FIA introduces £30m budget cap

[timbo]

Max wants to help his buddy Bernie, and destroy FOTA. This is his instrument.

Very very true. The whole hearing is a spit in the face of FOTA. Seems like they are testing how far teams may go.

[Scotracer]

Get a place on an MSc, defer for a year and go travelling, mind you by the time you finish you may find that Mr E and Mr M have managed to get the championship down to everyone in a Ford Focus with 20 grand to spend at demon tweaks!

OH OH PICK ME I HAVE THE 2009 DEMON TWEAKS CATALOGUE!!!!

[donskar]

Lawyers, sometimes I wonder how the world would be without them. Max is a lawyer, as well as many other things. What I have read of his proposal is nothing more than an attempt into manipulating all the teams. It appears Max has submitted a proposal that appears technical, but is in practice very political. It definitely undermines all the "big" teams who are willing to spend whatever it takes to win. And any team that buys into the 30 mil cap is subject to intense financial scrutiny by the FIA. Very intense. By definition that rules out major corporations who believe they have a right to protect their financial position.
It's all about power and control folks, and Max wants it. Imagine if this scheme ever came to reality. The wealthy and "spend whatever it takes to win" teams will see newcomers, regardless of how good their car is, be immedialy given the ability to compete with the big boys. And if and when one of these new 30 mil teams win, the big boys cannot complain because Max's reply would be, "well, if you had become part of this 30 mil team scheme, you would not have this problem". And it would force the decision makers in the big teams to seriously consider accepting Max's 30 mil scheme. Or just drop out because any 30 mil team can beat them, and that's a hard pill for the auditors to swallow. Currenly it's very difficult for any team to justify spending 200 mil on F1, and it would become almost impossible when a team with a budget of 30 mil can compete against them on a consistent basis. This would break the back of FOTA.
I don't know the exact terms of the financial agreements between Bernie and the teams, but at present I'm under the impression that revenues from Bernie would completely offset the 30 mil budget. Amazing, that completely removes any argument by any team for more revenue from Bernie.
Max wants to help his buddy Bernie, and destroy FOTA. This is his instrument.

Excellent post (as usual) =D> and after this, perhaps no more need to be said (but it will be said anyway ).

islamatron -- no apology required - I was a bit overly sensitive (it's these 70-hour work weeks!)

I was hospitalized yesterday; that and time difference kept me out of the loop. So these are afterthoughts and overviews:
A "two-tier" system for F1 is a contradiction in terms. It will probably be seen by many as a diminution of F1's status as the pinnacle of auto racing. We used to have F1 and F2, with F2 the stepping stone to F1. Will the "30 million pound" tier be seen as a stepping stone to the "real F1"?

Marketing is my game, but I hate the prostitution of racing as a mere business tool and therefore don't track the money side of the sport. Seems to me, though, that $50 - 55 million would not be an excessive amount for a top-level 2-car IndyCar team or 3-car NASCAR effort? Would some of you please comment on that?

Several posts took the position that "ingenuity is more important than money" or perhaps "you don't need a budget to be innovative." Admirable philospophically; impractical in application: Great ideas will remain only ideas without the budget to refine, prototype, test, and produce. Colin Chapman created breakthrough designs AND led the way to sponsorship in F1. There's a message there. John Barnard, Gordon Murray, and Adrian Newey are probably our contemporary "Chapmans," and all of them created their greatest designs for teams with well above average budgets.

It's lunacy to make such a radical change without input from FOTA. Think this through: several teams will have to slash their budgets by 50% or MORE. Think of the long-term contracts already in place: top drivers and technical staff sign multi-year contracts; there are leases in place; supplier contracts. Enormous sums have been spent on facilities and equipment that will go unused or underused. The more you THINK about it, the more painful it becomes.

It's been said that the big teams will make vast profits and be able to go into endurance racing (?) or whatever. First, with the public knowledge that the costs of F1 have gone down drastically, advertisers will have a very large club to use to REDUCE their support for F1. Profits are NOT guaranteed. Second, successful F1 teams do NOTHING ELSE but F1. Ferrari, Reynard, March, Lotus, etc -- all tried to race in multiple formulae at the same time -- and failed miserably.

Finally, the worst aspect has already been beaten to death (and it deserves to die):

The FIA has the right to adjust elements of these freedoms to ensure that the cost-capped cars have neither an advantage nor a disadvantage when compared to cars running to the existing rules.

NO ONE who takes part in this forum can see that as anything else but a potential nightmare.

[vall]

I don't know if somebody already asked that, but imagine only one team signs for the 30 mil. cap. Then what? This teas will be doomed to be in the mid-field forever?

Or a current team (at the back, FI, STR) starts now using the unlimited (now) resources to develop a 30 mil. spec car. Then signs up for the cap and kick everybody's ass!

[alelanza]

What DaveKillens said.
Plus, does anyone really think that the group that's incapable of handing out quick and consistent decisions on the subject matter of its expertise can also appropriately establish ways to fully control team's budgets and then equalize performance between the two tiers?
Plus it's obvious that the one great benefit for Bernie/Max would be knowing exactly what's going on inside the teams. If you know the way their cash flows, you know almost everything you need to know about each team. More power to Bernie!

[vall]

it seems that the only way out is that those two MFs go away....

Though Bernie says today that these should be cap for veryone, but 30 mil probably is too low. Ha, imagine of Super Aguri has budget of 80 mil, what would be 30 mil? On the other hand, somebody calculated that in the early 90s this was the level of spending. As I think now, it was interesting back then.

