The madness of unneccessary F1 costs.

[Sodemo]

Originally Posted by wolfhound

I remember recently somebody posting about GP track association. I cannot remember which thread and have been unable to find it but somebody from Silverstone must have been reading it.

http://www.autosport.com/news/report.php/id/118701

Silkverstone is proposing such an organisation as it would strengthen their position when it comes to negociations with FOM and promotion of F1.

I suggested that the circuits should club together and tell Bernie to jog on...?

[wolfhound]

Originally Posted by Sodemo

I suggested that the circuits should club together and tell Bernie to jog on...?

Well it seams like somebody down Silverstone was reading your post.

[old man]

Originally Posted by wolfhound

I remember recently somebody posting about GP track association. I cannot remember which thread and have been unable to find it but somebody from Silverstone must have been reading it.

http://www.autosport.com/news/report.php/id/118701

Silkverstone is proposing such an organisation as it would strengthen their position when it comes to negociations with FOM and promotion of F1.

See post 416 by Moneyseeker, an idea I really do like

[bjohnsonsmith]

The madness of unneccessary F1 costs hit Williams to the tune of
£42.5million last year.

http://www.autosport.com/news/report.php/id/118689

[Mike Harte]

No matter how much many on here, and elsewhere, would like to see a mandatory budget limit imposed on the teams, I believe that it will be almost impossible to implement whilst the current format of F1 remains as is. The only way that it could be possible would be if all the teams voluntarily agreed to the implementation of the cap, and as thing s stand now, I think that that is highly unlikely.

The problem, as I see, it is that Formula 1 is based in Europe, and much of what happens in Europe is controlled by the EU. As we have seen before, the bureaucrats in Brussels would love to interfere with F1, because F1 is now big business and the FIA and FOM (and it's subsidiaries and other interests) are effectively running a monopoly. And Brussels likes nothing better than to dictate terms to perceived monopolies - just ask Microsoft and Google!

Whilst every currently participating team is based in the EU, and some of the races take place within the EU, then I cannot see how the FIA could impose a mandatory budget cap on the teams as that might be viewed as being anti-competative, and therefore be breaking one of the EU's laws. It would mean that all the teams would need to have their financial HQs outside of the EU, and have no races in the UK, or Italy or Monaco for example. How much TV coverage do you think that F1 would receive if all the races were held in the Gulf States, China and Russia; I would hazard a guess, not very much.

And once the teams financial HQs are moved out of the EU, it is likely that they will be set up in places where auditing is a dirty word, so goodness only knows what the teams will get up to behind the financial scenes, because matters will become completely opaque. Because for all their bluster, the big teams, in terms of the amount of money that they spend, do not want to be told just how much money they can spend to win races; they will spend as much as is required to get them to the top spot.

Hopefully I am not getting this wrong, but it would seem that people have very short memories. Did not the teams embark on a mission to set up a rival series to F1 in the noughties around the time that Max Mosley started a big push to introduce a budget cap, and that this was one of the major reasons that he lost out to Todt in his fight to remain as President of the FIA? That seems to be the recollection that I have.

Forget all this nonsense about fines or "taxes" if the teams spend too much; they have to do it willingly, and voluntarily without the threat of sanctions. And as things stand at the moment, I think that the idea is unlikely to get past a vote in the Strategy Group, so it's dead in the water. Not to say that it might not happen next year or the one after that, but not just now.

[Mike Harte]

Originally Posted by bjohnsonsmith

The madness of unneccessary F1 costs hit Williams to the tune of
£42.5million last year.

http://www.autosport.com/news/report.php/id/118689

But I do believe that they had a number of exceptional costs that were included in those accounts that led to making the losses so large. These included a major overhaul of their personell, as well as their corporate structure, and returning the company back to it's core business of motor racing.

[Moneyseeker]

Originally Posted by Mike Harte

No matter how much many on here, and elsewhere, would like to see a mandatory budget limit imposed on the teams, I believe that it will be almost impossible to implement whilst the current format of F1 remains as is. The only way that it could be possible would be if all the teams voluntarily agreed to the implementation of the cap, and as thing s stand now, I think that that is highly unlikely.

