[Rules] Future Rule Changes

[ECW Dan Selby]

It wouldn't be a problem if they were allowed to work on the engines, but alas...

Selby

[wolfhound]

I see where Joe Saward has backed Max Mosley's idea of a cost cap. He has also noticed the complete lack of ideas from the FIA.


https://joesaward.wordpress.com/2015...eresting-idea/

[ECW Dan Selby]

I was a fan of this idea for 2009, and I still am now.

It's very sensible, and a perfect way of letting the teams decide whether they want to spend endless money, or really get their heads down and get innovative at a budget.

I love it!

Selby

[wnut]

Originally Posted by wolfhound

I see where Joe Saward has backed Max Mosley's idea of a cost cap. He has also noticed the complete lack of ideas from the FIA.


https://joesaward.wordpress.com/2015...eresting-idea/

This is just plain unworkable for all the reasons we have discussed previously. Round and round in circles.

P.S. Joe should research flash boilers! Doble Steam car 1925 - no waiting!
Painful maintenance, but no waiting!

[mikuni]

I used to think it wasn't possible, but a lot has changed in recent years as far as financial transparency goes. As stated previously, more and more franchise type sporting codes are adopting salary caps and some are even being caught for exploiting them, which means it must be manageable?

It didn't fly in 2009, but perhaps enough people are now seeing that now may be the time. If not now, then maybe in another 6 years, but will F1 make it that far.

[ECW Dan Selby]

2 words:

Draconian punishment

If you're caught, you will be named, shamed, and heavily, heavily fined. F1's a corporate game now, you do not want to get caught with your pants down!

Selby

[wnut]

Originally Posted by ECW Dan Selby

2 words:

Draconian punishment

If you're caught, you will be named, shamed, and heavily, heavily fined. F1's a corporate game now, you do not want to get caught with your pants down!

Selby

How do you account for the following scenario:

I supply Mercedes with electronics! My company then spends $100 million on perfecting the next generation of hybrid drive control or battery. I want Mercedes passenger car business, so I manufacture F1 hybrid drives for Mercedes. I have no interest in F1 and loyalty only to Mercedes, how do you account for my development costs under the Mercedes budget cap?

Separate division of Mercedes, commercial vehicles are working on a new slippery piston and bearing coating, it happens to have application in F1, how do you account for the cost?

Cost centres and allocations are difficult in a single company, in a multi layered international conglomerate that has no interest in opening its books you have no chance!

The latest G20 meeting spent a lot of time trying to nut out what the international companies were doing with their taxes. They represent governments with "draconian powers".

The other point that seems to be missing is that the big 4 incur the appallingly high costs exactly where they want them, mainly in house!
The greater the costs of F1 are rumoured to be the greater the scope a team has to fleece a prospective sponsor and the better the perceived job people like Lauda can claim to be doing for less than expected.

F1 needs to appeal to a huge audience to justify these costs, and that is what their biggest problem actually is!
If companies see F1 as a place they have to be, they will find the money!
If not, no money, and that is our current problem.

[Casper]

There is no way known that a company such as Ferrari, MB, RB etc is going to allow any auditor near their financial records. As yet Saward who has vigorously promoted a price cap is yet to approach that little debate. These teams are not stand alone enterprises, they are woven into international companies whose business is not F1 and if they were not they would not exist. Does anyone seriously think that Renault, Honda and MB did not utilise all company resources to manufacture the power units now in use? To follow that financial train would require investigation of the parent companies and that won't happen, you can bet money on that.

[wolfhound]

Originally Posted by Casper

There is no way known that a company such as Ferrari, MB, RB etc is going to allow any auditor near their financial records. As yet Saward who has vigorously promoted a price cap is yet to approach that little debate. These teams are not stand alone enterprises, they are woven into international companies whose business is not F1 and if they were not they would not exist. Does anyone seriously think that Renault, Honda and MB did not utilise all company resources to manufacture the power units now in use? To follow that financial train would require investigation of the parent companies and that won't happen, you can bet money on that.

The three companies you mention are all puplicly listed companies which means that their accounts are open to greater scrutiny than those of a private company. If somebody wanted to go digging there is a lot more financial information available about MB, Honda and Renault available than there is about FOM for example.

