F1 Budget Capping

There are going to be some very surprising results on the track if these rules actually come into effect (read more here).

Movable aerodynamic devices, budget capping, forensic accounting (by Deloitte and Touche), two rule paths, and KERS do not lower costs. At first glance it seems more to do with money and power than the racing itself. The FIA wants to increase the pool of possible teams in order to weaken the position of the manufacturers so that it can rule the sport more effectively and minimize the sport's exposure to the whims of those manufacturers who come and go.

This is not a bad thing. The bad part is that what they're proposing to do is not likely to work. Most of the rule changes intended to cut costs in the past few years have resulted in the oppposite. Engines that have to last multiple races, restrictions on wind tunnel and track testing (can you say spending on simulation???), and so on. Don't forget the safety ramifications too.

The most effective cost reduction rule of the past 5 years has been the recession we're in. That's a real budget cap. Next was when Michelin dropped out of the tire war, leaving Bridgestone as the sole supplier.

What the FIA has put forth for 2010 seems likely that it will either not work or descend into more race results being determined in the kangaroo court that is the FIA World Council. That is not Formula 1 and that is not racing.

It may be the best compromise they can come up with at this time. But I assure you there is a far better way to reduce costs and improve the quality of the racing. And it has never been utilized. I might even file a patent on in.

Budget Capping In Formula 1

There’s broad recognition that unless costs are reigned in, escalating costs in any racing series will eventually lead to a bust once the benefits of racing (PR, promotion, technology improvements, etc) are outweighed by the cost.

Typically at that point the rulemakers go back to the proverbial drawing board and come up with a new version that’s less cost intensive, and often more technically limited (e.g. IMSA GTP, German Touring Cars in the ‘90s, and CART/IRL/Champcar).

The problem is each time there is a bust, the disruption causes a major loss of interest from fans and participants. So when the new version comes out, not only are the cars often emaciated, so is the series – just a shadow of its former self.

Formula 1 has implemented a number of ideas over the last few years with the intention of reducing costs, but it seems budgets are no less these days – part of the reason being that teams will spend as much as they can, to be as competitive as they can be.

If one portion of the car becomes limited for development, such as using standard engine control units (ECU) or tires, the money the teams would have spent on these areas would simply diverted to other areas of research and development. Even if the cars were ‘spec’ (all identical to one another) there would still be competitive differences among team through testing and simulation.

Now F1 is thinking about budget caps to restrict spending, though from what I’ve seen it won’t include driver salaries or engine costs. I find the concept of regulating racing through accounting controls unpalatable. There are many ways to skirt the regulations when it comes to money.

Teams will use all resources their budgets allow. Limiting that with accounting controls isn’t going to cut costs. My guess is if a budget cap goes into effect, the probability that 5 years later the same teams that are winning now are winning then is quite high.

A budget cap will require total transparency in addition to watertight rules. The way the FIA went about last season’s hearings and scandals, the one thing that is completely obvious is that they haven’t quite gotten the grasp of operating transparently. So a budget cap is even less likely to work.

What F1 needs to do is cut down force dramatically (make the wings standard and smaller), reduce the turbulent air behind the cars so they can race closer, and bring back slick tires. Finally, they need to tighten up the rules so we don’t have everyone waiting a month after the last race of the year to have a championship decision made in a faux court – it should be decided on track.

If F1 keeps going the way it’s going with all these shenanigans that have nothing to do with racing action, it will find itself in a bust sooner or later as the manufacturers outspend the smaller teams into oblivion and then pull out. It’s time for a change but budget caps will neither limit spending nor improve the racing.