F1's impossible cost-cut deadline

In January, shortly before Formula 1 found itself consumed by testing of its radical new technology, FIA president Jean Todt vowed that one of the governing body's immediate priorities was to enshrine cost control in the 2015 technical and sporting regulations.

Indeed, following a January 22 meeting in Geneva of F1's Strategy Group (comprising six major teams, the FIA and Formula One Management), itself preceded by a summit attended by all teams, the following was released by the FIA:

"The FIA president reaffirmed to members of the World Motor Sport Council the FIA's intention to assure a healthy, affordable and spectacular FIA Formula 1 World Championship for the long-term future.

"At a meeting of the F1 Strategy Group yesterday, chaired by the FIA president, and attended by Bernie Ecclestone and the teams, it was unanimously agreed that cost reduction and cost-control regulations will be presented to the WMSC in June 2014 for introduction in January 2015."

In a subsequent exclusive interview granted to this column by Todt in February, the Frenchman reiterated his determination to impose cost control, stating unequivocally that the topic was his top priority where F1 is concerned.

"I feel costs are kind of insane," he said. "We don't need about 46,000km a year, with two cars in Formula 1. We don't need to have 800 people. I think you can do a proper job with half or one third of this amount of people. We have a responsibility, together with the commercial-rights holder.

"We could say, 'OK, leave the money to the commercial-rights holder,' but I think we have to, together, protect our sport and to go into cost reduction."

Todt has committed to rapid action © XPB

In order to achieve his objective of 2015 introduction, Todt needs to have all his ducks in a row by the end of June, for F1's current governance structure demands that any rule change first be passed by simple majority by the Strategy Group before being accepted by the Formula 1 Commission by a 70 per cent margin. Only then may the WMSC ratify regulation changes.

Four of the six teams on the Strategy Group enjoy astronomical FOM income (made up of race-hosting fees, TV revenues and licensing deals) in comparison with lesser teams. The comparative numbers are eye-watering, with, for example, Ferrari and Red Bull Racing last year pocketing $70m more than McLaren and Mercedes, and close on $100m over Lotus. The spread from first to last (11th) spans over $150m.

According to Bob Fernley, deputy team principal of Force India, therein lies the problem: "I think the Strategy Group is fundamentally wrong. There are 11 teams that go racing and put on the show in Formula 1. Those 11 teams fundamentally have the same costs as each other, so we have an inequitable split in terms of finances, but it costs each team roughly the same amount of money to support the show."

Fernley believes that with the regulations already policing race-team headcount numbers, the number of chassis at each event plus the quantity of tyres, engines and transmissions each team may use over a season - and roughly the same freight costs across the board - the actual cost of teams setting up stalls at race meetings is roughly the same, whether the outfit be Ferrari red or Marussia scarlet.

The major differences in relative performance lie back at base, being mainly in development costs, for the majors have the budgets to support windtunnel and simulation programmes. Hence Fernley believes that the cost of racing is controlled, while driver/executive should be excluded, as should marketing/hospitality, for teams are in the sport for different reasons. So the main variable is engineering development.

Under those circumstances, why would any team with Strategy Group privileges vote for cost caps unless any limit is set at over $200m - against average mid-pack budgets of around half that - particularly as F1's way is to spend what is available, and then some?

During the Friday FIA press conference at this month's Australian Grand Prix, those team bosses present - saliently representing Ferrari, Red Bull, McLaren, Mercedes and Williams - not only totally avoided a direct question about the sort of progress they collectively wished to see made on cost/budget caps, but were rather cagey in what responses they allowed. Witness some excerpts:

Christian Horner of Red Bull: "How to make it happen is obviously something much more complex. Then there's obviously discussions about caps and this and that. You've got to look at the root causes for why costs are the way they are and then, in my opinion, address it that way," adding after the follow-up: "We've done an incredible job of reducing costs for this year with the introduction of a new powertrain that's probably 25 per cent more, so we're doing a great job so far!"

F1 team bosses have been coy on the cost-cut topic © LAT

Eric Boullier, McLaren: "I think Ron [Dennis] has maybe said he's not in favour of caps - again, it's words."

Toto Wolff, Mercedes: "Maybe Stefano [Domenicali] wants to say something..."

Stefano Domenicali, Ferrari: "I think that Christian and Eric have summarised the situation very clearly, so nothing to add. We are always saying the same thing," later adding: "I think that progress is on the way because we are discussing what to do at the level of the Strategy Group. I'm sure that you're aware of the work that is around that. I think that at this moment it's better to stay quiet and tell you when the thing is done, and say we are doing something without going into the details of it."

