About the F1 Resource Restriction Agreement

[FoxHound]

I see Cosworths engine was available for 15 million.

I think you better retract your statement about potential cost of a new budget war or even an engine cost race.

No WB, that statement stays.

Indeed we also live in a different world from 2007. Since 2007, we have had a major rule change and a financial crisis that continues to stifle to this very day.
Do you have statistic's for that?

I ask because what you have posted seem to intimate that all the listed teams currently in F1, have the appetite to go ahead and spend this money again. I don't have a stat for that, but I can tell you it sounds pretty damn stupid if you don't mind me saying.

[WhiteBlue]

Well, I have proved you wrong and you insist on your opinion against the facts. Nobody knows if Ferrari, Renault and Merc want to go back to spending $200m a year on engines alone but by looking at the revenue figures there can be little doubt that the capability is there.

[FoxHound]

Sorry WB you have proved nothing.
Your figures show that even at the height of spending, independent teams could still get an engine for 15 million a year. What your statistics prove is that in 2007, there was higher spending than there is today. If the rules where the same without the RRA, do you think these figures would still be attained? I don't and I can point to the exit of Honda, Toyota and BMW as facts for that.

But now we get into a different and more complex realm.

If we look at the Mercedes/Ferrari model, they will want engines to be of more relevance and importance than they are currently.
If we look at Red Bull and possibly McLaren, they will list aerodynamics as high importance.
Perhaps we could say Williams are chassis experts and want chassis of higher importance.

Currently engines are neutered. So Mercedes and Ferrari cannot use their own dominion to get an advantage.
Aero regulations are strict, but still have many areas of development as we have seen the last few years.

Chassis refinements are also very hard to see as a performance differentiator.

So we can say over the last 3/4 years that aerodynamics is the biggest area of development, and that engine makers have an almost zero say in the outright performance of the car.

So Mercedes(engines) total cost's in 2010 was 90 million.
http://www.pitpass.com/41736-Mercedes-e ... se-by-112m

That's supply of 3 teams with engines and KERS.

Yet if we look at for example Red Bull, they pay around 5-8 million a year for Renault engines and the rest is spent on Chassis and aero.
So where is there an incentive for engine makers, despite their investment?

The message from the rule makers appears to be, It's okay to spend 200 million + on aero and stifle engine regs and development.
Where is the consistency?

If you want to reign in spending, then talking about mere figures as a means to stop teams from going over will never work. Having a rule set which puts focus on all 3 facets of F1, and manages to promote development equally amongst the 3 is a good step forward. By making an engine available at a maximum cost to at least 2 customers will also make engine makers reduce their overall spend, as will in season development freezes.
For Aero, certain areas of the car should be off limits, and only be allowed to produce a maximum amount of DF.

It is possible, but it requires agreement from all parties and a staged introduction rather than everyone thrown in at the deep end.

[Richard]

As it happens, the actual facts for MHPE are:

Year - Turnover £m - Staff

2006 - £87m - 442
2007 - £81m - 425
2008 - £97m - 439
2009 - £97m - 454
2010 - £82m - 424
2011 - £122m - 463

The accounts state that the surge in turnover is due to introduction of KERS, development of the 2014 engine, and R&D for Daimler road cars.

[gato azul]

Sorry WB you have proved nothing.
Your figures show that even at the height of spending, independent teams could still get an engine for 15 million a year. What your statistics prove is that in 2007, there was higher spending than there is today. If the rules where the same without the RRA, do you think these figures would still be attained?

FoxHound,

I think any sensible attempt of discussing this topic would greatly benefit from two things.

1.) we should agree on a currency if we want to compare budget's, spending, profits or whatever.
Because right now, people throw numbers all over the place and compare apples and oranges.
WB numbers are in US$ while your quoted pitpass numbers are in GBP, which is not quite the same thing.
2.) It would help, if you would not choose your own interpretation of what was stated, something you seem do like
doing a lot., but it does not make you look serious, to be honest.
WB posted article states "Cosworth's 2006 V8 was developed for $15 million", not more and not less. But you turn
this into "independent teams could still get an engine for 15 million a year". That was nowhere said, it"s purely what you
chose to read into it.
So why do you try to mud the water with statements like this, and take the discussion off a tangent?
Cosworth would need to be mildly mad, if they would sell their engines at the same price as their development budget.
That may very well be the case, but you cannot assume or conclude this just based on what WB said.

