How Mosley's legacy is still ruling F1

Back in March 2009, at the height of Formula 1's spending race, this column broke news that then-FIA president Max Mosley had hatched a cunning plan to prevent the sport from out-pricing itself.

This plan was to circumvent the European Union's imposition that the governing body refrains from involving itself in commercial matters after leasing the rights to the sport to, ultimately, CVC Capital Partners for over a century for a relative pittance.

Mosley proposed two-tier regulations; Those teams that agreed to work within a budget cap (initially US $40million) were afforded greater technical freedom than those that had unlimited budgets. Thus he could plead innocent on any commercial charges by stating that the regulations afforded the teams the choice of budget, and that the FIA did not impose them.

It was clear to anybody with an abacus that the system was unworkable, and it soon became even clearer that this was a continuation of Mosley's standard modus operandi: impose the ridiculous in the hope the teams would accept a halfway compromise - one about 45 per cent further down the road than they would have gone to voluntarily. It was, in the words of one team boss, "a provocation, no more". In the days before the Formula One Teams' Association, such tactics had worked a charm every time, but at that stage the alliance was already eight months old.

Sure enough, the two-tier system was soon superceded by Mosley's equally unworkable budget cap proposal, whereby teams were restricted in terms of annual spend. In short, it seemed that Mosley aimed to turn this most capitalist of sports into a socialist paradise. The move marked the beginning of the end of his reign, for it was a bridge too far for a FOTA chaired by Ferrari president Luca di Montezemolo, who led the charge for a breakaway series; for a few weeks the future of F1 hung in the balance.

Peace was eventually brokered, but not before Mosley agreed to step aside, and the three players (FIA, Bernie Ecclestone on behalf of CVC, and FOTA) agreed to extend a revised version of the (expired) Concorde Agreement-based matrix.

According to sources at the time, Mosley had an ace up his sleeve: he simply refused to sign the Concorde Agreement on behalf of the FIA unless the teams, by then desperate to have some form of contract with the FIA and CVC, committed to some form of cost control - yet said that his proposed budget cap was totally unacceptable.

The RRA imposes a curfew, banning work by F1 teams between certain hours © LAT

Thus McLaren proposed the self-policed Resource Restriction Agreement, which was developed in parallel with the revised Concorde Agreement and committed to by all teams then in F1. Once they had signed up to the RRA, Mosley's World Motorsport Council gave the go-ahead to sign the Concorde Agreement on behalf of the governing body, thus effectively making both agreements a condition of entry into the 2010-2012 world championships. It must be remembered, however, that the RRA does not form an integral part of the Concorde Agreement, nor does it form part of F1's sporting regulations, despite all teams being required to honour its provisions.

Two months later Mosley stood by as the FIA's General Assembly elected his chosen successor Jean Todt to the presidency. They are now alleged to not be on the best of terms, but that is a story best left for another day, as it does not affect the thrust of this column.

Put simply, the RRA provides a financial equivalence formula that enables teams to trade off headcount, out-sourcing and internal activities according to a matrix. Teams can thus mix and match within their design, development, manufacturing and racing departments. Theoretically, a team could go the full nine yards internally while another outsources all activities, yet both should perform similarly within identical overall budgets.

Martin Whitmarsh, McLaren team principal and current FOTA chairman, told this column in Abu Dhabi during the first on-the-record interview on the subject: "What we sought to do is say, 'what are the easy things to measure?' A huge hurdle to clear with complex businesses [is] how much money they're spending. As you probably know, accountancy is quite an art form and people can be very, very creative. So we said, 'right, let's look at it, in simple terms, what things affect the competitiveness of the car in a very measurable test case'."

Not a perfect system, by any means, but one certainly more quantifiable than either of Mosley's two proposals - and, above all, one acceptable to all teams. Make that 'was acceptable', for no sooner had the teams accepted the RRA than cracks became evident, not least due to a rolling penalty structure that permitted teams to accumulate penalties - any overspend was penalised by deduction of an equal amount the next year - until the RRA expired concurrently with the Concorde at the end of 2012.

The RRA that was signed in Singapore in 2010 is still being worked to © LAT

In addition, the so-called glide-path by which teams reduced headcounts and spend over the three years (2010-2012) was considered too steep by the majors - certain teams would have been required to reduce manning levels by up to 100 heads - so they proposed a compromise: 'flatten the glide-path, and we'll commit to the RRA until the end of 2017'. This RRA, known as the '(2010) Singapore Agreement' due to being signed in the city state a year ago is currently being worked to.

The nature of the document makes it a prime target for curiosity, particularly as teams are required to self-police, then submit sets of audited documents to FOTA. Allegedly, certain teams 'forgot' to file full packs, while others refused to disclose all details on the grounds of commercial confidentiality.

"You actually have to fill in certain forms. We also define the forms. And of course it is a self-monitoring process, so I could write what I want to in there, but you also have to have your auditors together, so they would have to be part of the game..." said one source.