[Casper]

Originally Posted by wolfhound

The three companies you mention are all puplicly listed companies which means that their accounts are open to greater scrutiny than those of a private company. If somebody wanted to go digging there is a lot more financial information available about MB, Honda and Renault available than there is about FOM for example.

Yes, but try it on Ferrari and see what happens. I doubt an end of year financial report is going to yield the information needed to police a cost cap. I still come back to the point that those teams in financial strife can cut their spending at any time they want. it could well be in their interests to do so as it may rub BE's nose into the problem but I wouldn't bet on that happening. Bernie is effectively paying appearance money to those headline teams he thinks are needed to sustain the series and the others can do what they want.

[wolfhound]

Originally Posted by Casper

Yes, but try it on Ferrari and see what happens. I doubt an end of year financial report is going to yield the information needed to police a cost cap. I still come back to the point that those teams in financial strife can cut their spending at any time they want. it could well be in their interests to do so as it may rub BE's nose into the problem but I wouldn't bet on that happening. Bernie is effectively paying appearance money to those headline teams he thinks are needed to sustain the series and the others can do what they want.

Ferrari are likely to be listed on the New York stock exchange in the near future if all goes well.

[Akrapovic]

Didn't RBR and STR get around such cost capping measures by having the car developed by a company called Red Bull Technology, then buying the car from them for cheap?

[Mike Harte]

Originally Posted by wolfhound

The three companies you mention are all puplicly listed companies which means that their accounts are open to greater scrutiny than those of a private company. If somebody wanted to go digging there is a lot more financial information available about MB, Honda and Renault available than there is about FOM for example.

I don't know if you have ever been involved with the auditing process of any company, especially a larger type of business, but the outside auditors have to rely on a lot of data that the company provides them. To do otherwise would require the audit team to be on site year long to monitor what was happening. They would also need to have in-depth knowledge of the specific processes that the company they are auditing are involved with.

For the above reasons alone, it is extremely easy for a company to misrepresent it's accounts, as has been proven time and time again. Three recent (or fairly recent) cases are Enron, Tesco and RSA (Insurance) in Eire. In fact, the world of commerce is littered with companies that either lied outright, or by omission, to their auditors. And because the audit firms, especially the big 4, earn such huge fees for providing other services and advice to the audit clients that they don't always bother to actually conduct perfect audits.

It would be virtually impossible for an outside auditor/investigator to truly establish values for work in progress, for example. And there are many other such areas that a company could, if it wished, hide costs, and the larger the company, like Honda for example with plants around the world, then the more impossible the task would become. And don't expect much help from any Japanese company, because more opaque accounting you will not find in any other developed country.

By the way, I should add that there is history of teams who still participate in the World Championship who have indulged in practices that are apparently not permitted by the rules. Why should anyone truly believe that they would therefore adhere to any budget cap if they thought that they could get away with it.

[Casper]

Above all the debate is the simple fact that those who do not want to be constrained by a budget cap have a past history of reading the rule book and inventing a way around it.

Why don't teams elect to spend less? The teams who have the most problems would not notice the difference in finishing places apart from the odd higher place due to others in front not completing the race. Common sense does not have a priority in F1 it seems.

[Richard C]

This topic (cost cap) needs to be its own thread.

Anyhow, to some of the comments above... Any solution will be somewhat messy, will still have areas that can and will be exploited, but I would hope that overall it might be better than what they do now. I am not an accountant, or have particular knowledge of things such as EU anti-trust laws, etc. But some potential ideas...

1. Some level of firewall between the GP entity and the parent company (for situations such as Ferrari, Mercedes, Honda, etc.) must be defined. Basically there has to be a single legal entity that money flows into and out of. That entity is the heart of the forensic accounting.

2. For those scenarios in which cost is hidden away in external entities (of which there are many), some type of reasonable cost will need to be assigned to everything that flows into the GP entity. So for example if you have an external company builds the entire car for you, but charge you a $1 for the entire thing, there would be some level of "this is how much a monocoque costs, this is how much a front wing costs, etc." And you would be charged that amount instead of the unrealistic small number. Without trying to solve all of the problems with this, I could see that you could submit an accounting value that is +/- of this reasonable cost. That you might be allowed some large variance on individual items (to allow you to decide to spend more in one area and less in another), but if your overall budget looks suspect that would open the doors for deeper inspection.

