Monisha Kaltenborn calls it as she sees it.

[Phil]

Phil, I'm afraid all of that is wishful thinking. There is no way to police a budget cap effectively, and it's going to be down to whomever can hide everything better than the rest that determines who has an advantage. The only way to tamp down on costs are to see where they are being spent, and simply rewrite the technical rules to the point where there is nothing to develop for aero. The F1 operations of teams will shrink drastically because teams are not going to maintain large staffs if there is nothing for them to do.

The problem with the McLaren 2007 saga as an example is that do you or anyone else really believe such things were not going on prior to 2007? Sure they got kicked out of the WCC, but Mosley had his own vendetta against Ron anyway so I don't look at that as being representative of "justice" being served.

Sorry, it wasn't my intention to bring up Spygate as an example of justice being served. I was more trying to point out that an imposed sanction or possible exclusion of the WCC would be reason enough for a any team to be very careful in how it cheats itself out of complying to any agreed budget cap. The big question still remains, how do you police it?

I guess big part of my post is wishful thinking. On the other hand, and I freely admit, I'm not close to being as knowlegable as most of you here on how these expenses in F1 cumulate. In the other topics, I read that some of you are studying aerodynamics etc - in the context of F1, it's knowlege I can only dream of (and read on here about, to gain a better understanding). In the context of a cost spending cap though, surely there must be some way to at least break down some of the costs.

Perhaps some more knowlegable than me can fill out the gaps, but I would assume you have

- staff (which can be broken down into drivers, princible, on-sight staff, headquater, or by function / category whatever)
- materials / development (tricky and a very broad generalization)
- various outsourcing
- expenses gathered on a typical race weekend
- etc etc etc

Now in the context of the sport, I think what Monisha is saying, is that the sport is becoming too expensive. Because the larger teams are spending more and more money, it is kind of forcing the other teams to do so as well, to keep up with development and performance. Every now and then, I see that Redbull is singled out as one of those teams as spending more than anyone else, probably similarly how Ferrari used to be. Where are they spending more money than the midfield teams? Also, perhaps a few years ago - it was okay since there was only one team that was really spending more than the rest (Ferrari) and the rest were closer in budgets. Now with RedBull, Mercedes, Ferrari (and perhaps McLaren) at the top, the top 10 results are a lot more difficult for the midfield teams and I'm guessing their budgets are a lot smaller than the top 4 - resulting in a very unhealthy outlook.

I don't think Sauber / Monisha are as naive to think that technical designers/engineers should be cheaper and affordable for all. It's only logical that an Adrian Newey will cost his worth messured by the success rate he has. On the other hand, the salary of the employees are probably the easiest to police, since they are contracted in some form to the racing team. Perhaps the logic is that a team can invest more on engineers but due to a budget cap might have less for spending on technology outsourcing/development?

I really haven't thought about what a budget cap means - or lack the fundemental understanding on how a F1 team is run to figure out where exactly the costs are reaching overblowing proportions where smaller teams are having difficulty of keeping up.

I guess I was more looking at it from a pragmatic point of view; Obviously, there's a broad desire across the majority of teams to find a solution for a budget cap. Irregardless of if it's fair or not - how would you go around to policing it? Would you put the cap only on specific areas (the areas that you can effectively police) or is it across the entire F1 team? And my point, that I was trying to convey before - even if it is impossible to police everything, doesn't mean a policed budget cap wouldn't at least come along way in making the situation better. In other words, if a team needs to find ways to hide its overspending, it may do so in a less obvious way - and in the end, it might overspend less than if there was no policed budget cap at all? Surely even that must be worth something, even if it isn't a perfect solution?

[FW17]

There have been a lot of valid points that have been brought out on the impossibility of a budget cap.

I would like to draw a parallel between budget cap and customer cars.........

The FIA does not have a very big staff to police anything, but some how technology transfer and intellectual property transfer does not happen between teams, this is not policed by any means as by the FIA.

Why doesn't Red bull Tech end up in a Torro Rosso? Why B teams has not happened? There has never been a serious attempt to by teams to share tech, why?

Policing need not be logical, it could be a farce as in the $100 million fine to Mclaren.