Claire Williams (Williams) declined to comment, while in a subsequent interview Jonathan Neale, COO/acting CEO of McLaren Racing, stated that in his opinion cost controls could not be introduced by 2015 - if at all - due to the complexities inherent in such a framework, which would need to take into account the different team structures, locations and local factors and various currencies.

If the 'majors' were reticent to comment, so too were the very teams for which cost controls are vital, namely Marussia and Caterham. Asked in Malaysia this week what level of cost controls they wished to see implemented, the principals of those teams plus Lotus, Sauber and Toro Rosso skillfully circumvented the question without providing a preference.

All did, though, agree that some progress was being made in this respect, although Graeme Lowdon of Marussia stated it was impossible to measure the schedule "as no blueprint exists". True, but civil engineers use flowcharts to measure progress on projects that don't have precedents. All teams know the timeframe; all know what is required to institute cost controls - having previously done so with the contentious Resource Restriction Agreement - so where lies the implementation problem?

Both Fernley and Sauber's Monisha Kaltenborn are adamant that the necessary steps can be completed by June 30, with Fernley stressing that "there has to be time, because I think there is a covert plan to be able to, by enriching certain teams and empowering certain teams and disenfranchising all others, manipulate a customer-car process [see below]."

Sauber and Ferrari are on very different deals with F1 © XPB

Kaltenborn, who has long pushed for cost control, is equally bullish, telling this column in Australia that June 30 is "absolutely do-able. The basis for it has been laid, with the decision of the FIA, the decision of all the teams at our [Geneva] meeting, the agreement to implement cost-cutting measures. We know that all teams are being asked for their positions on different matters and there are many aspects which we can consider there, and all that is happening."

She believes that the broad parameters are in place: "We are still in the process of defining and agreeing on the areas, so it would be premature to discuss this already in public. But I think as a principle you can definitely take that we should control what is decisive for the sport."

But, Matthew Carter, the newly appointed CEO of Lotus, does not believe that cost control can be implemented by 2015, responding with a blunt "No" when asked in the paddock in Melbourne. He does, though, believe that ultimately one will be introduced, but that too many loose ends exist for ratification by June 30.

"I think it's feasible that it can be achieved," he said. "A decision needs to be made as to whether it's done through the Strategy Group or through the finance directors, the chief financial officers' group. And that decision needs to be made quickly, otherwise the timeframes are not going to be adhered to."

Like his peers, Carter is reluctant to provide a preferred level, simply because he doesn't believe that the final parameters have been defined: "What they need to do is decide what is and what isn't included in the cost cap, and that's going to be fundamental to whether it's going to work or not."

He uses driver salaries to illustrate the point, which is particularly apt as Lotus employs arguably the best-heeled driver in the paddock, namely Pastor Maldonado: "If, for example, drivers' remunerations are not included... there's obviously a vast difference between the driver remunerations that are paid in the top four as opposed to us..."

Fernley suspects a customer-car agenda © XPB

Fernley sees the question of cost control inching towards customer cars of some sort, with five or six majors supplying technology to the mid-grid and tail-end.

"In my view the FIA are key to this," he says. "The FIA actually could become the saviours of Formula 1, in that without the introduction of a cost cap, we're onto a strategy that's already in place and already being enacted by CVC."

Asked what the 'strategy' is elicits a straight answer: "Customer cars. I believe that a deal has been done in principle, and it's not by coincidence that the five teams that are benefiting from a non-equitable split of funds from the commercial-rights holder are also the same five teams that are in the Strategy Group, and also the five teams that potentially could benefit hugely from customer cars."

Kaltenborn is more diplomatic, refusing to go into specifics but stressing that, to her, Formula 1 is about competition, about responsibility and about diversity: "Because that's what everyone is going for. And we certainly don't want to go a way where we are maybe creating monopolies."

Eleven teams, 13 opinions (including the FIA and FOM), at least three different currencies (possibly four if a US team makes the cut), and a spread of teams, inclusions, exclusions, marketing, hospitality, in-house engines, in-house manufacture versus outsourcing - all aspects that need to be factored into the equation by June 30.

Regardless of how bullish the teams are, regardless of how forceful the FIA is, the reality is that just three months remain before the cut-off date, and the sport has yet to define whether cost control is a finance or sporting issue.

PS: After this was written, F1 tsar Bernie Ecclestone called a meeting of team bosses in Malaysia. According to sources two items were on the agenda: the 2014 sound - allegedly he was persuaded to tone down his criticism of the new technology on the basis that his comments were damaging the sport - and cost control.

In this regard he is said to have told the meeting that all teams need to agree on a cost-control mechanism or, by implication, none would be implemented...