The problem, as I see, it is that Formula 1 is based in Europe, and much of what happens in Europe is controlled by the EU. As we have seen before, the bureaucrats in Brussels would love to interfere with F1, because F1 is now big business and the FIA and FOM (and it's subsidiaries and other interests) are effectively running a monopoly. And Brussels likes nothing better than to dictate terms to perceived monopolies - just ask Microsoft and Google!



Whilst every currently participating team is based in the EU, and some of the races take place within the EU, then I cannot see how the FIA could impose a mandatory budget cap on the teams as that might be viewed as being anti-competative, and therefore be breaking one of the EU's laws. It would mean that all the teams would need to have their financial HQs outside of the EU, and have no races in the UK, or Italy or Monaco for example. How much TV coverage do you think that F1 would receive if all the races were held in the Gulf States, China and Russia; I would hazard a guess, not very much.

And once the teams financial HQs are moved out of the EU, it is likely that they will be set up in places where auditing is a dirty word, so goodness only knows what the teams will get up to behind the financial scenes, because matters will become completely opaque. Because for all their bluster, the big teams, in terms of the amount of money that they spend, do not want to be told just how much money they can spend to win races; they will spend as much as is required to get them to the top spot.

Hopefully I am not getting this wrong, but it would seem that people have very short memories. Did not the teams embark on a mission to set up a rival series to F1 in the noughties around the time that Max Mosley started a big push to introduce a budget cap, and that this was one of the major reasons that he lost out to Todt in his fight to remain as President of the FIA? That seems to be the recollection that I have.

Forget all this nonsense about fines or "taxes" if the teams spend too much; they have to do it willingly, and voluntarily without the threat of sanctions. And as things stand at the moment, I think that the idea is unlikely to get past a vote in the Strategy Group, so it's dead in the water. Not to say that it might not happen next year or the one after that, but not just now.

This is how UEFA 'police' their financial policy in football.

It is also worth mentioning that clubs in the Championship must adhere to a Financial Fair Play framework. This forces clubs to stay within pre-defined limits on losses and shareholder equity investment. The clubs must provide annual accounts to The Football League by 1 December every year, which are used as a basis to calculate what is considered an acceptable loss. By 2015/16, the acceptable deviation from that figure will be just £2m and those who fail to comply are subject to a transfer embargo until they can evidence compliance. Clubs in League 1 and League 2 must comply with the Salary Cost Management Protocol. This broadly speaking limits spending on player wages to a proportion of the club’s turnover, again with the threat of a transfer embargo for those who do not comply.

http://www.lawinsport.com/articles/r...miership-rugby

How much of this can be applied to F1 teams who know's as no doubt some of them have a complicated ownership structure, but I can't imagine it is a million miles from football the type of owners the clubs have.

Where it will be harder to prove is that F1 being a technical based sport there is more room for suppliers to provide parts at vastly reduced prices as part of their overall relationship with the parent company, where as football is simpler in terms of supply.

I am sure UEFA will have looked at how they police certain aspects, for example a team owner could decide/try to have a very expensive player on his own company books to reduced the amount in the club's accounts?

However I like the concept of more open regulations based an only a very few set parameters.

[Mike Harte]

Moneyseeker, it is almost, if not entirely, impossible to equate the financial rules in football (and the other sports that you highlight) to those of the current F1, and to try to is meaningless. Yes, the lower divisions in the Football League are restricted to only a £2 million annual loss without sanctions, but the Premier League loss allowance is £39.5 million a year.

However, as far as I am aware there is no limit on the amount that individual clubs can pay for players (salaries and/or transfer fees) apart from the fact that it must not exceed a certain percentage of the clubs overall income. So, all that means is that if a club want to spend more they then have to raise more income (same as in F1), and this is usually why the top 6 or 8 teams in the Premier League stay in the top 6 or 8; their standing is such that they can attract more income, which usually means that they can afford to buy the better players.

In reality, the same already applies in F1. What is proposed by those in, or close to, motor-sport who would introduce a budget cap mean for it to be a fixed sum that cannot be exceeded without penalty. I would imagine that smarter brains than mine could argue in court that that would amount to a restriction in trade and/or creating an uncompetitive market.