[xpensive]

I would like to, again, stress the need to with rules and regulations limit the pay-off from xcessive spending.

Telling billionaires they can't waste their money is like telling Mike Tyson he had no need for two pet-tigers.

[raymondu999]

I'm not sure I follow. Of course if you simplify it to the degree that if you only have a car that costs 10 million quid, there's no way to police it.

And that's how I would do it. Heck that's how Virgin and HRT did it in 2010, to memory. (I'm not saying the 10 million, I'm saying the deal structure)

If a steward then sees this, it would raise questions as to how that component (if it's a widely accepted part where there is a common ground on what these things can and can not cost) is that cheap

"Hey, you can spend a maximum of 'X' quid in total - but you can't spend less than 'Y' quid on this item, 'Z' quid on this item, etc."

You're almost giving them a minimum expenditure, but yet a budget cap. That would never work.

[FW17]

I would like to, again, stress the need to with rules and regulations limit the pay-off from xcessive spending.

Telling billionaires they can't waste their money is like telling Mike Tyson he had no need for two pet-tigers.

There is no will to make downforce cheaper and limit it at the same time.

[Pingguest]

It is quite critical that the decision makers in Formula 1 truly believe a budget cap is enforceable. However, it is even more critical that they are completely obsessed with cost containment. They seem to be unaware of the fact that Formula 1 needs to be relevant for its stakeholders in de first place.

[autogyro]

I see all this as the final nails in the coffin of F1.
It is now so far from being a formula for technical innovation that it has now become the most complex spec formula in the history of motor sport.
Max Mosley knew this would happen when the teams refused to halve downforce or take on his suggestions for a simple cost cap.
That might have worked at the time Aerodynamics is going to kill F1.

[Phil]

I'm not sure I follow. Of course if you simplify it to the degree that if you only have a car that costs 10 million quid, there's no way to police it.

And that's how I would do it. Heck that's how Virgin and HRT did it in 2010, to memory. (I'm not saying the 10 million, I'm saying the deal structure)

Surely, the FIA, if a budget cap was agreed and included into the rules, could mandate a certain amount of transparency from the teams to give them a fair idea if the spendings were within the allowed threshold?

Perhaps I'll attempt a simplistic example; Lets take an imaginary kart championship and 4 teams who enter the championship with their kart.

In order to enter the championship, all teams are required that they abide by the rules and not spend more than 500'000 of a given season. A team may allocate

- 350'000 for staff/salary (includes the salaray of 1 engineer, 1 mechanic, the driver and the team owner)
- 150'000 is allocated in the development and production of the cart. It is split up accoardingly into:
---- 50'000 material expenses (a bit of carbon-fiber, alluminum, brakes, including spare parts etc)
---- 30'000 engine
---- 5'000 fluid / liquids / oils etc
---- 20'000 wind-tunnel testing (okay, it's a kart I know, but just adding possible expenses)
---- 5'000 ECO / electronics
---- 40'000 for 5 documented race track bookings for testing

Now, Team B, who is considerable more wealthy, might want to spend more money to give them an edge. As you proposed, they set up an imaginary company somewhere in the russia and outsource a lot of work there, with the goal to hide expenses and keep them off the books. They have the same 350'000 budget for their staff and on the official expenses, 150'000 for the kart development and production - yet, the area where they want to gain an advantage is in investing more in expensive materials. So they order from their shell company 150'000 worth of carbon-titanium-fiber and sell it to the Team B for 50'000, effectively cheating themselves out of 100'000 they are now above the budget cap.

Now, my point is - if the sporting authority of the championship mandates a certain amount of transparency in the book-keeping teams need to hand in in order to participate in their championship, there should be some receipt somewhere that states that Team B ordered 50'000 worth of carbon-titanium-fiber. This may go mostly unnoticed until Team B starts winning on a regular basis, so that at some point half way through the season, the sporting authority decides to take a closer look.

When they do, they might overlook the dodgy transaction or the expert might find it odd that expensive carbon-titanium-fiber was obtained in a certain amount of quanity for a ridiculous unbelievable unlikely price. So they start an investigation where Team B needs to explain how they managed to secure such a deal. If they can't do so in a credible and plausible way, an investigation follows. In that investigation that follows, experts look at the spendings in detail and if they conclude that it's unlikely that such parts/materials could be otbained realistically for that price, they are punished/sanctioned/disqualified unless Team B can provide proof that the transaction are inf act legit no matter how unlikely.

