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Old 27 Mar 2019, 21:51 (Ref:3893801)   #3426
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The best way to have a cap is a soft cap.
Teams that go over pay an exorbitant luxury tax which is divided up between the teams that do not go over the cap.

Less chance of fudging the books and cheating, and if the big guys want to go over the cap then the little guys get more money.

It has worked well in the AFL when it was implemented a few years back, the gap between the best and the worst has been cut significantly.

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Old 28 Mar 2019, 15:02 (Ref:3893921)   #3427
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big believer in the soft cap and think it has been tremendous for the NBA. some teams want to spend more so tax the heck out of them.

but for a soft cap to work the exact amount of the over spend would have to be determined....is that doable in F1?

while i think modern accounting techniques make this possible to do, it is still a time consuming and costly endeavor. a simpler solution would be needed.

in the same way FOM will hire an ex technical head to monitor technical issues, hire a well known, experienced, and respected ex chief financial officer and let then work a competitors budget backwards based on what they see and what info is publicly available...and if they think a team is spending over the cap (or over a reasonable margin of error) compel that team to prove otherwise, open their books, and conduct a transparent audit (at the team's expense of course).

if they cant within a set amount of time (1 week or 2) then its a penalty. if they fail to do so a second time a larger penalty and so on.

this suggestion may also prove unworkable but essentially i am saying that they shouldnt get hung up on figuring out an exact number...just concluding someone is over the cap should be good enough to apply a penalty

personally i love the idea of a budget cap but i also dont want to watch a sport that lets their accountants do their fighting for them.
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Old 28 Mar 2019, 15:29 (Ref:3893926)   #3428
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Possibly it would be nice to establish a capped system in F1, and I think that it would probably be able to be policed/monitored in theory.

The sad reality is that corporations large and small have been able to hide falsehoods in their audited accounts for years if not decades. And these frauds, because that is what they are, often only come to light because of the actions of a whistle-blower.

Think Enron in the States or Tesco in the UK. And they were being run by supposedly respected suits.

The FIA would possibly have to rely on the same auditors that supervised all those companies, and who seemingly turned a blind eye to what was going on, to act as their own compliance department.
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Old 31 Mar 2019, 11:43 (Ref:3894415)   #3429
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PS: As to teams fudging the books to hide stuff. That may create more than problems with cap enforcement, but that might be criminal behavior. Who is going to risk jail time to hide F1 costs?
What law of which country is going to govern this, the US for HAAS, Italy for Ferrari, Switzerland for Alfa nee Sauber, the UK for the rest but MB is a German team domiciled in the UK.
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Old 31 Mar 2019, 12:41 (Ref:3894421)   #3430
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What law of which country is going to govern this, the US for HAAS, Italy for Ferrari, Switzerland for Alfa nee Sauber, the UK for the rest but MB is a German team domiciled in the UK.
Good point. Clearly based upon where the legal entity for the team is based. The next question is.. How much parity is there between enforcement of accounting fraud between these countries. And would Italy go after Ferrari for example.

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Old 31 Mar 2019, 12:58 (Ref:3894424)   #3431
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You can have any law you wish under a contract. Many deals are made under English Law. As to the point of Fraud. The USA FCPA and indeed the UK Anti Bribery laws can be applied to international contracts. They both cover fraudulent behaviour.

Ultimately it depends on the contract.
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Old 31 Mar 2019, 13:40 (Ref:3894428)   #3432
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Budget caps in sports like basketball, football etc aren't really comparable to F1 though.

If Mercedes trial several solutions for brake by wire software via their Formula E team and then move onto a couple with the F1 team how is that going to be policed?
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Old 31 Mar 2019, 14:12 (Ref:3894432)   #3433
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Budget caps in sports like basketball, football etc aren't really comparable to F1 though.

If Mercedes trial several solutions for brake by wire software via their Formula E team and then move onto a couple with the F1 team how is that going to be policed?
This is far from my area of expertise, but I expect there will need to be some type of intracompany financial transaction that will take place that will show this. Not doing some type of chargeback would be fraud IMHO. Now.. how much chargeback... that is where it might get creative.

You provide a small example, but it could be abused on small and large scales. What keeps an outside entity (outside of the F1 team, but maybe still within the larger corporate umbrella) showing up with a fully formed car and says... here go, zero cost? I expect that would be hard to hide.

