Upcoming budget caps - thoughts?
Discussion
Budget caps coming in either next year, or 2021 (which year will be decided tomorrow).
What do people think about this new future, and how it will effect the sport? Better? Worse?
Or will it just become a matter of controversy as the big spenders find intricate ways to maintain an apparently small budget, whilst also siphoning R&D through other companies they happen to own..?
What do people think about this new future, and how it will effect the sport? Better? Worse?
Or will it just become a matter of controversy as the big spenders find intricate ways to maintain an apparently small budget, whilst also siphoning R&D through other companies they happen to own..?
TheDeuce said:
Or will it just become a matter of controversy as the big spenders find intricate ways to maintain an apparently small budget, whilst also siphoning R&D through other companies they happen to own..?
100% this.(Or they could use some of the left over sponsorship money to make the t-shirts a bit bloomin' cheaper!)
TheDeuce said:
Or will it just become a matter of controversy as the big spenders find intricate ways to maintain an apparently small budget, whilst also siphoning R&D through other companies they happen to own..?
This has been mentioned before, there is nothing stopping these F1 teams using "suppliers" in which they buy the items from, but the suppliers themselves wouldn't have to adhere to the spending cap. So if you're told £50 million is all the F1 team can spend, fair enough. Set up another company that specialise in front wing development, pay them £1 million for wings for your car, but the company itself would have 1,000 people working for it and a budget of £100 million.One of the ways budget caps can be implemented and effective is to design the rules in such a way that expenditure offers no performance gain. This was part of Max Mosley's grand plan IIRC.
Take the steering wheel for example. I don't know the 'budget' cost for them but lets say it's £5m a year per team. If the rules dictate that the wheel can only perform a few basic functions (brake bias, radio, drink, etc), then lavish expenditure would be pointless.
Standardised hospitality buildings, provided by F1 would also save huge amounts of money.
Take the steering wheel for example. I don't know the 'budget' cost for them but lets say it's £5m a year per team. If the rules dictate that the wheel can only perform a few basic functions (brake bias, radio, drink, etc), then lavish expenditure would be pointless.
Standardised hospitality buildings, provided by F1 would also save huge amounts of money.
StevieBee said:
One of the ways budget caps can be implemented and effective is to design the rules in such a way that expenditure offers no performance gain. This was part of Max Mosley's grand plan IIRC.
Take the steering wheel for example. I don't know the 'budget' cost for them but lets say it's £5m a year per team. If the rules dictate that the wheel can only perform a few basic functions (brake bias, radio, drink, etc), then lavish expenditure would be pointless.
Standardised hospitality buildings, provided by F1 would also save huge amounts of money.
Hospitality is excluded from the cap as I understand it.Take the steering wheel for example. I don't know the 'budget' cost for them but lets say it's £5m a year per team. If the rules dictate that the wheel can only perform a few basic functions (brake bias, radio, drink, etc), then lavish expenditure would be pointless.
Standardised hospitality buildings, provided by F1 would also save huge amounts of money.
Regards the steering wheel example. That's all well and good but in the end the teams with the most money would find ways of spending it on other parts of the car. It could only work if all parts were dumbed down enough to make development pointless - and then it wouldn't really be F1 anymore.
It's a very difficult problem to solve. The whole point of F1 (IMO) has always been that it's an engineering development competition first and a racing formula second; and that means spending more man hours on engineering is always going to be a way to increase your chances of winning. A budget cap sounds like a good idea in principle, forcing teams to be efficient with their engineering rather than purely using "brute force", but in practice it would be almost impossible to enforce.
will probably increase costs not reduce.
in a simplistic way to get around spending when we did Formula Student, we bought cheep, low quality bolts and steel from China, submitted those receipts but actually used expensive and higher quality bolts/ steel from the UK.....im sure teams will have some very clever accountants to get over this.
to me if you get the rules correct, there shouldn't be a need for a spending cap
in a simplistic way to get around spending when we did Formula Student, we bought cheep, low quality bolts and steel from China, submitted those receipts but actually used expensive and higher quality bolts/ steel from the UK.....im sure teams will have some very clever accountants to get over this.
to me if you get the rules correct, there shouldn't be a need for a spending cap
37chevy said:
to me if you get the rules correct, there shouldn't be a need for a spending cap
This is the essence of my earlier post. Design the rules in such a way that it de-couples expenditure from performance.....or at least partially. Either way, quite a difficult thing to regulate.37chevy said:
will probably increase costs not reduce.
in a simplistic way to get around spending when we did Formula Student, we bought cheep, low quality bolts and steel from China, submitted those receipts but actually used expensive and higher quality bolts/ steel from the UK.....im sure teams will have some very clever accountants to get over this.