This is just an example on how Team B might be a bit too obvious in going around exceeding the budget cap. Sure, they could go around things differently and less suspicously - perhaps in ways where yes, I agree, finding overspending or dodgy transactions might be next to impossible to find. But I think it's also relevant if a Team B is exceeding the budget cap by 10% or 100% or even 200%.

If you play with the numbers, overspending by 10% (considering a budget cap of 500'000) is insignificant and hardly noticable. However overspending by 100% (by 500'000) might be already more difficult to do it in a convincing, non-suspicous manner, especially if your team is raking up win after win and may be in the focus of the sporting authority. Imagine 200% where you are overspending by 1'000'000. As I'm sure you are aware, the more you overspend, the more tricky it becomes on how to "hide" those transactions.

Now, assume this is F1 and the increase in complexity and budget. Instead of 500'000 budget caps, we are talking about millions. By how much are the large teams overspending compared to the midfield "struggling" teams?

If you don't have a budget cap, perhaps you have teams that can effectively spend 3-4 times the amount than a struggling midfield team can. However, if you had some sort of budget cap that even if nearly impossible to accurately police, it may still decrease that gap so that those teams might only be overspending by 2 times (the amount they can get away with effectively). Wouldn't that already be a step in the right direction?

Just as a general notice; I'm not really arguing in favour of a budget cap or that one is necessary, I'm just trying to clarify if, assuming there is some kind of budget cap in 2015, if it is possible to build a set of rules that would make it more difficult for the big teams to overspend and decrease the gap a bit.

[raymondu999]

Big deal. So the outsourced "Russian" company claims that it made a catastrophic miscalculation, and allowed a future contract for the materials to be signed in advance of the transaction, ending up in a loss for that company. They are still bound by law to abide by their mistakenly-signed contract.

It just won't work - even QS consultants get it wrong a lot of the time. Estimating the cost of something cannot be used as a final say in things. That's an idealistic view of the world - not the way of the business world.

I'm not saying the budget cap is a bad thing - I'm just being realistic and saying it's not policeable.

[Phil]

Big deal. So the outsourced "Russian" company claims that it made a catastrophic miscalculation, and allowed a future contract for the materials to be signed in advance of the transaction, ending up in a loss for that company. They are still bound by law to abide by their mistakenly-signed contract.

I'm not convinced that would be seen as a credible, plausable and convincing argument in light of an investigation where the burdon is on you [Team B] to come up with a valid explenation, especially if the catastrophic miscalculation is by a large enough factor that it would have at least have to make Team B thinking. At the very least, you could say Team B has some responsibility in seeing a catastrophic miscalculation. Sure you can try, but would it work? Also, overhere - such a miscalculation (given it is a huge miscalculation) would have to be by law paid back (as the receiving party has some form of responsability to realize the miscalculation as well), which in our example would mean that Team B now has officially blown the cap, resulting in some form of punishment. The regulator in this case might chose not to disqualify the team, as they might not be able to prove malicious intend, but given the budget cap, they would need to be sanctioned in some way to maintain the "playing level field" - similarly to what Mercedes was fined for the "illegal" Pirelli test.

If we take the approach innocent until proven guilty, then yes, they would get away with murder, as the onus would be on the regulator to come up with proof. Lets take a different example; If I receive a large sum of money and lable it as inheritance to avoid having to pay taxes, the tax office will knock on my door and would want to see some form of proof that it is in fact inheritance. If I fail to come up with a convincing story they are ready to believe, they will simply declare it as income-tax, irregardless if the money was in fact due to inheritance or not. I would imagine a similar approach within a budget-cap - if the regulator finds inconsistent or dubious transactions/orders and an investigation ensures, the burdon of proof or a convincing argument must be with the Team - assuming the logic, if everything is done correctly and by the book, the Team should have no problem to convince the regulator of that. If however they are trying to hide something, then the story might be less convincing, as seen above.