Then, FOTA appointed international consultants CapGemini to check the methodology used by six of the teams. Predictably, not all of the six played ball, though - while computer and windtunnel experts were tasked with running audits on critical areas to provide an element of confidence. Still, there has been much squawking and squealing, but as Whitmarsh says, that is the nature of the beast called F1.

The fact that the RRA has been the subject of much discussion during race weekends - both in the paddock and during FIA press conferences - have fuelled the flames of interest. By the same token, team principals have (understandably) shied away from speaking on the record about the agreement, so the RRA has found itself stuck between a rock and hard place.

It has become clear that in order to have 'teeth' the RRA needs to form part of any future Concorde Agreement, and Whitmarsh is convinced that will be the case with any extension to the covenant that binds the three parties. He points to the testing, race weekend manning levels and curfew agreements, all of which were initially team initiatives, but are now administered by the FIA.

Whitmarsh says its probable parts of the RRA will become regulations © LAT

"I think it is likely and probable that elements, or all of RRA, will go into the regulations, at which point it won't be at the discretion of teams to decide the level of audit or not," he said.

Ditto penalties: "You can imagine that in the future it will form part of the sporting regulations, at which point there will be a sporting [penalty]. We need to control costs in Formula 1. I don't think there's any team that would say 'no' [to that]. What we don't need is a free-for-all. That being the case, we need to develop trust and process and sporting penalties or incentives to comply," is Whitmarsh's earnest belief.

Remarkably, the RRA does not stipulate maximum budgets. There are, in the words of a team source, limitations on 'different bulks and chunks', plus limitations on materials and services, heads and investments. Head count is as a trade-off currency rather than spend, as is windtunnel time and such like. "You can switch in CFD the terraflops or windtunnel time and things like that. You can do that with head count as well, trading off against outside suppliers and whatever else."

Various cost centres are, though, excluded, with these including driver retainers and bonuses, marketing costs, and finance and administration absorption, while caps are imposed on capital investments, which can in turn be traded against leases and rentals. Thus teams may operate full marketing divisions, while electing whether to own or rent premises and facilities.

Also excluded are human resources allocations, legal costs, travel and subsistence, information technology and infrastructure services plus all costs related to customer projects and engine/transmission-related costs.

Equally remarkable is that the RRA contains zero penalties for withdrawal, meaning in theory teams could withdraw from the agreement at any stage. Yes, they could ultimately face legal action for damages, but these would need to be proven - forget not that Toyota withdrew from the sport after signing both the RRA and Concorde Agreement, yet avoided legal sanction. This remains the biggest fear: that one or more teams will unilaterally withdraw from the RRA, triggering a return to unlimited spending.

Toyota (third) withdrew from F1 after signing the RRA and the Concorde Agreement © LAT

At the time of signing the RRA, the 13 signatories operated in four different currency zones - Sterling (British teams), Euro (Ferrari, Toro Rosso, Campos), Swiss Franc (BMW Sauber, with its chassis operation/HQ in Hinwil) and US Dollars (USF1), and thus a forex mechanism was built into the matrix. Yet, for some reason, the RRA's architects failed to factor in an increase in the number of grands prix into the equation - and thus glide-paths become steeper as the calendar expands...

A comprehensive document in many respects, then, one that has certainly had the desired effect in reducing costs, with the universal sentiment in the paddock being that F1 would not have survived had some brake on spending not been imposed by whatever means.

That said, both Ferrari and Red Bull recently proposed revisions to the RRA, with the British squad circulating its proposals in the run-up to the Abu Dhabi Grand Prix.

One thing is clear: FOTA needs to resolve various contentious issues - a meeting scheduled for Abu Dhabi to discuss methodology was cancelled due to a clashing Mercedes board meeting (the Abu Dhabi sovereign wealth fund Aabar is a shareholder in the team) - and the sooner the better. In fact, a meeting has been scheduled for Brazil.

"This is a week when we need to think about it. RRA is a very important element for the future of this sport and we need to make sure it is effective. It is a week to prepare for the meeting in Brazil," Ferrari team boss Stefano Domenicali told this column on Sunday evening in Abu Dhabi.

"We have a document, and the teams are looking at that during the course of the weekend and we'll have a considered view as to whether that's a positive or otherwise, going forward," confirmed Whitmarsh.

He is bullish about the RRA's future: "If you remember, we had a testing free-for-all, then we had a limitation to 50 days, then it was 45, then it was 30 days and ultimately none in-season. Then we went to one-car testing. So I think if you get the principle, people get comfortable with it. I'd like to believe, as the world survives, the economic climate improves, as F1 finances get easier, that if you've got the mechanisms in place, and the world can get a lot worse as we all know, I think you can then tune the numbers if you've got process and format in position."

Which is precisely where the RRA is at present.