It’s time to talk of budgets – budgets and caps it would appear. You may think that, as a Northumbrian and Newcastle United fan I am about to write of the £30million promised to Special K in an effort to bolster an embarrassing debacle, but no – this is about F1 budgets, and the proposal to cap such things from 2009.
For those in the dark, a meeting of teams and the FIA last Friday discussed the problem of rising costs in the sport, and ways in which such could be contained. To summarise, it was agreed to set up a Financial Working Group, headed by Tony Purnell, in order to devise ways to stop the worlds biggest car makers from spending more than their rivals in order to beat them. And therein lies the problem.
Before we move on, while the details are sketchy a letter from Max Mosley to the teams has indicated some structure to the proposal – here is the important bit:
"Starting in 2009, there will be a cap on expenditure for all Formula One costs other than engines, drivers and expenditure exclusively for promotion and marketing. Because of the variety of arrangements, particularly shareholdings, team principals' remuneration will not be included in the cap."
So writes the president, before adding:
"If the Financial Working Group are unable to devise a satisfactory method of checking expenditure or if a majority of the competing teams do not agree the proposals by 30 June 2008, the cost reduction measures voted by the World Motor Sport Council on 7 December 2007 will be adopted for 2009 in their entirety,"
The above paragraph refers to previous suggestions that a restriction on wind tunnel use and CFD development would be implemented – the budget cap, presumably, is the alternative. It remains to be explained, however, how a restriction on the former would have been implemented, and the same applies to the budget cap.
Interesting stories in the press of late have indicated that Ferrari – solely – were opposed to a budget cap, and BMW – solely – opposed to the facility restriction. We know this is unlikely to be the case.
So, what would be entailed in capping the
budgetary expenditure of F1 teams?
Read Mr Mosley’s words again, and pay particular attention to the areas excluded from the restriction:
Promotion and Marketing, engines, drivers, and team principals.
When one considers that those areas already make up a good deal of the budgets of an F1 team, where – exactly – is the reduced expenditure going to come from?
An article in Motor Sport magazine last year, written by Christian Sylt and Caroline Reid, surmises that testing and wind tunnel work amounts to £25m of a team’s budget (of course, these figures can not be clarified, but are a useful guide.) They estimate, too, that a typical budget of £100m can levied on a manufacturer-backed team, without engine costs taken into account.
Keeping things simple, then, we have a budget of £125 million already, without engine costs.
Figures bandied about in the press speak of a proposed budget maximum of $150 million – dollars – plus engines, drivers, promotion and marketing and anything owed to the hard worked and under paid team principles. Given that the current exchange rate gives just under two dollars to each pound, we can already see that a massive reduction in expenditure is proposed.
If, therefore, it is not to come from the excluded areas – and it will not as an unwritten rule of Formula One spending says that if money can be spent, it will – then where from?
Answers on a postcard please.
The problem I have with the very idea is this: F1 is a competitive sport, participants are competitive people, manufacturers want to beat each other, and the money that the likes of BMW, Honda, Toyota, Ferrari, Mercedes and Renault throw at it is – when all is taken into account – a drop in the ocean when taken as part of the overall expenditure of their parent companies. Add to that that very little of the budget actually comes from the parent company, and the whole idea becomes more and more confusing.
F1 is expensive – more so than it has ever been in monetary terms, but not particularly so in relative terms – but then it is, apparently, the pinnacle of engineering and sporting excellence. Are we – the public – really expected to believe that a team currently spending 250 million dollars without touching the engines is suddenly going to find a way to shed half of that?
I would advise anyone thinking of working in F1 in the near future to re-train – as an accountant.
It is my belief that a team now spending X amount will still spend X amount – in all the same areas – but that ‘creative accounting’ will show a sudden increase in promotion and marketing, a (necessary) massive expenditure on engine development, inflated driver salaries and team principles suddenly paid a lot more than they were before. It does not take a genius to arrive at that conclusion.
You can all draw your own conclusions as to how, and where, the costs will be hidden, but lets be honest – they will be. Honda is not going to cut their budget by vast amounts unless they have guarantees that Toyota et al are destined to do the same. The problem is how can Honda believe Toyota, or Mercedes, or BMW? They can’t, and they shouldn’t. These are teams who want to beat the next guy, to have the privilege of using the success story in adverts on Monday morning, whose sole objective is to be first. If it means spending more on one particular area, it will be done. Nobody in f1 wants a level playing field, after all.
The proposed budget cap, I conclude, is not a cap at all. Leaving the unrestricted areas as they are means this amounts to nothing more than an invitation for the teams to redirect funds – on paper – to different areas. We have already seen the effects of the engine freeze, with one team (at least) reported to have spent almost twenty million dollars redesigning some fundamental pumps for the engine ancillaries, for an estimated one horsepower increase. No, this is an opportunity for the PR departments to tell the world how they embrace such economically sound and essential cuts, with no mention of the fact that expenditure has not, in fact, fallen at all.
It all looks like a solution to a problem that is not really there; it is not, after all, a problem for these teams to spend money they have – that is what that money is there for in the first place.
And how does this benefit the little guys, the Force India, Aguri and Toro Rosso’s of this game? Well, it doesn’t, does it? As they find themselves already within the budgetary limit, they have no room for the redirection of funds via the accounting returns.
A strange situation, then, but one that smacks of conciliation: we keep our wind tunnels and CFD facilities, and we agree to a budget cap that is not really a budget cap at all.
If there do happen to be millions of pounds left over from the budgets of the teams, however, they could do worse than sending it to Mr K Keegan, St James’ Park, Newcastle upon Tyne. I have the feeling even the return of the prodigal son is not enough to save us from the depths of despair.
Written by Steve Turnbull on Fri, 18 Jan 2008 12:29:14
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