I'm not arguing for arguments sake. I just think in light that a budget cap has been talked about for years and it looks to be something that will become a reality in 2015, realistic or not, enforceable or not, I think there should be room for some argument on how such a cap could be realized. It's not so much about finding a perfect working solution, but a solution that simply makes the best of what you can.

And at the end of the day, I still think there is some relevance to the point being - a budget cap, no matter how enforceable or not - might still be better than no budget cap at all where 3-4 teams can outspend the rest significantly until all the midfield teams are in a financial crisis and can not continue (which would likely result in the end of F1).

[raymondu999]

I'm not convinced that would be seen as a credible, plausable and convincing argument in light of an investigation where the burdon is on you [Team B] to come up with a valid explenation

That's not how the justice system works. The burden of proof lies on the prosecutor, to provide irrefutable evidence. Not on the accused. Suspects are always innocent, until proven guilty. Not vice versa.

While the FiA could run with the case anyway and demand explanation, that would then open the gates for the team to take legal action against the FiA.

[Phil]

That's how the justice legal system works? Perhaps in some countries, but not all of them. I just named you an example of how taxation is done over here (and pretty sure in most countries too) where a taxation office could potentially charge you backtaxes if you are unable to come up with a reasonable expenation on how you gained that money - in other words, if you fail to prove that it's in fact through inheritance. In this very real example, the burdon of proof isn't on the taxation office to prove that you are guilty, but the burdon is on you, the citizen, to come up with a valid explenation, or else, you're risking the consequences. Even in the countries where it does work that way that you are innocent until proven guilty, a court/jury can still punish despite lack of evidence, but perhaps due to circumstancial evidence for instance - or circumstancial evidence where the defentant failed to bring a convincing explenation.

It IMO doesn't really matter which justice system we're using - the FIA is the regulator and thus, in my view, has the power to make the rules accoardingly. If they formulate the rules in a way that teams enterting the championship have to abide by the rules, I'm not sure what a legal action against the FIA (if a team is being scrutinized) would bring. Any court would look and say "you entered the championship on this agreement, now you're fighintg against what you signed and agreed to?".

[raymondu999]

Unless they ban outsourcing - then this cannot be avoided. Or FiA would have to conduct a massive QS exercise.

Even then, me personally (as a businessman) I'd still pay 20million quid for a package of "F1 car suited to 2014 regulations, along with upgrade packages to be delivered as the year goes on" - and how do you police that? Bear in mind that the teams that were doing this - eg HRT and Virgin in 2010 - were actually buying entire car packages. Not components.

[tim|away]

@Phil
I can see your point and I understand your example about the karting sport involving suspiciously low costs for materials. However, in F1 the most expensive part is research and development, not materials. A more accurate example would involve the imaginary company conducting x hours of research and development whilst only invoicing a fraction of that. On paper small team A and big team B would have the same hours and costs for R&D with very different results due to big team B getting 5-10 times the hours they have paid for. The only hunch would be that big team B's R&D is a lot more productive (i.e. better results for the same money). Good luck trying to build a case on outsourced services appearing too productive.

[autogyro]

[quote="tim|away"]@Phil
I can see your point and I understand your example about the karting sport involving suspiciously low costs for materials. However, in F1 the most expensive part is research and development, not materials. A more accurate example would involve the imaginary company conducting x hours of research and development whilst only invoicing a fraction of that. On paper small team A and big team B would have the same hours and costs for R&D with very different results due to big team B getting 5-10 times the hours they have paid for. The only hunch would be that big team B's R&D is a lot more productive (i.e. better results for the same money). Good luck trying to build a case on outsourced services appearing too productive.[/quote

The only research of any interest is aero.
This has little if anything to do with developing the fastest and most efficient cars on the planet.
All the above argument that focus on the legal aspect avoid the fact that proper legal systems in this world have been developed over hundreds if not thousands of years.
The FIA by comparison changes the legal playing field whenever it feels the need within its own little world.
All the rules are reliant on the support of commercial systems for business which are now so corrupt internationally that they should be considered a joke nothing less.
F1 will continue to serve a small profit seeking few at the expense of real technical development until it finally dies from its own over regulated weight.