Now if we take the number from pitpass, which is based on the following formula (turnover-operational profit=cost) and
in accordance with the numbers posted in their (MHPE) companies house statement, we get 91.4m GBP for 2010.
At todays exchange rate that makes ~147.2m US$. If we look at their filed statements for 2011 and use the same formula
as shown above, we get [122m (T/O)- 5.6m (OP)= 116.4 GBP]. If we again use todays exchange rate (1.61) that would equal
~ 187.5 m US$. Which is not a far cry away from the 125m US$ (Renault)-200m US$ (Merc,Fer,Toy) stated in the article.
Keep in mind, that this numbers where estimates, which may or may not be correct.
If I take the numbers from MHPE's 2006 filings, and apply above formula and todays exchange rate I get spendings of ~134.1m US$ for the 2006 season, and ~151.2m US$ for the 2005 season.
Now, we can argue if we should correct these numbers for inflation rate and take the different exchange rates at the time into account, but as an order of magnitude, things have not become a whole lot cheaper on the engine side.
Mercedes still spends considerable amounts of money on their engine program (and other probably as well), the only difference today is, that they were forced to sell at a predefined price, set out by the FIA/Mosley at the time.
So, my attempt to answer your: "So where is there an incentive for engine makers, despite their investment?" question, is.
There is none, and that is probably the reason, that people don't line up in droves to provide F1 engines.
I think Cosworth just learnt the hard way, that it is not a good business proposal, to get the sales price of your product dictated by others.
The manufactures are left to absorb the difference and write them off as marketing expenses. If they win, and can turn this
into car sales, that may still work out, but seems to be high risk and a bit hard to predict for me, from a pure business point.
It does took same strain off the smaller teams, but at the expense of the engine manufacturers. It banks on the concept, that they will absorb all the additional costs, which are not covered by the sales price.
As a very basic, back of the cuff estimate. If we assume, that Mercedes get's 10m$ for their engine+KERS package and that they had 3 teams in 2009 which paid full price for this package, then that makes 147.2m US$ - 30m US$ = 117.2m US$, which Mercedes would have to put into this, and absorb as marketing expenses.
That may still be an o.k. proposal for Mercedes, especially if the win WDC/WCC and can turn this into additional sales.
(I will leave it to answers to figure out, how many AMG models they would need to sell to recoup this outlay)

That concept may work out for Renault (and other car manufacturers) as well, but is questionable for a company like Cosworth &/or PURE - IMHO, and would require that you are successful with your engines & your chosen team partner.

[WhiteBlue]

Peter Sauber and Monisha Kaltenborn voice their concerns.

I think the biggest challenge today is the commercial part. That's not only for Sauber, that's also for some of the big teams. Formula 1 is too expensive today, that's the important fact. The progress has been slower than slow. It's difficult and I hope that the big teams realise that they have to do something.

We very much support a budget cap. That is the right way we should be going and we should eventually reach the point where we have a budget cap.

Those two are absolutely spot on. We do not have the luxury of numerous engine manufacturers that we had in 2006. Each of the three engine manufacturers who will with high certainty supply in 2014 has already spend more than $100m and the bill is rising. When the engines hit the track they will probably all be well beyond $200m expenditure unless something is being done. There will be no Cosworth in 2014 as far as we know and no P.U.R.E. As it stands now the minimum engine bill for customer teams is expected at $21m per annum. This is very likely to raise and personally I would not be surprised to see a $50m engine bill in 2014 if the teams do not get together and sort the situation out.

The most worrying point for me is the fact that the regulations for 2013 and 2014 were published without a reference to the Concord Agreement. It means there is still no signature on paper and something is holding back all the crucial work that needs to be done on cost control because of this. There are worrying remarks from Bernie Ecclestone about the number of teams he wants to see in F1. This kind of statements usually means that something is still going on behind closed doors. Bernie is probably still playing hard ball with someone trying to wriggle out of some cost commitments that are required for the signature of the CA.

[gato azul]

from a recent AMuS article some estimates of the 2014 engine costs and comparison to what some teams supposedly pay today. Prices are in Euro, I will convert at todays exchange rate into US$

Motorenpakete werden zu teuer
Ein Problem bleiben die Kosten. Die drei Motorenhersteller haben bis jetzt bereits mehr als jeweils 90 Millionen Euro in die Entwicklung der neuen Antriebseinheiten investiert. Bis 2014 wird die 100 Millionengrenze locker geknackt. Diese Kosten müssen auf die Kundenteams umgelegt werden. Die blicken mit Sorge auf die neue Motorenformel. Da soll das Paket Motor plus Kers 21 Millionen Euro kosten. Kleinen Teams wie Marussia oder Caterham könnte eine solche Rechnung das Genick brechen. Und nicht nur denen. Sauber-Geschäftsführerin Monisha Kaltenborn hält Preise in dieser Größenordnung für zu teuer. "Ich habe FIA-Chef Jean Todt gesagt, dass wir das nicht bezahlen können."
Sauber berappt zur Zeit acht Millionen für den Ferrari-Motor und eine Million für das Kers aus Maranello. Das ist ein Vorzugspreis. Caterham zahlt bei Renault acht Millionen für den Motorenservice und bei Red Bull sechs Millionen für Kers und Getriebe. Auch Force India kommt bei Mercedes auf 14 Millionen für das Gesamtpaket. Hightech hat ihren Preis. Norbert Haug versucht die Klagen der Klientel ins rechte Licht zu rücken: "Manche Teams zahlen heute mehr für die Fahrer als für die Motoren. Das kann auch nicht sein."

