The unavoidable consequence of F1's budget cap

Last week, after a debate that has raged on and off for over a decade, Formula 1 teams received a draft of the 2021 FIA financial regulations which will sit alongside the new technical and sporting rules.

It signals a huge change for the championship, and one that has been resisted for years because the consensus was that spending by teams would be impossible to police. And yet a cost cap, pegged at $175million, is finally becoming a reality.

The laudable aim is not only to make F1 more sustainable in an era of ever-increasing expenditure, but more importantly to close the huge gap between the top three teams and the midfield pack. There's a direct correlation between spending and performance, one that none of the big three - Ferrari, Mercedes and Red Bull - can deny. It's not dissimilar to the situation in football, where the richest clubs are invariably at the top of the league in every country.

That's why the new regulations have been welcomed by the teams that should benefit - those leading the midfield pack, and who hope the cost cap will rein in the frontrunners.

"I think everyone will tell you that they are a bit unhappy," says Renault boss Cyril Abiteboul. "But I think it's probably a good regulation if everyone is unhappy, because it means that it's a compromise. And it will always have to be a compromise.

"If you look at the spread between all teams right now there is no way that one system would have been able to fit all. So as a first step, the mechanism is good. I think structurally, it works. It can be, I believe, audited, monitored, and enforceability is possible.

"Now if you ask me regarding the level of the cap, I would have preferred it to be a bit lower, but we accept and support that as a first step. I think it's very important that there is an orientation, because we all need to make plans, how you compound for inflation and things like that.

"But apart from that it's a good addition to the existing regulations. It also addresses most of the issues related to A-team/B-team constructors, and that was one of the risks. As Renault we completely support this introduction."

However, the cost cap creates an anomaly that is going to be hard to overcome. It does not come into force until January 2021, just a few weeks before the first cars built for the new technical regulations hit the track for testing.

That means all prior development can be done with no restrictions on spending by the big three - so it seems inevitable they will hit the ground running in 2021 with an in-built advantage that will take several years to erode.

F1's motorsport managing director Ross Brawn is always keen to point out that if you get a jump on the opposition with a change of regulations you can hold on to that advantage for a while. Brawn was still in charge at Mercedes when its High Performance Powertrains division in Brixworth piled resources into creating a power unit for the start of the hybrid era, creating a package that took the opposition several seasons to match.

Logic suggests that the cost cap should have been introduced for 2020, but because next season falls under the current Concorde and governance arrangements it was never going to happen

The big three will spend as much as they can in 2020 - it's a no-brainer to ensure you load up with capital items such as factory machinery, while also throwing as much resource as possible into research and development for the new rules.

"My feeling is that a budget cap is ultimately a sensible thing for F1," says Red Bull's Christian Horner. "But the interim period of 2020 with the current regulations we have as teams gear up for '21 with unrestricted spend makes it a very expensive year, and I think it will create a broader gap between the teams going into '21 as those teams with more resource will simply spend more time in the research and development phase before the cars hit the track."

The published financial accounts of Mercedes and Red Bull showed that they both increased head counts in 2018, and one can guess that process has continued this year.

Yet at the same time the big three have to prepare to offload or reallocate at least some staff before the end of 2020 - and that gives their managements an internal PR headache, as inevitably people will be worrying about job security.

Mercedes boss Toto Wolff downplays the inevitable 2020 spending rush, stressing that even the Stuttgart manufacturer has to set a limit.

"The truth is that we are all within the same financial reality," says Wolff. "And none of us has unlimited financial resource behind us to just pour money into the system. It's still about efficiency. I can tell you, and you know very well, that in the auto industry things are not looking easy.

"Nevertheless, having said that, it is clear that the big teams are the ones that are very restricted from 2021 onwards. We need to look at our structures, change process and maybe also the organisation in a way to adapt to these new challenges, which will hit us hard in '21, because we will be doing things differently to the way we are doing them today.

"This is why it's clear in 2020 that we have to adapt and change, and all this change is costly and will be happening in '20, so '20 will be a year of more financial expenditure in order to get ready for '21."

Logic suggests that the cost cap should have been introduced for 2020, restricting development by the big three for the new regulations the following year. But because next season falls under the current Concorde and governance arrangements, it was never going to happen.

"We've always been lobbying for an introduction of financial regulations in 2020 ahead of a change of technical regulation," says Abiteboul. "But it's not a problem we can fix now, it's a problem of six months, 12 months ago, so we cannot say that we are finding out about that problem.

Horner adds: "I think it's impossible to bring that cap forward to 2020. Because you will never achieve agreement on it."

At the last big 2021 meeting in Paris earlier this month Horner put forward an alternative "two birds with one stone" proposal that has some merit, but which didn't gain momentum.

