The Weekly Grapevine

Mission Impossible

The road to hell is paved with good intentions, goes the saying, and whie 'hell' may not be where the best intentions behind the concept of budget caps in Formula One will lead the sport, there exists little doubt that talk of introducing budget capping to this most free-spending of all sports is cheaper than the act of execution.

The buzzword first hit F1 in 2004, when former Jaguar Racing team principal Tony Purnell was struggling to keep Ford's then-blue-chip car company in the sport. Realising that the Blue Oval was haemorrhaging money, the gifted lateral thinker figured a cap on money spent may keep his paymasters involved.

The concept was, of course, laughed right out of the paddock, and that was that, particularly when Ford sold Jaguar Racing to Red Bull.

For three years, however, Purnell single-mindedly kept the concept of budget caps on the boil. In the interim was appointed as consultant to the sport's governing body, and as he spread the gospel, so the idea gained popularity.

Tony Purnell speaks at the Jaguar factory in 2004 © LAT

The easy part, though, was dreaming up the scheme, for every team works to a budget. Thus it is fair to assume that Purnell would have wanted budgets capped at his team's level. But every team operating below that at the time, for example, Minardi, would have wished for the cap to be reduced, while Ferrari - then certainly the biggest operational spender - would likely have voted for an even higher cap.

However, the sub-prime crisis and recent drastic drop in market capitalisations have served as wake-up calls, and there seems to be a universal and urgent desire to introduce budget capping sooner rather than later.

Assuming, though, that teams do agree on a figure - which seems rather unlikely, particularly given the comments made by various team principals over the last fortnight or so - the next challenge is to develop an equitable formula acceptable across the full spectrum of teams.

Consider (in no particular order): McLaren have just concluded a multi-million dollar, five year deal with their star driver in the belief that he will deliver that final, elusive quarter of a second. BMW Sauber operate one of the world's largest supercomputers - certainly in private hands - and arguably the best wind tunnel in the business.

Williams run two wind tunnels, but without massive supercomputing power or superstar drivers. And Ferrari have but one tunnel, but rely on their own test track and the services of a seven-time champion as tester - who may be massively remunerated for his input.

Force India have links to Airbus Industrie through the owner's airline interests, with aerodynamic and structural collaboration between the two companies already being openly mooted; and, where most manufacturer-owned F1 teams are primarily funded by their marketing departments, Honda openly admit to being an arm of their mother company's research and development division.

Their main market and track competitors, Toyota, uniquely build their cars under a single 30,000 square metre roof, which houses two identical wind tunnels and every engineering tool known to man; while Renault seemingly deliberately keep their chassis and engine departments separated by the English Channel.

The Toyota factory in Cologne, Germany © LAT

The Red Bull company, which owns two of 11 teams, operates economies of scale by having major components produced by subsidiary Red Bull Technology, with development and manufacturing costs split between Red Bull Racing and Scuderia Toro Rosso.

Which outfit has the correct approach (and which not) is not the point, for there patently are many ways to skin F1's cat. Equally, whichever one found the more efficient solution is not under discussion.

However, in this regard some random numbers make interesting reading: last year Ferrari spent an estimated $1.8 million USD per point en route to both titles; Honda $15 million per point to finish eighth; and Spyker (now Force India) blew $80 million on the single point Adrian Sutil scored.

What is under discussion are the immense equivalence difficulties facing the FIA in its quest to introduce a form of acceptable (to all) budget capping, and the legal hurdles it may need to overcome in the process.

Is it, for example, legal to restrict driver salaries? While some argue it could be made part of the (now ultra-costly) superlicence procedure, the next question is whether or not the same can be made to apply to pure test drivers, such as Michael Schumacher, who do not require licences when testing on private circuits.

For that matter, can/will present contracts be excluded from the formula, or will they be permitted to run their course? Remember, when Ferrari entered into a long-term contract with Marlboro, the FIA indicated it was unable to involve itself in commercial matters - even where tobacco is concerned.

Just why should existing driver deals or computer contracts, therefore, be any different? Or deals between oil or tyre companies, particularly where they include 'first-fill' or 'first-fit' obligations to team's parent companies?

With Williams managing to force a moratorium on customer cars by threatening legal action on commercial grounds, what chance this ultra-combative team obtaining an interdict against a ban on their second wind tunnel, computational fluid dynamics equipment or whatever on the same basis? This applies equally to other teams feeling themselves disadvantaged by restrictions on their activities.

In the main, teams are registered companies whose singular mission is to sell performance in order to justify commercial backing to remain in business. Any infringement on their 'right' to produce performance for profit could be overturned by the European courts on the basis of commercial interference by an administrative body with purely sporting jurisdiction.