It says, that all the 3 main engine manufacturers have already spend ~90m Euro (118.5m US$) each in development cost for the new engine(s), and that it is estimated that by 2014, they will each have spend 100m Euro (131.6m US$)in upfront (R&D) costs and say, that they will need to offload this upfront costs onto the customer teams, which will lead to an price increase for the engine lease.

estimated new engine+KERS lease costs for the teams in 2014: ~21m Euro (27.6m US$) which compares to what the teams pay today:

Sauber (Ferrari) 8m Euro engine + 1m Euro KERS = 9m Euro (11.8m US$) it is said that this is a special bargain deal
Caterham (Renault) 8m Euro Engine + 6m Euro KERS+gearbox (RBT)= 14m Euro (18.4m US$)
Force India 14m Euro for the complete package Engine+KERS (Mercedes) & gearbox (McLaren) (18.4m US$)

I know, that is a bit apple & oranges, but that's the best I could find, feel free to add to it with other sources.

Sauber's CEO/TP (Kaltenborn) said, that they would not be able to pay a higher price, and that it is a serious concern.
For Sauber it would mean roughly a 130% increase in their engine bill

Haug said, that today some teams pay more to their drivers, then they pay for their engines, and finds that a bit out of order. Therefore he urges people, to see the engine costs in relation to other costs, and not only in isolation.

[Hail22]

http://www.crash.net/f1/news/185552/1/e ... istic.html

Don't know if this was posted before...but if anyone knows, what are the PROS and CONS behind the Ecclestone Budget cap?

[CHT]

on flip side, if teams are able to run with a much leaner operation due to the budget cap, will Bernie also cut the prize money to the teams?

[WhiteBlue]

on flip side, if teams are able to run with a much leaner operation due to the budget cap, will Bernie also cut the prize money to the teams?

Very unlikely. Bernie has to honour the contractual obligations whatever the teams agree to do with the money.

[WhiteBlue]

It says, that all the 3 main engine manufacturers have already spend ~90m Euro (118.5m US$) each in development cost for the new engine(s), and that it is estimated that by 2014, they will each have spend 100m Euro (131.6m US$)in upfront (R&D) costs and say, that they will need to offload this upfront costs onto the customer teams, which will lead to an price increase for the engine lease. Estimated new engine+KERS lease costs for the teams in 2014: ~21m Euro (27.6m US$) which compares to what the teams pay today:
Sauber (Ferrari) 8m Euro engine + 1m Euro KERS = 9m Euro (11.8m US$) it is said that this is a special bargain deal
Caterham (Renault) 8m Euro Engine + 6m Euro KERS+gearbox (RBT)= 14m Euro (18.4m US$)
Force India 14m Euro for the complete package Engine+KERS (Mercedes) & gearbox (McLaren) (18.4m US$).

AMuS's Michael Schmidt is a very well known journalist with excellent sources in the paddock. So we can take this as a serious estimate. We are now at $27.6m and counting. My prediction is that cost will go further up.

I don't mind if F1 spends more money for engines instead of spending it all on aerodynamics. The obvious solution IMO are budget caps for both power train and chassis. Of course that is my personal opinion and everybody else can have his own deviating opinion.

[bill shoe]

It says, that all the 3 main engine manufacturers have already spend ~90m Euro (118.5m US$) each in development cost for the new engine(s), and that it is estimated that by 2014, they will each have spend 100m Euro (131.6m US$)in upfront (R&D) costs and say, that they will need to offload this upfront costs onto the customer teams, which will lead to an price increase for the engine lease.

This seems like a classic economic misunderstanding. The initial R&D is a sunk cost with no particular relation to the incremental cost of producing one more engine (or one more team worth of engines). Therefore the R&D should logically have no relation to the charge for 2014 engines.

Everyone can understand sunk cost in theory, but few can emotionally accept the concept in practice, so the big-3 engine makers will probably rationalize the higher charges as being caused by R&D expense. However, this just brings up a different flavor of the same issue-- If the big-3 can force higher prices in 2014 then why couldn't they in 2010-2013?