I expect large things will be easier to track, and small things harder to track. My opinion is that we are worrying about a 100% solution when that is unlikely to exist. Just like the current technical regulations are not a 100% solution (someone is cheating at something somewhere!) Hopefully the benefits will outweigh the negatives of any cheating that occurs.

But it’s worth discussing. I don’t want anyone to think I am discounting these concerns because I agree they are real.

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Old 31 Mar 2019, 14:30 (Ref:3894437)   #3434
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I forgot to also say...I expect they can move staff in/out of the team and the staff can bring knowledge with them. That will be difficult as it’s not much different that hiring from competition. Such as... Ferrari spends lots of money to develop new tech, Mercedes hires designer from Ferrari, Mercedes replicates solution at low cost. Even with enforced garden leaves, I expect this happens today on a regular basis. Secrets don’t say secrets forever.

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Old 31 Mar 2019, 15:20 (Ref:3894448)   #3435
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It has long been acknowledged that Mercedes' dominant PU has it's roots in their road going R & D long before the current regulations came into force. That advantage over both Ferrari and Renault came from within the larger Daimler Benz group, and had nothing to do with Mercedes F1, and one must assume that the costs would and could not be attributed to the racing team.

Would you expect the FIA, or their finance police if this came about, to make Daimler Benz re-write their audited accounts so that some or all of the costs would be assumed by the F1 team?

And who is going to pour over their staff situation as it's well known that Mercedes move their engineers around quite a bit, and who is going to pay for policing which part of their group is picking up the tab for engineers who may be seconded to the team for short periods. And, by the way, that is what happened back in 2010/11 when the new PU regulations were formalised; MB seconded engineers from their road going R & D, who had been developing a similar system for cars, vans and trucks, to the race team.
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Old 31 Mar 2019, 16:19 (Ref:3894458)   #3436
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Would you expect the FIA, or their finance police if this came about, to make Daimler Benz re-write their audited accounts so that some or all of the costs would be assumed by the F1 team?
I am not sure what you are asking here. Are you saying that somehow they will look back at prior R&D costs from prior years and then apply that to the cost cap era? I firmly believe they can’t and/or will not do that. That makes no sense.

Are you saying that Daimler Benz and all of their holdings operate under a single set of books? That to extract the costs of the F1 team that auditors will need to look at Daimler Benz in its entirety? I expect the F1 teams operate as separate legal entities with their own set of books. Those are the only set of books that need to be examined. So for example if they are obtaining parts or services from external suppliers, then those costs needs to be accounted for. And for someone like Mercedes F1, Daimler Benz would be a supplier. So Daimler Benz doesn’t need to open their books or change their ways, but Mercedes F1 would.

Games could still be played. For example, lets say Daimler Benz decides to develop a gizmo on the side and spends $2 million on development work. Then they provide it to Mercedes F1 at a loss for $500K. From an auditing perspective this value might pass examination (as the true $2 Million value remains hidden). But if Daimler Benz provided the gizmo for $1, that might ring alarm bells.

There are legitimate examples of the above. Multi-use technology. Developed for project A, but can be applied to F1. F1 should not bear the entire cost. I expect that for the most part this to be the exception and not the rule.

I expect the cost caps are to be focused elsewhere such as personnel costs. So some stuff can fly under the radar, but hopefully not a large amount. I guess someone could run an entire shadow team outside of the legal entity of the F1 team and just staff the F1 team with cardboard cutouts, but could that be done in secret without word getting out? I doubt it. I also doubt that large manufacture such as Mercedes, Renault, etc. want to risk getting wrapped up in an F1 cheating scandal. Previously, scandals have a bit of a firewall at the F1 team level. But if the manufacture is actively hiding costs, etc. then they don't have a convenient fallguy at the F1 level to take the hit. Large scale cheating with respect to financials could impact the stock of the parent company. So I suspect that for the most part, the manufactures will not play overly reckless games.

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And who is going to pour over their staff situation as it's well known that Mercedes move their engineers around quite a bit, and who is going to pay for policing which part of their group is picking up the tab for engineers who may be seconded to the team for short periods.
Who? The F1 teams that is who. They will need to track and account for all staff. If they are swapping people in/out then costs will need to be assigned to each. “Free Consultancy” from the mothership will not fly. Yes tracking this will be more work, but it is not rocket science and easily done. Large organizations do this today by a series of chargebacks between internal divisions. Games can be played with reasonable compensation for that staff. Such as true experts being billed at lower than market value for their skill levels.

