1 coverage. They have basically beaten Ferrari in their own game for several years in a row although this year Ferrari have obviously made up some lost ground in terms of advertising equivalent.

In a comparison I would think that Ferrari still have a stronger position due to their preferred treatment by FOM. They get $15m more each year for their seniority and global reach out of the price fund. Both teams get approximately $200m advertising equivalent out of the global FOM broadcast, which almost completely funds their budget - reported at approximately $250m. Both get cash payments of roughly $100m from the price fund. Engine development is most likely not budgeted in the Gestione Sportiva. The team will probably get free engine development from the parent company. That separate budget used to be up to $200m and Ferrari would be capable to afford that kind of money again. They have improved their revenues and profitability considerably since 2006 when they last had to foot massive development bills for power trains.

[FoxHound]

I don't see it quite that way. Why are Red Bull any better positioned than Mercedes AMG? Both teams are sponsored by an automotive manufacturer and have a works team deal.

Let's use your example.

Do Mercedes have the benefit of a third entity developing parts on their behalf as Red Bull do in RBtechnologies?
No. Nor Do Ferrari or McLaren or any other team other than possibly Torro Rosso, sister team to Red Bull.
Which part of Ferrari outside of Gestione Sportiva, benefits the team exactly?

The Red Bull argument of comparing themselves to Ferrari and Mercedes, pleading for "equilibrium" is pure politicking.
Mercedes and Ferrari spend on development of their engines, Red Bull do not... is their argument.
Yet, as a works team(as Red Bull are purported to be Renaults works team), Renault should be included in RBs budget.
The figure would be astronomical.
You don't have to be clever to work out what Red Bull are doing.

If there is a Chassis budget cap, what is stopping RB technologies from developing parts for Red bull?
Red Bull can spend 99million pounds on a chassis and get RB technologies sell them updates for 1 million for the whole season if they choose.
This is ridiculous and makes a mockery of the proposed rule set.

No other team on the grid has a third party operation that supplies parts and information to help improve the main operation. It operates in clear daylight, and no one can do anything about it because, once again, the rules aren't clear enough...nor will they be.
I will put it this way, in 2014 do you honestly think RB technologies will shut up shop and say, thanks for a wonderful relationship....but the rules mean we cant keep you???
When everyone is celebrating Red Bull's 4th successive WDC/WCC, I bet my bottom dollar a 2014 car will have IP that originated from RBtech...and this cannot be right in terms of fair play for all the other teams.

[WhiteBlue]

FoxHound you seem to be confused about some aspects.

1. There are obvious things that are developed outside the teams budget and resources for Merc and Ferrari. Beside engines it definitely comprises fuel systems, KERS and in the future the entire energy storage, reclaim and management. I'm not sure about gear boxes but hey seem a likely candidate to be at least largely developed outside the Gestione Sportiva. That would also apply to much basic research of suspension, electronics and other stuff that Red Bull all does in house.

2. You better have a look at total budget figures before you start panicking. The three or four top teams according to Mr. Todt (who is supposed to know these things) have all figure around $250m. So it appears very unlikely that Red Bull is alone in the business of creative accounting.

3. Your expectations for the future are largely influenced by a misconception about the future course of the FiA with regard to budget control. The FiA will run a very different system compared to FOTA. Verification and financial scrutiny will be as compulsory as the definition of the legal entity boundaries will be. There will be no question about second side entities like Red Bull technologies in a future FiA system. If Red Bull Racing will use those resources they will be accounted for, as will any use of departments and companies outside the core teams by Ferrari and Mercedes. I suspect that all teams will see a major re organisation before the auditing will commence.

[bhall]

WB, do you have any sources for all these things you claim about a potential FIA budget cap?

[FoxHound]

WB, do you have any sources for all these things you claim about a potential FIA budget cap?

I'd love to see it.

Nothing is concrete even at this late stage... And who is holding up the resource agreement again?

[FoxHound]

KERS is included in engine budgets... Not so WB?

[bhall]

WB, do you have any sources for all these things you claim about a potential FIA budget cap?

I'd love to see it.

Nothing is concrete even at this late stage... And who is holding up the resource agreement again?

I'm not even arguing against this just for the sake of arguing, which I admit I've done from time to time. Because I simply don't see any way in the world for a budget cap to work, I'm really interested to know how it could possibly be accomplished.