He wants the financial regulations to come in as planned in 2021, while postponing the change of technical regulations until a year later. His view is that it would align a season of restricted spending on development with gearing up for the first season with the new cars. At the same time, it would allow for further refinement of those technical rules, which remain contentious.

"I think we've missed a bit of an opportunity," Horner says of his proposal. "In fact, I raised it at the meeting last week, where, if you look at it, we have the budget cap, which in principle I think is pretty much agreed. It's painful for the bigger teams and obviously will prevent the bigger teams from spending beyond that $175m cap.

"I think with hindsight we would have been better bringing the cap in first for 2021 and then taking more time to develop these regulations and evolve them and bring them in in time for '22, so that any development that the big teams undertake would be under the umbrella of the cap.

"I think an opportunity has perhaps been lost to have that process more controlled under the cap and delay these regulations and evolve them, because there is some great stuff going on, but the car and the concept looks very underdeveloped at the moment, and I think if another 12 months was taken to develop that concept and bring in something that works and perhaps addresses some of the other issues like weight and so on, I think would have been perhaps a more beneficial approach."

Horner believes there's also still work to be done to ensure that the financial rules can be enforced: "There has never been a policed budget cap in F1 previously and obviously having all the tools and the infrastructure to police all the different corporate entities and subsidiaries is no small undertaking.

"It's a very complex business and everybody's structure is different. So there is a lot of ground to cover and even though regulations will come out on October 31, there will still be financial directives, technical directives that see adjustments happen before we actually get to the 2021 year."

Horner and Wolff are rarely aligned on anything, but on this subject they are. Wolff agrees that splitting the new financial and technical rules by a year would have made sense, but acknowledges that even if it had been agreed by all the teams then next year would have been too early too impose a cost cap and make it work.

"I think Christian said it in a very right way," he says. "There are arguments that said, 'Well, why don't we put the cost cap forward, why don't we implement it one year earlier and then start with the technical and sporting regulations in 2021?' but as Christian said, I think they are not very mature, the regulations will need some more input around the cost cap.

"Suggestions we should delay the introduction of the new rules are frustrating because the situation gets even worse each year with the cars we have now" Ross Brawn

"The single most important factor is the auditing and policing process and none of that is in place for 2020 and obviously if you can't police it in the right way it makes no sense to implement the rule."

He adds: "I don't think these regulations are going to be stopped. It's been made very clear that this is moving forward. There will be tweaks and changes in detail and interpretations but broadly I think this is moving forward."

Otmar Szafnauer of Racing Point, one of the teams that will operate well below the cap, agrees that the 2021 technical changes won't be delayed. That's because the FIA and Liberty are committed to change and trying to fend off the resistance from the major teams, who would prefer to maintain the status quo.

There's a fear that postponing the technical rules by a year would give the big teams more opportunity to water down any changes, especially in areas such as common parts, which they dislike.

Jean Todt and Brawn dug their heels in at the last meeting and insisted that there would be no postponement. Indeed, this week Brawn cited the lack of overtaking at the front in the closing laps of the Mexican Grand Prix as evidence that F1 needs the new rules as soon as possible.

"The new aero configuration has been developed to reduce the impact of following another car," he wrote in a post-race column issued by Liberty. "Overtakes and battles are easy when there is 1-2 seconds lap time difference, but when there is a smaller difference there is no chance.

"Suggestions we should delay the introduction are frustrating because the situation gets even worse each year with the cars we have now. It isn't about change for the sake of it, we have put a massive effort into developing these new regulations in the long-term interests of the sport."

We'll know more about the financial, sporting and technical regulations when they are unveiled at Austin this week. There are sure to be tweaks in the weeks and months to come. However, that 2020 big-three R&D spending anomaly is built-in - and there appears to be no way to address it.

"It's true that it means the top teams will be able to use the unlimited resources that they have now," says Abiteboul. "And there will actually be an incentive for them to do so in preparation for the next cycle of regulations, before there is a clampdown on the level of resources.

"We knew that, but that's the reason we couldn't rely only on financial regulation, that's the reason we also need to have simplification, standardisation, prescriptive components, precisely to address that problem of them taking advantage of the financial regulations.

"And in my opinion it's a reason it's important to be that much more restrictive at the start of the regulations, and then you can open, because then there will be some equality of spending.

"That's why the top teams are massively lobbying for aerodynamic freedom and so forth, and my opinion that's wrong. We need to be really strict on that."

Nevertheless, Abiteboul is convinced that the field will eventually close up under the new rules, even if not at the start in 2021.

"Frankly I think they [the big three] will still be ahead, but rather than being ahead by one second and a half, against the average midfield, they may be ahead by half a second. And half a second, you're racing," he says. "There will always be a gap, but that gap will be such that it will be better for everyone, more dynamic for everyone, more sustainable for the participants."

That can only be a good thing.