Also one of the reasons to re-introduce TC was that FIA could not anymore control if the teams are cheating. Now, how the hell they think they will control the the team respect the 30mil cap? Sorry if somebody discussed it already. No time to go though all posts

[Miguel]

I've got one pretty simple question: Can you manufacture 12 F1 chassis, 16 engines and 20 gearboxes (I think) for a season with two cars and two drivers with 30 million euros? I'm not joking. I recall that the cost of these cars was above 1m € per car. Add some spare chassis just in case, a budget for traveling and I'm pretty sure you're left with little money for R&D, if at all.

[vall]

do they really make 12 chassis per season?

[Miguel]

do they really make 12 chassis per season?

Yeah, that figure may be a bit wide. Anyway, assuming 6 races per chassis, that makes it three chassis per season per driver. Add a couple of them for winter testing and we're back at 8. This is probably a more realistic figure, even with extreme cases such as Alonso finishing the whole 2006 with the very same chassis.

[ISLAMATRON]

I've got one pretty simple question: Can you manufacture 12 F1 chassis, 16 engines and 20 gearboxes (I think) for a season with two cars and two drivers with 30 million euros? I'm not joking. I recall that the cost of these cars was above 1m € per car. Add some spare chassis just in case, a budget for traveling and I'm pretty sure you're left with little money for R&D, if at all.

Only 5 teams make engine... the rest are leasing them for what 5mil a year for 20.

The Budget as it stand is 30 millions pounds isnt it? Thats more than 30 mil euro... both kinda low anyway. The teams will have to revolutionize their budgets, especially when it comes to drivers.

[Miguel]

Only 5 teams make engine... the rest are leasing them for what 5mil a year for 20.

The Budget as it stand is 30 millions pounds isnt it? Thats more than 30 mil euro... both kinda low anyway. The teams will have to revolutionize their budgets, especially when it comes to drivers.

Wasn't the 5 millon deal for engines something that was going to come with the "standard engine"? That's what I thought anyway. In any case, yes, my point regarding the engines is that even if they are made by little gnomes, someone will have to pay for them. In any case, I really doubt manufacturing plus traveling today is covered by 30m pounds (not much more than 30m€ today). Of course, paying a tier 1 driver 20 million isn't going to help.

[donskar]

We might see a lot more rent-a-ride drivers next year . . .

IMHO some F1 drivers (especially the better ones!) will look elsewhere rather than take big pay cuts.

[Shaddock]

I read an interesting article in 2007 about how the well financed teams (Toyota, Ferrari, McLaren, Honda) proportionately spend their income. Since then engine development has dropped significantly from ~$200m a year in 07, the spending on other areas will have gone up.

Sponsors chasing/hospitality $15m
Rent, Bills $15m
R&D inc Aero $35m ($20m aero alone)
Manufacturing $30m
Capital expenses (new wind tunnels, computers etc) $25m
Travel $7-10m
Team Salaries ~$30-40m ex driver

On top of this you have testing, engine development, and drivers salaries. $30m isn’t going to go very far.

The only people working in F1 soon will be hard up university graduates with large overdrafts, working 70 hours a week, on minimum wages.

[WhiteBlue]

But if they stay with the present rules it is no problem either. The adjustments between classes will have to be made on a per race basis. The FIA can simply run a rolling data base of all lap times of the two classes and adjust the handicap or advantage on a dayly basis. So no huge performance gap between the classes can develop.

That is simply against everything that F1 is.
Let's exploit that idea further and handicap drivers based on their performance.
What a great fight that would be! Imagine Alex Yoong fighting with 500kg handicapped Michael Schumacher!

You are using the old trick of comparing apples and bananas. No individual team or driver performance is supposed to be adjusted. The issue is about having two classes which are dynamically balanced so that the average perfortmance of both classes is practically identical. Because both classes would evolve over the season the adjustment to class two must be continually in order to keep the playing field level.

This isn't such a difficult concept to grasp, isn't it? It would be interesting to hear the material criticism of the idea instead of squishy generalisms.

I have given an example in very basic figures how things could work. Nobody of the opponents of the scheme has so far made a reasonable point based on figures or a practical example against it.

[Chaparral]

I agree with DaveKillens - this is Bert & Ernie pulling a divide and conquer move with this - FOTA presents potentially too much of a powerhouse in the fight to control F1 thats pretty much what it comes down to. This way there is a possibility of smaller teams going over to the dark side with the cap and that includes new entries (lets say USGPE or Prodrive whomever) - that creates the division Bert & Ernie want in FOTA so it dilutes the power base. You have to ask yourself - why would the bulk of the teams want to down scale their business by 60% overnight taking that value out of the business theyve built over many years. Remember that the majority of the F1 business is UK based and how many billion PA is it worth to the economy with all its third party suppliers - this isnt just about the teams - thats destroying a whole industry in one fell swoop - forget the convoluted restructuring that it would take also - that could take years. I actually stand by the teams on this - they appear to be bringing costs down - they say its already dropped 30-40% with more to come over 2010-12. I suspect they will get budgets down to around the $70-80 mill PA but it cant happen overnight. I also deplore the idea of 2 championships within 1 series and the FIA being able to step in week on week to manipulate/change the regs for the 2nd tier teams working under a cap to bring them up to speed with the teams racing outside the cap - its unworkable. I see Bert (BCE) is now saying that 30 million quid probably is too low - he and Ernie know that already and probably have a fall back figure of 50 million or so. If and I repeat If this were to happen it takes all the pressure of Bert and the CVC deal and the servicing of tha 2.3 billion bank loan as the teams are in no position to ask for more money as the new structure would see costs dramatically cut and the TV income the teams now get be more than enough to run the teams with money left over - Bert (as he has already said) may actually cut the TV income to the teams. This has a long way to run.......