3. With respect to power units (which are costly and potentially a large source for attempts to hide real costs), basically assign a fixed value to them and lets those who create them spend as much as they want. However the catch is wide availability of the same spec to multiple teams. Additionally that arbitrary value should be set low and also be the value that is used when setting leases to teams. If you want to have more control over who can use those engines then maybe you subject yourself to a much deeper level of forensic accounting. The idea here is that teams pay a fixed (and hopefully reasonable amount), the manufactures are relatively free to spend what they want to develop them and mid season development would be free. The main risk here is that they could still be quite expensive to create, but that cost would be felt by those who build the engines and not the teams. This puts it more on the free market to govern how much anyone will spend to design and develop a power unit. If you wanted to prevent nuclear engines or warp drives, then still put in place some specific rules that might bring in the law of diminishing returns. Such as spec fuel and max flow rates. At some point the manufactures will decide its not worth the money to spend a large amount of money on the engines, or it may end up with just one or two suppliers, but so be it.

Clearly it would have to be more complex than the above, but I think there could be ways to make it work even with all of the challenges. There would have to be a combo of carrot and stick to get teams to provide accurate numbers. Any solution will still have room for games. The solution will just have to have enough flexibility and strong governance to allow for issues to be dealt with as they arise. I also think a number of things could be excluded from budgets such as drivers (potentially) and on track hospitality items (likely).

The real problem IMHO is not regulatory, or lack of workable ideas, but rather a will to make it work by the larger teams.

Richard

[bjohnsonsmith]

Originally Posted by wolfhound

Ferrari are likely to be listed on the New York stock exchange in the near future if all goes well.

Scuderia Ferrari are owned by Ferrari S.P.A, who in turn are owned by Fiat Chrysler Automobiles N.V.. If Ferrari are listed, I would expect Fiat Chrysler Automobiles, to retain a controlling share.

[Oldtony]

Originally Posted by Richard Casto

This topic (cost cap) needs to be its own thread.

3. With respect to power units (which are costly and potentially a large source for attempts to hide real costs), basically assign a fixed value to them and lets those who create them spend as much as they want. However the catch is wide availability of the same spec to multiple teams. Additionally that arbitrary value should be set low and also be the value that is used when setting leases to teams.

I also think a number of things could be excluded from budgets such as drivers (potentially) and on track hospitality items (likely).

The real problem IMHO is not regulatory, or lack of workable ideas, but rather a will to make it work by the larger teams.

Richard

Agree this should be in a separate thread.

I think you have nailed it regarding Power units.
Provided identical units were available to all teams (on an annual contract basis) at an agreed equal target cost it is then up to the engine manufacturers to either limit expenditure or use their research budget to improve the performance and reliability. This is a win-win scenario provided fuel burn limits were in place.

Don't agree that drivers payment and hospitality should be excluded. Surely those are the MOST wasteful expenditures in running a team in terms of justification of our sport?

Dump wind tunnels, which are no longer relevant for major developments and you have a package for restoring credibility.

If all teams were then required to be listed public companies on UK, US or European markets the expenditure reporting would make a fairly sound basis for ensuring that the rules were at least given consideration. If reporting was then seen as fraudulent there are some pretty strong sanctions under the various legal systems.

Now how do we control the elephant in the room? FOM?

[miatanut]

The simple solution is to open the technical rules up.

Colin Chapman did a good job embarrassing Ferrari on much smaller budgets through innovation. When the predictable ROI on $1,000,000 investment goes away, budgets drop organically, when the Boards of Directors don't like getting beat by teams spending a lot less money.

WEC is providing great entertainment on the track as well as off, through rules that are a little less restrictive than F1 and using fuel consumption and flow limits as a key measure to keep speeds from getting out of hand.

[wnut]

Originally Posted by miatanut

The simple solution is to open the technical rules up.

Colin Chapman did a good job embarrassing Ferrari on much smaller budgets through innovation. When the predictable ROI on $1,000,000 investment goes away, budgets drop organically, when the Boards of Directors don't like getting beat by teams spending a lot less money.

WEC is providing great entertainment on the track as well as off, through rules that are a little less restrictive than F1 and using fuel consumption and flow limits as a key measure to keep speeds from getting out of hand.