I think it would require the licensure of literally every entity that touches F1 components at any stage of production as well as the licensure of any entity that has business with F1 at any stage of the game. That means the following companies would need to apply for a license that would require giving the FIA consent to audit their books at any time:

Scuderia Ferrari
Ferrari S.p.A.
Fiat S.p.A.
Philip Morris
Altria
Santander
Kaspersky
Dutch Royal Shell plc
AMD
Hublot
Puma
TNT Energy Drinks
INFOR
OMR
SKF
Mahle
NGK
Magneti Marelli
Brembo
Iveco
Carbon Industries
Hitco
Red Bull GmbH
Red Bull Racing
Red Bull Technology
Red Bull Mobile
Infiniti
Renault
Total
Rauch
GEOX
Pepe Jeans
Casio
Singha Beers
Platform Computing
Siemens
ANSYS
Hexagon Metrology
DMZ
OZ Wheels
PWR Performance
Nissan LCV
Pirelli
Alpinestars
Sonax
Hanshin
Tracker
P&O
Sabelt
Scuderia Toro Rosso
CD Adapco
USAG
Facom
Volkswagen
Volkswagen AG
OMP
Advanti Racing
Delconca
Hansgrohe
Falcon Private Back
CEPSA
Nova Chemicals
McLaren Group
McLaren Racing Limited
McLaren Electronic Systems
McLaren Applied Technologies
Vodafone
Diageo/Johnnie Walker
Mobil 1
ExxonMobile
Lucozade
SAP
TAG Heuer
AkzoNobel
Sikkens
Hilton
XTB
AON
Akebono
Enkei
FanVision
Faro
GSYUASA
Boss
IFM Sports Marketing Surveys
Kenwood
Lenovo
Mazak
Sparco
Processia
Steinmetz
Dassault Systems
BINZ
Daimler AG
Mercedes-Benz
Mercedes AMG Petronas
Petronas
Allianz
Deutsche Post
ISOFOTON
Monster Energy
Standox
SPG
Thomas Sabo
Endless
Lincoln Electric
Sandvik
Solace Systems
STL
Helen and Douglas House
Skidz
Laureus
My god, I can't go on, and that only covers half the teams.

Failure to account for every penny those companies spend on F1 leaves open the possibility for impropriety. In the hyper-competitive world of F1, that might as well be a guarantee.

Further, I don't know how the hell those companies might be convinced to grant the FIA that level of access to their ledgers in the first place. Companies routinely fight governments over such issues; why then would they suddenly treat the FIA any differently? To me, it seems more likely they'd just decide F1 isn't worth the hassle and leave.

(All of this, by the way, is to say nothing of the Red Bull Technology-type "supplier" shell games teams can play. The possibilities are endless.)

I maintain that the only way for the FIA to cut costs is to restrict technology. It's the only avenue for cost control that's ever had any success. Ironically, though, even that comes with price, because such restrictions don't befit a series that claims to be "the pinnacle of motorsport." (And it ain't like the FIA is particularly skilled at closing loopholes or enforcing rules anyway.)

[Cam]

I maintain that the only way for the FIA to cut costs is to restrict technology. It's the only avenue for cost control that's ever had any success. Ironically, though, even that comes with price, because such restrictions don't befit a series that claims to be "the pinnacle of motorsport." (And it ain't like the FIA is particularly skilled at closing loopholes or enforcing rules anyway.)

The ultimate catch 22. Let them go & watch them run out of cash and die - restrict tech & watch them become irrelevant and die. Suppose now it depend on when, not if.

[WhiteBlue]

I think it would require the licensure of literally every entity that touches F1 components at any stage of production as well as the licensure of any entity that has business with F1 at any stage of the game. That means the following companies would need to apply for a license that would require giving the FIA consent to audit their books at any time:

...

My god, I can't go on, and that only covers half the teams.

I reckon you know how silly this list ist. Why would anybody require a license of all companies that are somehow involved in F1 by sponsorship or supply? It just makes no sense at all. All the FiA has to do is controlling the legal entities that define the teams. Their affiliated suppliers and sponsors would be obliged to comply to the regulations by respective §§ in their contracts with the teams. There is no need to actually audit those companies unless there is a claim of cheating. In such a case their contracts with the team would actually empower the FiA to investigate them. But you can bet your fortune that they will behave. None of those companies is in F1 to have their reputation tainted. I'm not saying this out of my own imagination. Have a look at Jean Todt's latest comments. He said that the FiA is confident that it can control the team's budget by employing international auditors. Do you think Todt is a fool?

[bhall]

I'm dumbfounded. One rarely sees such naivete.

(Once more: Do you have any sources for these claims? Any specific legal basis for the actions you've described? I'm not looking for opinions. I want facts.)

For argument's sake, how will the FIA prevent Ferrari from outsourcing the design and construction of its chassis to another firm under Fiat's control if that firm is not compelled by a licensing contract to disclose all figures associated with its involvement?

If, with assistance from Piaggio Aero Industries, sister company Maserati designs the F2014 and then "sells" it to Scuderia Ferrari for $1, what can the FIA do about it, especially given that it will have access to neither Maserati nor Piaggio Aero? Are they to punish Ferrari for officially finding a bargain?

How will the FIA prevent Shell from undertaking Ferrari engine development as part of its sponsorship of the team? Without access to Shell, how can any allegations of malfeasance be investigated? Will auditors just have to make due with estimates?

How will the FIA prevent Santander from paying Alonso's salary?

And finally, if reputation is such a lynchpin for compliance, why have Honda, Toyota, McLaren, Ferrari, Red Bull, and a whole host of other teams been caught cheating in the past? Has there been a quiet sea change in the realm of F1 ethics recently that's made it safe to replace Charlie Whiting with a simple oath?