[chillibowl]

the problem with football/soccer is that you have competing rival leagues competing for talent so unless all the top tier leagues enter into the same budget formula it wont work not per say because the concept of a budget cap is flawed.

f1 has no rival league thus making it a simpler thing and why moneyseeker was using the UEFA example which i understood to mean that perhaps their is an indirect way to cap things at a level that supersedes the national leagues.

Budget caps in N.American sports are very common (where there is more fear on monopolies) and there are a growing number of examples of its use in Europe sport as well. never have i heard anyone make the argument that imposing a budget cap in sport is considered an anti-trust violation.

[Mike Harte]

Things are not quite the same in Europe as they are in N America. For example, I believe I am right in saying that Indycars act as a cartel, even though I would have thought that would have broken anti-trust laws. That would be forbidden in the EU, and so I think that it is difficult to compare what happens in other parts of the world, in the same way that it is difficult to compare different sports.

But I return to my point about UEFA; to the best of my knowledge they do not set a certain figure as being the budget cap; rather they enforce a certain percentage spending cap on individual clubs based on that club's income.

So let's say Manchester United has income of a £billion a year. The rules allow them to spend x% on players, etc. Down the road, Manchester City only has an income of £750 million so they can pay out the same percentage figure of x%. United has an advantage because they have x% of £250 million extra to spend.

At least that is the way that I understand that the system works (by the way, I hate football). Apply the same sort of system in F1 and you will still have the likes of Mercedes spending more than the minnows such as Manor.

[chillibowl]

im not so sure its all that different on the other side of the pond. BE owns tracks as well and is always trying to buy more...the FIA/FOM/CVC already act like a cartel. that is not necessarily a bad thing as many sports operate in this way and the same barriers to entry which effectively make them monopoly/oligopoly organization also adds to a certain continuity of history which sports fans like to see.

Originally Posted by Mike Harte

Apply the same sort of system in F1 and you will still have the likes of Mercedes spending more than the minnows such as Manor.

of course and personally i wouldn't want it any other way. what i dont like is a spending divide so large that the difference becomes insurmountable and institutionalized.

back in the day a small team could emerge and over time become very successful. the sums we are talking about now preclude that possibility imo and that is a problem that can be solved with either a hard or soft budget cap. personal preference lies in a soft cap with a luxury tax and while that method has been proven successful in other sports i must accept that this is F1 and F1 has a logic all its own.

[VIVA GT]

Originally Posted by Mike Harte

Things are not quite the same in Europe as they are in N America. For example, I believe I am right in saying that Indycars act as a cartel, even though I would have thought that would have broken anti-trust laws. That would be forbidden in the EU, and so I think that it is difficult to compare what happens in other parts of the world, in the same way that it is difficult to compare different sports.

But I return to my point about UEFA; to the best of my knowledge they do not set a certain figure as being the budget cap; rather they enforce a certain percentage spending cap on individual clubs based on that club's income.

So let's say Manchester United has income of a £billion a year. The rules allow them to spend x% on players, etc. Down the road, Manchester City only has an income of £750 million so they can pay out the same percentage figure of x%. United has an advantage because they have x% of £250 million extra to spend.

At least that is the way that I understand that the system works (by the way, I hate football). Apply the same sort of system in F1 and you will still have the likes of Mercedes spending more than the minnows such as Manor.

Mike, I generally (but not always) agree with you on here, but that comment I'm with you 100%

[Moneyseeker]

I was just quoting an example of where a governing body is trying to reign in another spendathon sport.

However, probably the route of many problems is that some of the participants have too much influence over the rules and the FIA is too pre-occupied or powerless to step in.

Maybe someone needs to take a deep breath and say these are the regulations we want F1 run on you either enter or you don't and by the way we will tear up any obligations you have to enter F1 until a certain date (2020?).

This might be painfull in the short term, it might need a quick solution of Super GP2 cars to make up the full grid, but it would rid F1 of the self interest and historical agreements that make it impossible to govern.

[Moneyseeker]

Originally Posted by Mike Harte

Things are not quite the same in Europe as they are in N America. For example, I believe I am right in saying that Indycars act as a cartel, even though I would have thought that would have broken anti-trust laws. That would be forbidden in the EU, and so I think that it is difficult to compare what happens in other parts of the world, in the same way that it is difficult to compare different sports.

