FIA WMSC Agrees F1 Cost Cap
On 17 March, the World Motor Sport Council agreed a radical addendum to the current Formula One Technical Regulations to come into force for 2010. The aim is to make it easier for new teams to enter and also allow existing teams to participate on much reduced budgets should they so choose.
The new approach gives teams a choice. They can either run under the current Technical Regulations (as modified in consultation with FOTA) or have greater technical freedom but be subject to a stringent and rigorously enforced expenditure cap.
In essence, this is a choice between (i) the current freedom to spend and continued adherence to the existing technical constraints and (ii) a new degree of freedom to innovate technically but with a severely restricted budget. The technical freedoms accorded to the low-budget teams will be adjusted from time to time to keep their median performance on a par with the median performance of the unlimited-expenditure teams. The regulations for the unlimited-expenditure teams will remain stable and fixed.
What is the budget figure?
Max Mosley: Provisionally it will be GBP30 million per two-car team per season (currently EU33m, or $42m).
How can you possibly run a Formula One team for that sort of money?
MM: It has been carefully costed. The cars will be much less refined in detail, because the teams will not be able to spend huge sums on minute advantages (for example, $1,200 on a wheel nut which is only used once), but from the grandstand or on television they won't look or sound any less "Formula One" than the current, ultra-expensive cars. They will also be more interesting to the technically-minded because of the special features which will allow them to compete against teams with much bigger budgets. And don't forget that GBP30 million is still a huge amount of money in the real world.
But surely that budget is not "Formula One", what about Formula One's DNA?
MM: Keith Duckworth once said "an engineer is someone who can do for one dollar what any idiot can do for a hundred dollars". These rules will encourage clever engineering -- success will come to the teams with the best ideas, not only the teams with the most money.
What does the cap include?
MM: Everything except the motor home (if the team has one) and any fine(s) imposed by the FIA. All expenditure will be included, even the salaries of the drivers and team principal. If the team is profitable, it can pay a dividend to its shareholders, who may well include a chief engineer, team principal or even a driver. But we would make sure the team was genuinely making enough profit to cover the dividend.
How can you possibly check? Won't there be all sorts of under-the-counter payments and avoidance mechanisms?
MM: We went into all this very carefully some time ago. We involved forensic accountants from Deloitte and Touche as well as financial experts from the current teams. The vast majority of payments are traceable and any benefits in kind can be valued. There were a number of meetings. It became clear we could do it. The problem was getting the current teams to agree a figure. Also, the majority wanted a lot of exclusions such as land and buildings, the team principal's salary and the drivers. We would also need the right to carry out very intrusive audits and impose severe penalties for overspend. However these difficulties no longer arise because each team will now be able to choose whether or not to run under the cost cap.
What about the engine?
MM: The engine will comply with current rules, except that there will be no rev limit and no development freeze. However, the entire engine expenditure will come out of the cap. If the engine is supplied by an outside commercial entity or another team, we will have to be satisfied that there is no hidden subsidy. If a team has its own engine, we will check its full cost just as we will the rest of the car. The current rule limiting manufacturers to supplying engines to one additional team each will remain in place.
But surely this is going in the opposite direction to your cost cuts?
MM: No. If a team's total expenditure is limited, the money is saved so detailed regulation aimed at saving cost in specific areas are no longer needed. A team could spend GBP20 million a year on its engine but would then have only GBP10 million left for everything else. It would probably not be competitive. The same applies to the other restrictions which will be swept away for the cost-capped teams such as limits on wind tunnel use, testing, exotic materials or giant computers (subject of course to current safety requirements). They can even spend on private jets and luxury hotels. But whatever they spend must come out of the GBP30 million.
What technical and other freedoms will the cost-capped teams have which are not available to the other teams?
MM: A different (but standard) under body, movable wings, no engine rev limit, no restriction on the number or type of updates, no homologation requirements, no limits on materials, testing, simulators, wind tunnels and so forth - most of the cost saving measures introduced over the last few years will not apply to these teams. However measures to save money during the race weekend, such as the ban on refuelling and the Saturday parc ferme, will apply to both categories of team. We are also thinking about a much bigger capacity KERS for the cost-capped teams. But all this must be covered by the GBP30 million - no exceptions and no free or subsidised outside help. Anything supplied by another team or an outside supplier will be included at its full commercial cost except for items supplied to all teams at subsidised rates under the single supplier arrangements negotiated by the FIA (e.g. for tyres), which allow all teams to benefit equally from reduced costs.