"We swear it doesn't flex. No, really."

I think there's little doubt F1 will come to a budget cap agreement in one form or another, because F1 loves to bullshit itself. But, I don't think that agreement will be worth any more than the paper on which it's written. This stuff is just too easy. It's like stealing candy from a baby that has polio.

[...]
Do you think Todt is a fool?

Yes. And he's not alone.

[FoxHound]

@WB

The list that Bhall gave was an indication as to how big the scale of your proposed task is. I say your proposed task, because I have yet to see anything concrete agree by the FOTA/FIA et al.

The scenario I have in my head, from your proposal is thus:
1. FIA make this proposal law.
2. Team is suspected of transgressing said law.
3. FIA brings "international auditors" to investigate transgression of a third party that Bhall mentioned...an exhaustive list it is too...
4. Third party under no lawful obligation can tell the FIA to get stuffed, as what they are investigating has serious implications to the IP of the business.

The FIA will get laughed out of court as they have no legal right to interfere with another companies IP, even if they participate in F1.
So what are we left with? A rule interpretation that the FIA HOPES the teams will adhere too and TRUSTS them to carry out.

Bottom line, status quo.

So it's a big waste of time that no amount of rhetoric and good intention will absolve, this is F1 WB...not UNICEF.

[FoxHound]

Ahh and another thing.....

Santander.....I'm guessing they can hide even the biggest of budgets under some umbrella operation. Que a stampede for bank partnerships....

[WhiteBlue]

(Once more: Do you have any sources for these claims? Any specific legal basis for the actions you've described? I'm not looking for opinions. I want facts.)

For argument's sake, how will the FIA prevent Ferrari from outsourcing the design and construction of its chassis to another firm under Fiat's control if that firm is not compelled by a licensing contract to disclose all figures associated with its involvement?

If, with assistance from Piaggio Aero Industries, sister company Maserati designs the F2014 and then "sells" it to Scuderia Ferrari for $1, what can the FIA do about it, especially given that it will have access to neither Maserati nor Piaggio Aero? Are they to punish Ferrari for officially finding a bargain?

Once in a while we may be allowed to use our own head based on the published opinion of the teams and the FiA.
There are results of FiA working groups going back to 2008 suggesting that budget caps are workable and desirable. As recent as this summer all but one team have written to the FiA and asked the governing body to install a system of budget control. I trust you to have followed this thread, so you will be familiar with those facts.

I'm quite prepared to explain how the above described problems can be solved. So bear with me and let us go through a workable system of budget control:

The first thing that would be done is defining budget cap parameters like, legal entities, maximum spending on separate items such as chassis and power trains and fines for transgressions. Those legal entities under budget control would be licensed by the FiA and their directors would be personal licensees quite like the team principals already are. They would sign an obligation to deal with all suppliers and sponsors at arms length and require all suppliers to be subject to that rule and to FiA audits when an official investigation is conducted.

That way any supplier or sponsor can only cooperate with a controlled legal entity under FiA rules. All legal entities would be subject to annual or quarterly auditing and obliged to report their transactions to the auditing firms on an ongoing basis. The personal licensees would be required to sign all monthly or quarterly transaction reports.

Particular audits would be conducted with legal entities and their suppliers on request of competitors. If a team or engine manufacturer is introducing suspicious amounts of innovations, updates or new parts the competitors are the first to realize that. They have a pretty good feeling how much it costs and would blow the whistle probably more often than not.

You also have a constant exchange of personnel between teams which ensures that fishy transactions are very likely to be reported sooner or later. It would be very expensive or even the end of the career for the licensee who had signed for the transaction. The responsible directors would put very firm guidelines in place that stipulate the conformance with FiA rules to protect their asses.

I guess that answers your question about Piaggio Aero or Maserati. Doing a transaction like purchasing or selling the F2014 design for $1 would violate the required dealing at arms length. Piaggio or Maserati would violate their contracts with Ferrari and Ferrari would violate the terms of their license if they would engage in such a transaction. Stefano Domenicali and other responsible directors would be subject to sanctions starting with personal fines going up to life ban depending on the gravity of the cheat.

You are welcome to point out any systematic fault in such a system of budget control. Just for clarity we should have a look at the objectives. The top teams are currently spending approximately $250m compared to $450m in 2008. The objective would be to split those values into chassis and power train and initially contain them on that level. In subsequent years the budgets would be reduced by approximately 30%. By 2016 the combined budgets would go down to $175m. That is a massive reduction if you compare it to 2008 expenditure.

Obviously the above figures are estimates based on available publications and subject to negotiation between parties. So don't be surprised if they change somewhat during the discussions. According to Jean Todt chassis budget control could be introduced from next year if the political will is there and the 2020 CA is signed by all parties. Engine budget control could begin in 2014 again according to Todt. This is pretty much how I understand the intentions of the team majority. Of course all of this is subject to negotiations and there is always the chance that someone puts a spanner into the wheels. The history of F1 cost control is littered with clever plans that have been shot down by selfish teams with enough political power.