But I return to my point about UEFA; to the best of my knowledge they do not set a certain figure as being the budget cap; rather they enforce a certain percentage spending cap on individual clubs based on that club's income.

So let's say Manchester United has income of a £billion a year. The rules allow them to spend x% on players, etc. Down the road, Manchester City only has an income of £750 million so they can pay out the same percentage figure of x%. United has an advantage because they have x% of £250 million extra to spend.

At least that is the way that I understand that the system works (by the way, I hate football). Apply the same sort of system in F1 and you will still have the likes of Mercedes spending more than the minnows such as Manor.

Mike, to use the football example - agreed on the spending, but Manchester United can't influence the FA by saying for example - we have better and fitter players so we want all the pitches made twice as long so it suits our style of game. What we have in F1 is dominant teams overly influencing the car regulations and having a vastly superior budget.

[Mike Harte]

I don't necessarily disagree with you or that F1 needs some way of controlling costs which are spiralling out of control. My problem is that I can't see how it can be achieved unless the big 6 teams and either the FIA or FOM support them. I would hazard a guess that although Todt attempted to introduce one a little time ago, he couldn't get the support needed from BCE.

The problems now facing the sport arise from the FIA becoming toothless over the last few years. Partly this has been self-inflicted, with the FIA setting up the Strategy Group with it's ridiculous voting system, but mainly thanks to the intervention of the EU bureaucrats in Brussels who dictated that the FIA had to be separated from the commercial arm of F1. And so was born the all powerful FOM which has the rights to F1 until the end of the century or into the next. That, Mr Mosley, was the most stupid thing that you have ever done in your lifetime and it is why F1 is paralysed by self-interest.

[chillibowl]

i think timing is on the side of 'cost controls'

-Williams need it and Mclaren wont admit to needing it but also need it.
-Ferrari is about to be spun off in an IPO and agreeing to limit its F1 budget would increase it valuation as more profit would flow into the parent company so more dividends.
-Merc as always has many shareholders to answer too and if there is an economic downturn in Germany (looming) then capping things help the board immensely...might be the only thing that keeps the team in it for the long term.
Lotus/Genii and FI desperately need it.
-If Renault and VW are interested in coming back (lets throw in Toyota and Honda in this) then a cap makes things so much more appealing.


Red Bull probably dont care but they are acting like they have one foot out the door already.

IMO the only thing holding this back is a lack of leadership...or rather leaders without any vision beyond the next fiscal quarter.

[stumbleyourway]

It really isn't worth thinking about how much is spent on each car...

car servicing

[wnut]

Originally Posted by stumbleyourway

It really isn't worth thinking about how much is spent on each car...

car servicing

What is this spam doing here?

[SWCRacing]

You want madness of unnecessary cost?

All Figures are from 2013 filed accounts (except Marussia whose last filed accounts are from 2012) and adjusted to $ at the rate of $1.65 to the £

Formula 1 World Championship Limited turnover after FOM fees etc
$1,084,700,000 (Commercial rights, TV, Paddock Club & Freight)

Combined costs of all UK based teams (RBR, Merc, Williams, McLaren, FI, Lotus & Marussia)
$1,434,456,218

If you add in assumptions for the three other teams based on their peers costs, that figure stretches to $2,020,206,218

Combined operating losses of the 7 UK based teams
($306,949,290)

To run all the teams solely on Commercial Rights income, the fees and TV contracts would need to double

Any way you look at it, Formula one is broken beyond repair....

[Mike Harte]

It may seem as though I have assumed a negative stand about the possibility to control a cost cap in Formula 1, but I think that that position has only come about because of the absolute drive of some of the teams to win at any cost, and for that reason, they will do what ever is necessary to get to/stay at the top of the podium.

It would seem to be apparent that at least one team has found a way to circumvent the fuel rules, and that the FIA had intelligence or at least a very strong suspicion that the rules were being bent. And this is far from being the first time that "creative" designs have been found to beat the rule book.

One wonders how much the teams (or at least Ferrari, as it was rumoured to be them) spent on improving the performance of their power-unit? And if they were prepared to do that, why wouldn't they hide some of the F1 costs in their road car accounts if they needed to get around a budget cap?