Possibilities--
1. Big-3 are wrong and the market will not bear higher prices in 2014.
2. Higher list prices will be effectively reduced by inclusion of more development driver discounts in the mix (i.e. Paul Di Resta with Mercedes engines or Jules Bianchi with Ferrari engines).
3. Having Cosworth available to the teams as an engine of last resort from 2010-2013 kept the big-3 prices lower.
4. Previous prices from 2010-2013 were artificially limited by the previous Concord/Mosley/breakaway negotiations. Prices are transitioning from those artificially low prices to more market-clearing prices. The 2014 engines simply happen to be coming down the pipeline when those previous agreements expire.
5. Other??

[CHT]

on flip side, if teams are able to run with a much leaner operation due to the budget cap, will Bernie also cut the prize money to the teams?

Very unlikely. Bernie has to honour the contractual obligations whatever the teams agree to do with the money.

If cost are drastically reduced while prize money and sponsorship revenue remain then F1 operation could eventually become a very lucrative business for investors. Perhaps then major sponsors would rather own a team like RedBull rather than being a sponsors.

[FoxHound]

The other evil would be an F1 grid that starves itself to death by becoming non viable. In a Darwinian world we would first loose Marussia because they would not be supported with flying money and the $10m by FOM. Very little time later teams down from Lotus to Caterham would fold because they would collapse under their engine bills, which in a Darwinian world would easily reach $50m. By then FOM would have been forced to allow third cars and abandon the constructor principle. Instead of 12 teams with 12 different constructions and 24 drivers we would soon have only 10 teams with four or five different constructions and 20 drivers. So in effect there would soon be only two power teams fighting it out with a bunch of copies painted in different colour for rolling bill boards. For me a budget cap would be the lesser evil.

Btw, I don't support the idea to dispute such future scenarios. I'm aware that many people have different opinions and I respect them. Nobody at this time can know what the ptb in F1 will decide to do. So I suggest respectfully that we keep our opinions and reserve the discussions for the day when further news break on the issue.

Just to keep things straight here; we should keep our opinions, like the one you just espoused, to ourselves? Is it OK for me to introduce Bernie Ecclestone's opinion that the sport has too many teams anyway?

http://uk.reuters.com/article/2012/12/1 ... QS20121213

[FoxHound]

FoxHound,

I think any sensible attempt of discussing this topic would greatly benefit from two things.

1.) we should agree on a currency if we want to compare budget's, spending, profits or whatever.
Because right now, people throw numbers all over the place and compare apples and oranges.
WB numbers are in US$ while your quoted pitpass numbers are in GBP, which is not quite the same thing.
2.) It would help, if you would not choose your own interpretation of what was stated, something you seem do like
doing a lot., but it does not make you look serious, to be honest.
WB posted article states "Cosworth's 2006 V8 was developed for $15 million", not more and not less. But you turn
this into "independent teams could still get an engine for 15 million a year". That was nowhere said, it"s purely what you
chose to read into it.
So why do you try to mud the water with statements like this, and take the discussion off a tangent?
Cosworth would need to be mildly mad, if they would sell their engines at the same price as their development budget.
That may very well be the case, but you cannot assume or conclude this just based on what WB said.

I think this conversation would also greatly benefit from a healthy dose of the reality that no matter what anyone thinks the sports needs or thinks should happen, there's probably no way to implement a strict budget cap for an international sport contested by several large multinational corporations. We've seen Red Bull easily make a mockery of the RRA. What makes us suddenly think a budget cap can work?

Are we going to suggest that teams be prevented from incorporating in Switzerland or Singapore or any other "business friendly" nation so that they can't hide behind those country's banking secrecy laws? I bet Sauber's not going to like that.

Are we going to suggest that every link in the supply chain be open to audits to make sure everyone plays fair? If not, how can we stop sponsors and suppliers from handing out free stuff or manipulating prices for budget cap reasons? (That's going to be ALOT of work.viewtopic.php?p=397218#p397218 )

How would a budget cap deal with pay drivers? Only in motorsport do some employees pay to be employed. That's jsut weird and falls outside most precedent for cost controls in sport.

And how can teams against the budget cap be persuaded to go along with them? Whitmarsh doesn't agree with them.
http://www.independent.co.uk/sport/moto ... 54766.html
Christian Horner doesn't agree with them.
http://www.utsandiego.com/news/2012/nov ... e-to-home/
SPENDING CAP: Red Bull Racing team principal Christian Horner remains opposed to the idea of a spending cap in Formula One to help control spiraling costs.

Cost control is an important issue, but "doing it through a budget cap is absolutely the wrong way to do it," said Horner...

It seems to me that when you try to force someone to play by rules they don't like they'll usually try to find a way around them.

We can talk all day until we're blue in the face about what should or should not happen. I think it's probably smarter to talk about what can and cannot happen.