But isn't that unfair? With a specially shaped under body and movable wings won't these cars have an unfair advantage?
MM: No, we will make sure these advantages do no more than balance the disadvantages the cost-capped teams will have because of their very restricted budgets. As said, we will balance the median performances by adjusting the cost-capped cars should this prove necessary. The other cars will have stable technical regulations in return for which we understand FOTA intend to provide guarantees of continuing participation until 2012, underwritten by the major car manufacturers. The FIA has a lot of experience in performance adjustment and equivalence.
Could a team use the standard KERS proposed by FOTA?
MM: It could, but again this would have to come out of the GBP30 million. We are not keen on the idea of a standard KERS, because this is an area in which Formula One can innovate in a way that is road-relevant. But nothing in our current rules stops groupings of teams from agreeing parameters for KERS if they wish, because KERS is not compulsory. Perhaps the cost-capped teams will innovate in this area despite their restricted budgets.
Could a cost capped car win a race or even the Championship?
MM: There is no reason why cost-capped teams could not win races. The massive and highly organised unlimited-expenditure teams are perhaps likely to do a better job of going racing. They will have the most expensive race engineers and tacticians not to mention the top-earning drivers. However, racing is (and should be) unpredictable.
What about things you haven't thought of?
MM: We will have a catch-all clause for the cost-capped teams enabling us to stop anything which goes against the spirit of the cost cap and allow us to rule definitively on any unforeseen problem. The unlimited-expenditure teams however will benefit from absolutely stable technical rules. Rule stability is part of the above-mentioned deal which FOTA are arranging with the major car manufacturers.
Surely with the FOTA teams cutting expenditure by 50% in 2010 and further cuts in the pipeline for 2011, all this is unnecessary?
MM: Back in December when we met the teams in Monaco, we would have agreed. However, the world-wide economic crisis has worsened very significantly since then. No-one can say the situation will not deteriorate further in the coming months. If this happens, we may lose other manufacturers or even independent teams, despite their best intentions. If we wait and things get worse, it will be too late. Conversely, if economic conditions suddenly improve, we will at least have some new blood in Formula One. It is obviously the FIA's duty to try to plan for the worst case rather than just hope for the best.
When will you publish detailed regulations?
MM: Shortly after the World Motor Sport Council meeting of 17 March.
When will teams be able to enter?
MM: As soon as the regulations are published.
But FOTA have not yet finalised their detailed proposals.
MM: We cannot wait, because new teams wishing to enter the 2010 Championship will need to start work immediately. FOTA have already given us their main ideas, we understand that the outstanding matters are more minor. Also, provided they comply with all relevant laws, rules and regulations and observe the spirit of sporting competition, there is nothing to stop some FOTA members agreeing among themselves to observe certain rules or conventions provided these do not affect anyone else.
What will you do if you receive more serious applications than there are spaces?
MM: We are going to ask the World Motor Sport Council to agree to increase the number of teams allowed to participate (currently 12) provided the Safety Commission is satisfied that circuit safety has progressed to the point where this would pose no safety problem. Each entrant will also have to satisfy us that they have a source for an engine and transmission.
Do you not fear that sponsors will reduce payments if they know teams cost less to run?
MM: No. Sponsors will pay what the brand exposure on offer is worth to them. Competitors in sports like tennis or golf earn large sums despite their costs being minimal compared to Formula One. Sponsors in the current climate are more likely to be repelled by obvious profligacy than by a budget cap.
Will the cost-capped teams score points and be eligible for payments from FOM on the same basis as the other teams?
MM: Yes, the cost-capped teams and their drivers will participate fully in the FIA Formula One World Championship. We understand that FOM will pay the cost-capped teams on the same basis as other teams and will also provide $10 million plus the standard transport package for the 11th and 12th teams starting in 2010.