The Honda wind tunnel © LAT

In any event, how many computer hours equal one private test track lap? How much wind tunnel time equates to a driver's multi-million dollar salary, and how many economy class seats equal five aerodynamicists, and how many laptops does a team need to decommission in order to buy a new company car for the IT Director?

What about kinetic energy research systems: where most teams have settled on one of two alternatives (battery and flywheel), one or two teams are said to be developing both. How to ultimately amortise the (considerable) cost of such systems, particularly if developed by parent company/technical partner or outside consultant?

Ditto engines: BMW builds an estimated 40 engines annually for its own team's use; Ferrari assembles 120 units per year for its team as well as Toro Rosso and Force India. So how to allocate engine development costs equitably? How to quantify the myriad of barter deals done by teams? The list of questions, frankly, is endless.

However, where there is a will there is a way, and the FIA is obviously relying upon goodwill to pave the way forward. All this, though, pales into insignificance when compared with the main stumbling block: performance and facility catch-up.

For the purposes of this exercise, assume that all arithmetic and equivalence details have been sorted, then take a number - any number - and assume that to be the cap. Surely, under the cap system, the haves will forever maintain their considerable advantage over the have-nots, with the latter category having no earthly chance of catching up?

Performance costs money and closing the gap costs even more. Thus, if every quarter of a second costs, say, $10m, if the gap between first and last team is four seconds per lap and the cap is $100m, does it not stand to reason that the gap will grow at a second per year with the minnow having no means of catching up, even if a multi-trillionaire sugar daddy arrives unexpectedly?

In the past, the method of working from back to the front of grids was to incrementally raise sponsorship, then invest it wisely. Thus Williams went from a rented lock-up to state-of-the art facilities with two tunnels in well-financed, incremental steps as the team's income rose.

Had a budget cap been in place when Frank Williams started out in F1, his eponymous team would still be operating out of a lock-up in Reading (if at all), while Ferrari, who built Fiorano back in the early seventies, trash around their own track with Michael Schumacher while silently thanking all the turkeys who voted for their own Christmases...

But, assuming all these hurdles and obstacles are resolved, an acceptable method of controlling the budget cap and arbitrating disputes need to be found. In the late nineties, while sniffing around a tyre company for information on its annual F1 budget, my source there said: 'We don't have one ...'

Bridgestone technicians watch winter testing at Jerez © XPB/LAT

'There must be a budget - you may not wish to disclose it, but there must be one,' I argued.

'Wrong,' was his response, 'when the board was approached for permission to enter F1, one of the prerequisites was that we aren't restricted by budget.'

'How so?' I asked, incredulously.

'Simply because we can't afford to be in a position where we need to develop a new tyre urgently or go testing, but can't due to a lack of budget, and our partner team then lose the world championship...'

The same principal applies here - where to for a company which overspends for whatever reason, whether through sheer incompetence or catastrophe? Withdraw from the championship until the new season? Overspend and risk being found out? Overspend and argue the values? Go to arbitration over the dispute (after the title has been won)? Lay off staff temporarily?

Then, how to maintain control over facility utilisation? Can the sport legally embark on dawn raids to check headcounts working when, where and with what devices? Is it legally entitled to send crews into wind tunnels to check on the size of models and wind speed? Does it have the right to demand that parent companies permit inspectors to check on secret projects lest they have F1 application?

And, who will audit team's books? There are real legislative problems to be overcome in this regard in countries like Switzerland, while teams may choose to relocate to the Middle East - where accounting practises may be more convenient and such raids complicated. The sport's steady migration to the region provides enough reason to move away from Europe, in any event.

All these are very real questions deserving of very real answers, and, while team bosses can't seem to agree whether the price of lunches in their canteens should be capped, they grunt in the affirmative over operational and capital expenditure budget capping.

But, silently they agree that whatever route capping takes, it simply cannot impinge on their commercial rights, private test tracks, second wind tunnel or ability to attract the best (and therefore costliest) drivers available. All in all, it reminds of a town hall meeting where all present agree on the need for a bus stop in a certain street, 'but not outside my house.'

For five years now the sport has been unable to agree on how to spend its revenues, yet wishes within a year to agree a way of controlling its costs. Surely, as part of the budgetary process, it first needs to set priorities, starting with the quantification of its television income and reaching agreement with the commercial rights' holder for its distribution.

Only then can it consider the complicated inequities of budget capping, and the numerous hurdles it faces before the concept can be legally introduced into the sport.

And this will take years, not months.