The DFV was however the Mercedes powerplant of its day, the 12s being too clumsy and heavy in that period, Chapman had one of the biggest budgets, had opened the availability of the DFV to the whole field despite having sole rights to the engine, and aero was kind of a suck it and see, whereas now the whole circus is being held captive by the manufacturer's agendas and more particularly Merc's agenda, and they will just continue to ride their competitive advantage and arrange faux races for the marketing benefit of their brand!

The biggest current problem is not being allowed to develop cars and recover from 3 year old design mistakes!


F1 should be about sprint racing, 2 hours of flat out cut and thrust not sailing around conserving fuel whilst protecting some mythical black box technology! the cars have just got FAT (210 kgs too heavy!) and boring.
The cars minimum weight should be decreased to 400kg, the driver should be ballasted to 100kg with a big enough cockpit to fit bigger guys; Hulkenberg, Webber and very small spec wings!

Then maybe we would have a race!

[miatanut]

Chapman got bigger budgets when he delivered, but at the beginning, he was just another Garagiste. Two mechanics driving a pickup with one car on the back and another on a trailer to the next race, while Ferrari had their fancy double-decker transporter.

[Casper]

Originally Posted by Oldtony

If all teams were then required to be listed public companies on UK, US or European markets the expenditure reporting would make a fairly sound basis for ensuring that the rules were at least given consideration. If reporting was then seen as fraudulent there are some pretty strong sanctions under the various legal systems.

Making them public companies has large problems of its own...

What if the float fails?

Who would subscribe in the first place given the returns would be very poor?

[Oldtony]

Originally Posted by Casper

Who would subscribe in the first place given the returns would be very poor?

Just because a company is publicly listed does not demand wide spread share holding. The shares could be held by exactly the same people that finance them now the difference being that they become transparent.
The "poor returns" you mention are exactly the pressures that would encourage them to work within a cost cap.
Surprised no one has commented on my suggestion that drivers salaries should be included in the cost cap. Surely they are the most easily replaced cost in the existing structure, and are by no means a minor item.

[Mike Harte]

Originally Posted by Oldtony

Just because a company is publicly listed does not demand wide spread share holding. The shares could be held by exactly the same people that finance them now the difference being that they become transparent.
The "poor returns" you mention are exactly the pressures that would encourage them to work within a cost cap.
Surprised no one has commented on my suggestion that drivers salaries should be included in the cost cap. Surely they are the most easily replaced cost in the existing structure, and are by no means a minor item.

Your suggestion that making the teams into public companies would transform them to become transparent is factually not true, certainly in Europe. Because of certain tax advantages available in certain countries in Europe, there are probably thousands of public companies that are set up over here that are almost impossible to penetrate. The problem exists that these sorts of arrangements are likely to continue as long as there remains different tax regimes in countries throughout the world.

As for a cap on drivers' salaries, how would you monitor or control that element when it would very easy for the drivers to be contracted to an outside party. An example of this was the situation at Ferrari where Schumacher's salary was paid by Philip Morris; in fact, it is possible that they are also paying for Vettel. And assuming that a cap was introduced, how could you possibly restrict how much a sponsor paid a driver for providing marketing opportunities. That would be creating a restrictive practice.

[Oldtony]

Mike, I realise that there are all sorts of International Tax Haven possibilitiesin terms of companies. My suggestion was that the teams be registered as Listed Public Companies, tradeable on stock exchanges in the US, the UK, say the DAX or other major European stock exchange. They are thus not private or shelf companies and are transparent by law. I might be wrong, but I think once you get rid of the holding company or PLC situation it becomes difficult to hide transactions without breaching criminal and corporate law.
The thing about payment to drivers is that I am only talking about payment by the team to a driver. Any income a driver could raise by hisown efforts from other sources would be his own responsibility and reportable by him.
Fringe advantages of this arrangement would be that drivers would be less liable for conforming with team orders on track, have more freedom from team imposed Ronspeak, and in fact would be in a stronger position to contribute to the organisational and safety aspects of the sport.
And it would be another headache for FOM if the GPDA took an interest in dispersement of funds.

[Oldtony]

By the way should this part of the discussion be shifted to a "How would a Cost Cap work" thread.
Or maybe we should be in the ridiculous F1 costs thread?