[chillibowl]

Originally Posted by Mike Harte

And if they were prepared to do that, why wouldn't they hide some of the F1 costs in their road car accounts if they needed to get around a budget cap?

of course if someone is going to cheat then they are going to cheat and if thats what f1 teams do (cheat a lot) then we should be having a very different conversation.

to my knowledge most F1 teams are separate legal entities from their parent manufacturer, or in the case of Williams and Mclaren seperate from their respective technology company's so this may just be a Ferrari problem.

again the level of transparency Ferrari is willing to live with in order to maximize its valuation comes into play imo. will their shareholders be willing to assume additional costs, hidden or not, for some of the firm's projects? will they accept a reduction in their ROI? Is Fiat/Ferrari wiling to hide this level of money from its shareholders?

should there be a rule requiring the FIA to be a shareholder in teams so that they are legally entitled to those team's internal audited financial information?

of course this all begs the question of whether or not the rules and requirements to monitor a budget cap is even worth its while. no one wants to know how sausages are made and this is probably an example of how too much transparency is a bad thing.

personally i think its workable given the right leadership and it would be to the teams benefit and while the forum of public opinion might not be enough to stop a cheater it is certainly strong enough to forever taint a brand associated with cheating.

as Richard pointed out earlier, the system doesnt have to be perfect from the onset. it will evolve over time and address these issues as they come along.

what is critical imo is that the divide between how much a small teams and a big teams spends decreases. 100mil vs 200mil type difference is ridiculous and as clever as Ferrari's accountants may be i dont see them successfully burying 100mill plus each and every year.

[Paradise City]

To get our heads around the question of what challenge there is with a budget cap and other parallel arrangements let's use the the axiom "within the letter of the law but in violation of the spirit of the law" as a template to help us along.

1. Companies that are within the letter of the law and the spirit of the law. Shareholders are cool cats about that.

2. Companies that are within the letter of the law but against the spirit of the law. There's no legal exposure here, shareholders are cool cats about that.

3. Companies violate the letter of the law and violate the spirit of the law. Shareholders are NOT cool cats about that.

F1 teams - at least insofar as to what goes on behind the backdoor - often fall into the second category and reports can be deceptive. Also even big shot shareholders often aren't as rigorous as one might think. As long as they are getting their returns, they're typically happy.

[chillibowl]

i think thats a helpful distinction to make. agree that f1 teams mostly fall into category 2 and they do there best to avoid breaking the letter of the law or the rules whichever the case may be.

[old man]

Autosport shows total 2014 revenue due to teams as follows:
Figures in millions, in order of championship positions
Mercedes $ 126
Red Bull $ 156
Williams $ 83
Ferrari $ 164
McLaren $ 98
Force India $ 60
S T R $ 54
Lotus $ 51
Marusia $ 48
Sauber $ 44



Problem, what problem ?

[Richard C]

Originally Posted by chillibowl

i think thats a helpful distinction to make. agree that f1 teams mostly fall into category 2 and they do there best to avoid breaking the letter of the law or the rules whichever the case may be.

Regarding the three categories, and regardless of industry, I pretty much assume very few fall into #1 (probably strive to be #2 but are held back by lack of knowledge to do it correctly), most in #2 and a some in #3.

Accounting is a science and "Spirit of the rules" can't really factor in. In fact spirit of the rules exists only as a concept. It can't be enforced, or if it is, it is subjective. I view "Spirit of the rules" being a guideline for future rules adjustment when someone finds a way to legally bend the rules in a way that break the spirit/intent (i.e. finds a hole).

Originally Posted by old man

Autosport shows total 2014 revenue due to teams as follows:

I think there are two cost levels...

1. Cost to survive
2. Cost to be competitive

Obviously the amount for #2 is larger than #1.

The big teams are able to achieve both. The small teams struggle with just #1.

We have the "madness" (this) and "future rules" thread that have been covering much of the same thing. I think I posted this point in the other thread, but I think caps could reduce overall cost and "might" shrink #2 from above, but does not do anything for #1. A change to revenue distribution should help with #1 for the smaller teams.

Richard