to me if you get the rules correct, there shouldn't be a need for a spending cap
I very much doubt any team will break the rules as such, just too many people who could report it are involved. in a simplistic way to get around spending when we did Formula Student, we bought cheep, low quality bolts and steel from China, submitted those receipts but actually used expensive and higher quality bolts/ steel from the UK.....im sure teams will have some very clever accountants to get over this.
to me if you get the rules correct, there shouldn't be a need for a spending cap
But they can stay within the letter of the rules, whilst breaking them in spirit by taking some very indirect routes to achieve the R&D they need to. The result would be the same as in your example, but there would never be a single action you could point at and say "that's the moment they broke the rules". Same as clever tax accounting where each step is fully legal, yet still manages to entirely defeat the intent of the tax system.
If a team is prepared to spend $300m to win, then they'll find a way to spend $300m. This will just open up new avenues of creative accounting. Standardised parts may help to close up competitiveness between teams, to a degree, but those with excess budget will just find ways to spend extra on vanishingly small gains in other, less restricted areas of the car.
I suppose all the problems we're talking about here must have been considered already. They must know it will be possible for those with the excess cash to find a way to spend it.
Perhaps that isn't the point though. Maybe they consider this is worth doing simply to close the gap to a degree. It should achieve that much. Any team looking to spend above the cap will have do so in quite obscure and indirect ways, they will never get performance per pound spent they get now.
Perhaps this is more about scaling back the size of the problem than it is about fixing it.
Perhaps that isn't the point though. Maybe they consider this is worth doing simply to close the gap to a degree. It should achieve that much. Any team looking to spend above the cap will have do so in quite obscure and indirect ways, they will never get performance per pound spent they get now.
Perhaps this is more about scaling back the size of the problem than it is about fixing it.
Can't see how it can work on a purely "you can't spend more than X a year". It needs to be done by creating spec parts where it doesn't matter to the general public and then limiting the number of changes that can be made in a season to the parts that they can design. Still wouldn't be perfect but would give those teams who don't have separate race series a more equal chance IMO.
Given the sharp division between the Champions League and Div 2 (Williams) that we have at the present time, I think the proposals are spot on.
Forensic accountancy is easy - there may be 40,000 pieces to the jigsaw, but a paper trace for how they arrived is easy to follow. Things cannot “Just turn up”. The notion that Stuttgart has better resources to magic pieces onto the car that AMG Mercedes factory does not is also fanciful. The FIA currently manage wind tunnel and CFD time - that is pretty complicated.
Standard parts will have a big impact - the example that Ross Brawn cited, the fire extinguisher, was a good one. Making it 500gms lighter is very costly and gives an unfair advantage to the 4 big-budget teams.
Making a profit is also a good objective, so if Mercedes wish to pull-out, there is a market value that a management buyout can finance and still be able to develop a car.
This should be good for at least the next 10-years.
Forensic accountancy is easy - there may be 40,000 pieces to the jigsaw, but a paper trace for how they arrived is easy to follow. Things cannot “Just turn up”. The notion that Stuttgart has better resources to magic pieces onto the car that AMG Mercedes factory does not is also fanciful. The FIA currently manage wind tunnel and CFD time - that is pretty complicated.
Standard parts will have a big impact - the example that Ross Brawn cited, the fire extinguisher, was a good one. Making it 500gms lighter is very costly and gives an unfair advantage to the 4 big-budget teams.
Making a profit is also a good objective, so if Mercedes wish to pull-out, there is a market value that a management buyout can finance and still be able to develop a car.
This should be good for at least the next 10-years.
rdjohn said:
Forensic accountancy is easy - there may be 40,000 pieces to the jigsaw, but a paper trace for how they arrived is easy to follow. Things cannot “Just turn up”. The notion that Stuttgart has better resources to magic pieces onto the car that AMG Mercedes factory does not is also fanciful. The FIA currently manage wind tunnel and CFD time - that is pretty complicated.
Standard parts will have a big impact - the example that Ross Brawn cited, the fire extinguisher, was a good one. Making it 500gms lighter is very costly and gives an unfair advantage to the 4 big-budget teams.
No one, who has given this any thought, would expect the teams to try and disguise the source/value of components. They would be stupid to even risk that.Standard parts will have a big impact - the example that Ross Brawn cited, the fire extinguisher, was a good one. Making it 500gms lighter is very costly and gives an unfair advantage to the 4 big-budget teams.
a more likely scenario would be for Mercedes (the group) to set up a general Motor Sport engines & components division, entirely unrelated to the F1 team, and the teams accounts. They could perhaps almost do so with FOM's blessing, as such a facility would be the ideal place to develop standardised parts to an outline spec as dictated by FOM. They could equip the facility as they wished, in order to test their in development products to make available to any team that wishes to order them, when they're ready. All fully legitimate.
