The true cost of a budget cap in Formula 1

As this is written, exactly three years have passed since the Max Mosley-led FIA World Motorsport Council approved the concept of a budget cap for Formula 1, in the process hoping to force the then 10 teams to reduce expenditure by offering them the opportunity of signing up to a voluntary £30million annual cap in exchange for greater technical freedoms than others.

At the time the governing body stated: 'These regulations will not affect the established teams which now have stable backing from [five] major car manufacturers, but will enable new teams to fill existing vacancies on the grid for 2010, and make it less likely that any team will be forced to leave the championship'.

F1 was at the time in major turmoil: the Silverstone breakaway; fuelled by massive opposition to the concept, was just three months away, while little did Mosley know then he had just six months left at the helm. There remains no doubt that the WMSC meeting on March 17, 2009 dramatically changed the face of the sport and, ultimately, its governance.

BMW, Toyota and Bridgestone exited (or gave notice of leaving) within 12 months, while the grid was opened to 13 teams, and a wholly-revised Concorde Agreement, the document that binds F1's primary players, was eventually signed in September - 18 months after the previous covenant expired, but only after acrimonious negotiations stretching back five years.

So united was opposition to the cap that not only did McLaren and Ferrari host love-ins that led to personnel from each team visiting the other's base, but politicking between teams evaporated overnight, replaced by vitriol aimed at the governing body, more particularly President Mosley.

At the time this column consistently argued the cap was none other than a cunning ploy hatched to prevent teams from demanding increased shares of F1's billion-dollar revenues from the commercial rights holder - Mosley's chum of 30 years, Bernie Ecclestone - who had paymasters to satisfy after striking the deal of the century (plus 13 years) with CVC Capital Partners. Net effect: a tidy earner for F1's Gordon Geckos.

Ecclestone last weekend suggested a budget cap would be good for F1 © LAT

The logic was simple: cap budgets at £30m, then argue that most teams could raise that (and more) through sponsorship, and thus had no need for a share larger than the existing 23 per cent of F1's income between them that they had collectively accepted a decade earlier.

The majors refused to budge on budgets - and, the FIA dug in and refused to sign a revised Concorde unless some form of cost-saving agreement was included. Stalemate was averted by the Resource Restriction Agreement - conceived primarily by McLaren, and ultimately subscribed to by all teams as a condition of entry acceptance.

However, as with all F1 agreements it was a rushed job, and thus contains more loopholes than the double-decker diffuser regulations in force at the time. So much so, in fact, that the RRA was overhauled nine months after its introduction, with teams still failing to see eye-to-eye over checks and balances. The result was Red Bull and Ferrari last year departing the Formula One Teams' Association with Sauber and Toro Rosso rapidly following suit. (HRT had never been a serious member.)

In fact, it would not be at all inaccurate to suggest that the cap concept proved to be Mosley's Waterloo; it marked the beginning of the end for his rather dictatorial reign, and continues to tarnish his presidency three years on. That's particularly true with respect to the new teams that were attracted to join F1, despite the cap being scrapped in lieu of the less-stringent RRA, described by Mercedes team principal Ross Brawn in Melbourne as "an intelligent budget cap".

None of the four newbies that initially signed up have covered themselves in glory three years on. In fact, in the 37 races held since 2010, the three (USF1 never got going) - with more than 200 starts between them via two cars each - have singularly failed to score a point. In fact, none has even come close a top-10 placing on merit.

Initially Manor Grand Prix, Campos Grand Prix and USF1 were selected - having provided proof of engine-supply contracts with Cosworth, which returned to the sport on the back of Mosley's demands that newcomers be Cosworth-powered, as was his (long-gone) 1970s March team.

USF1 launched to much fanfare, but didn't make it onto the track for 2010 © LAT

USF1 made the cut primarily through persuading the WMSC via flash presentations that teams could race on £30million per annum - which, of course, they could not, as proven by the demise of USF1 in a pile of debt and broken dreams before the 2010 season had even kicked off. Leaving three.

Campos fared little better, having its credit cut before race one, sparking a rescue by investors, namely Carabante pere et fils. They in turn lost the team to Spanish venture capitalists a year on, and it is doubtful whether HRT, as it is now known, would still be around without the determination of team boss-for-hire Colin Kolles, whose services were dispensed with in late-2011 after Thesen Capital elected to go Iberian.

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Manor GP begat Virgin which begat Marussia - all of which tells its own tale - and so shamateurish was the design operation, headed by Nick Wirth (a former business partner to Mosley), who trumpeted Manor as a shining beacon for his (flawed) vision of F1 after shunning traditional modelling tools (primarily windtunnel testing) in favour of pure computational fluid dynamics.

VR-01 took to the grid for the 2010 opener with insufficient fuel capacity to complete the distance at racing speeds, so a 'B' version was on the computer before 'A' hit the grid. Three years on the Marussia MR-01 failed to make official testing.

BMW's exit unexpectedly opened the door to the fourth new outfit, namely that now known as Caterham F1 - after the kit car company that produces the retro-style Seven originally designed by Lotus founder Colin Chapman in the 1950s, and acquired last year by Tony Fernandes at the height of his legal dispute with Lotus Cars over the use of the 'Lotus' name.

Heikki Kovalainen Caterham 2012 Barcelona test © LAT

Although the team, which dumped Cosworth in favour of a Renault/Red Bull back end after a season, has undoubtedly proved to be best (by far) of the (remaining) three, off-track performance has been less impressive, what with the protracted Lotus matter and Fernandes's multiple-choice legal strategy, plus ongoing intellectual property sagas in which Force India is seeking relief in British and Italian courts.

In fact, with a view to polishing its image, Caterham recently took the (ethically questionable) step of appointing two FIA-accredited journalists to the board, ostensibly as consultants.

"They should both fall within the RRA," one team boss told this column immediately after the news broke on an automotive website - and, saliently, NOT announced by Caterham or said scribes - "as they are clearly in the paddock on Caterham business".

To recap: of Mosley's four budget cap newcomers plus sub, one never happend, two failed to run their new cars in testing this year despite being in business for almost three seasons, the three survivors failed to score points in 200-plus starts, and all four changed hands/names at last once in two years (USF1 was initially USGPE). Not a good record, despite these teams operating to substantially higher budgets than envisaged by Mosley; one shudders at the thought of four outfits taking to the grid on £30million.

It can, of course be argued that they failed to make the grade due to the budget cap being substituted by the far less-stringent RRA, and that the frontrunners spent up to six times the levels of backmarkers. But the question must be: Why should the establishment be coerced into downsizing, having spent considerable time, effort and money in developing their resources to world-class level.

The best parallel is the Ministry of Education compelling Oxbridge to lower its standards because incoming students lack the entry qualifications of previous intakes. Imagine the state of industry and professions a few years down the road, then extrapolate that for F1.

Why, though, all this history? Simply because this Sunday past Ecclestone called for budget caps to be introduced in F1 on its official website.

Hispania, Lotus and Virgin in 2010. All three have new identities now © LAT

"The teams have to learn to be competitive without tons of money. They have to refocus again on the basics - on racing, spending on the sport - and not on baronial motorhomes and all kinds of entertainment," said the F1 tsar, who for the past two years was extremely critical of the new teams, each of which received handouts worth £6.5million per year from him.

"We have had this kind of problem for quite a while now as of course they spend what they have," he said. You could install a mandatory budget for all teams - on the basis of the smaller teams - but they [the grandees] don't like it, and fiercely fight against it."

Then the killer comment: "I would welcome it [a budget cap]. Yes, I think it could happen."

Of course he would, for reasons outlined earlier, particularly given that it can be no coincidence that Concorde expires at season's end and the teams are known to be pushing for an increase in revenues from the current, hard-fought 50 per cent to 70 per cent, even 75 per cent.

The thorniest issue facing Ecclestone during Concorde negotiations is the strength of the block represented by FOTA - currently seven members ranging from McLaren to Marussia - and Ecclestone knows that McLaren, having pushed for the RRA both conceptually and via the association of the team's Martin Whitmarsh being FOTA chairman.

At the top end, Ecclestone can cut separate deals with Red Bull and Ferrari, but also knows grid quantity is as vital to F1's show as quality, and thus needs to woo the likes of Force India, Sauber, Williams, and, yes, even Marussia.

Thus, get the very top signed up via wheeling and dealing, then hit middle to bottom with promises of budget caps, and the rest, namely McLaren, Mercedes and Lotus - all of whom have top class (costly) facilities - will be forced to fall in line.

That said, the problem facing teams is that their facilities are geared to run on existing budgets (an average of £80million per annum); should the sport decide to cut to backmarker levels, then 80 per cent will need to downsize massively.

Sauber has had to downsize since the glory days of 2008 with BMW © LAT

Sauber provides a classic example of a team forced to downsize. Having been bought by BMW, which expanded the facilities in Hinwil, Switzerland massively, it was discarded and left to founder Peter Sauber's devices. Result? The team resembles a trim athlete taking the start of a 100m sprint kitted out in spikes and shorts three sizes too large. Consider the associated impact on performance.

Just as Mosley's budget cap ultimately had no chance of flying, so Ecclestone's version has only a slim chance of being accepted - particularly if enforced, as that would require approval by the Sporting Working Group and F1 Commission before being rubber-stamped by the WMSC.

There is, though, a way in which teams can compete on existing budgets without danger of going under. One of the stated aims of FOTA is to grow F1's revenues, which are well below potential when prospective streams from new media, interactive TV deals, and additional licensing/IP deals are factored in to the equation.

A 40 per cent growth factor over the next five years is not out of the question, thus a turnover of £1billion with expenses at present levels of £125million - leaving net revenues of £850million, with the teams sharing £650million - an average of £51million each. They can then top up any shortfalls via sponsorship deals, but the likes of Marussia and HRT would still have double their existing budgets.

That would still provide CVC with a 15 per cent annual return on an investment that has already washed its face. For obvious reasons this proposal has no chance of flying, either - but the model proves that F1's problem is not any lack of budget cap, but Gordon Gecko.