They could then offer a substantial discount to any team that that buys both an engine and all major components from them, so long as there was an agreement in place that any team that did so, would make available key performance data - it's not unreasonable to offer teams a discount in return for real world performance data. All perfectly legitimate still.
The net outcome of the above arrangement wouldn't break any rules (unless Honda are breaking rules by supplying Reb Bull and RBTR..). But it would also create a situation in which the only teams that would buy the heavily discounted components and share their data, would be Mercedes F1, along with probably any other team that was already effectively a Merc b-team at that stage in any case. The other teams would never trust their data wouldn't be shared back to Merc F1, so would have to find other suppliers or buy Mercedes components with zero discount. Either way, advantage: Merc F1
This would effectively be Mercedes running an entirely separate business that specialises in R&D, and manufacture of components for race cars. It would just happen to run at a massive loss, and of course make components that miraculously happen to appeal more to the Mercedes F1 team than any other. Whilst also supplying them to the Mercedes F1 team + b-teams at a lower price than anyone else would pay.
The only way to avoid this sort of situation, is to outlaw F1 teams making or accepting contracts that include IP and/or data as part payment, or to achieve discounts - and doing that would undermine most agreements in place today on some level.
I suppose they could at a push go as far as to stop teams buying from any company owned by the same group that owns the F1 team, but that would screw up a number of teams that genuinely don't have the money to pull such schemes in the first place. And even then, it could be relatively easily worked around.
Anyway, all the forensic accounting in the world won't uncover anything hidden or illegitimate about the above arrangement. Because there doesn't need to be anything hidden or illegitimate. It's just not very... fair. Same as today.
Edited by TheDeuce on Tuesday 26th March 13:28
I can tell you from experience that auditors are singularly useless at identifying and spotting things. I know, I was one for a number of years.
Look at all these financial collapses we are seeing recently. Every one of these collapses have been preceded by auditors giving the businesses involved a clean bill of health.
I do not expect for one moment that it will be possible for outside agents to be able to ensure that budget caps are adhered to.
Look at all these financial collapses we are seeing recently. Every one of these collapses have been preceded by auditors giving the businesses involved a clean bill of health.
I do not expect for one moment that it will be possible for outside agents to be able to ensure that budget caps are adhered to.
Eric Mc said:
I can tell you from experience that auditors are singularly useless at identifying and spotting things. I know, I was one for a number of years.
Look at all these financial collapses we are seeing recently. Every one of these collapses have been preceded by auditors giving the businesses involved a clean bill of health.
I do not expect for one moment that it will be possible for outside agents to be able to ensure that budget caps are adhered to.
Exactly - because in reality, when schemes are put together to navigate a set of rules, they do so in such a way as to satisfy anything an auditor would look at in any case. These schemes, inside or outside of F1 don't rely on trickery or rule breaking, they rely on changing the form of the business activities sufficiently to fit through loopholes in the rules. Or in my example above, to take the expensive development work outside of where the rules even apply.Look at all these financial collapses we are seeing recently. Every one of these collapses have been preceded by auditors giving the businesses involved a clean bill of health.
I do not expect for one moment that it will be possible for outside agents to be able to ensure that budget caps are adhered to.
1) Have Mercedes broken the rules? No.
2) Have Mercedes beaten the rules? Yes.
The auditors are only there to answer question 1.
And if any entities are expert at bending and interpreting rules and regulations to their own ends, it's Formula 1 teams. They will run rings around any auditors.
Who will these checkers be anyway?
What will be their remit?
What will be their level of financial or technical expertise?
Who will these checkers be anyway?
What will be their remit?
What will be their level of financial or technical expertise?
Eric Mc said:
And if any entities are expert at bending and interpreting rules and regulations to their own ends, it's Formula 1 teams. They will run rings around any auditors.
Who will these checkers be anyway?
What will be their remit?
What will be their level of financial or technical expertise?
Although there are FIA checks on things like windtunnel usage, the system is largely self-policing anyway. The way personnel move from team to team, within the sport, puts a lot of risk in place for teams trying to cheat the system. One ex-employee could bring a whole world of pain onto a cheating team.Who will these checkers be anyway?
What will be their remit?
What will be their level of financial or technical expertise?
I imagine the same would broadly be true of any possible creative accounting if a cost cap is put in place.
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