I suspect that in the end FIA/FOM might expect teams to track costs using a set of uniform line items. Or at least be able to map their own accountancy into the ones FIA/FOM will use for auditing purposes. And they may set expectations that they can examine their full set of books (again, just for the F1 teams) if/as needed.

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Old 31 Mar 2019, 16:37 (Ref:3894462)   #3437
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It has long been acknowledged that Mercedes' dominant PU has it's roots in their road going R & D long before the current regulations came into force. That advantage over both Ferrari and Renault came from within the larger Daimler Benz group, and had nothing to do with Mercedes F1, and one must assume that the costs would and could not be attributed to the racing team.
I forgot to mention above, that as best as I can tell, the cost cap does not include power unit development. That someone like Mercedes can spend as much as they want and at a loss. But the cost for the teams who use the engines will be fixed. And even on top of that, manufactures who have race teams AND build their own engines will be a bonus of $10 million each year.

The point here... no need to hide the expensive cost of engine development as it is not capped.

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Old 31 Mar 2019, 17:56 (Ref:3894515)   #3438
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Are you saying that Daimler Benz and all of their holdings operate under a single set of books? That to extract the costs of the F1 team that auditors will need to look at Daimler Benz in its entirety? I expect the F1 teams operate as separate legal entities with their own set of books. Those are the only set of books that need to be examined. So for example if they are obtaining parts or services from external suppliers, then those costs needs to be accounted for. And for someone like Mercedes F1, Daimler Benz would be a supplier. So Daimler Benz doesn’t need to open their books or change their ways, but Mercedes F1 would.

You mustn't overlook the fact the we don't know how the F1 team is funded. I suspect that Daimler Benz actually provides some funding for the team, and this is borne out somewhat because we know that the main board of Daimler had to be pushed very hard to agree to continue funding and participating in F1 when the new PU regulations were decided, and they only agreed after the team were able to predict that the new PUs would be considerably more fuel efficient.

And I would further surmise that, like Renault, their accounting does form some part of the whole group's finances. As Renault has said, we need to balance the cost of F1 against how the group is performing, and especially when they are making workers redundant in the road vehicle plants.
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Old 31 Mar 2019, 18:21 (Ref:3894523)   #3439
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Indeed a 100% solution will never exist. This is certainly going to be a difficult process and one that may take years before they sort out all the issues. Much debate to be had in the coming years.

On an unrelated new rules note, Bottas leads the championship by 1 point!
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Old 31 Mar 2019, 18:50 (Ref:3894528)   #3440
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You mustn't overlook the fact the we don't know how the F1 team is funded. I suspect that Daimler Benz actually provides some funding for the team, and this is borne out somewhat because we know that the main board of Daimler had to be pushed very hard to agree to continue funding and participating in F1 when the new PU regulations were decided, and they only agreed after the team were able to predict that the new PUs would be considerably more fuel efficient.
I would be shocked if Daimler Benz doesn't provide money to the team. I also don't know if funding is included in the info that would be tracked within the cost cap system data. I expect the will need to document "how" they spend their budget on the capped items. All to ensure they don't spend beyond the caps. Funding data could remain private.

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And I would further surmise that, like Renault, their accounting does form some part of the whole group's finances. As Renault has said, we need to balance the cost of F1 against how the group is performing, and especially when they are making workers redundant in the road vehicle plants.
Yes. the accounting figures would role up to the larger group that owns the teams. I am not an accountant, but at more of summary level. More like P&L type of thing.

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Old 1 Apr 2019, 00:45 (Ref:3894576)   #3441
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I have always thought that a total team cost cap is unenforceable and still do. Some segments might be like PU/transmission supply might be and how much it cost to build a seat but stuff like electronics, software development, aero. etc would be nearly impossible to contain. Does anyone really expect teams who specialise in beating the rule book will not do the same thing to any capping rule if they can. The other thing I can't get my head around is Ferrari opening up the books to any outside auditor, I hope I live long enough when the auditors ask the question.
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Old 1 Apr 2019, 01:43 (Ref:3894579)   #3442
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Surely Ferrari already open their books to auditors?

(I’m not disagreeing that it won’t be hard, although I did like Richard’s it doesn’t have to be perf ct just good enough)
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Old 1 Apr 2019, 03:00 (Ref:3894584)   #3443
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When I say open the books at Ferrari I mean to an outside entity examining the funding for the F1 team and not a commercial audit for reporting purposes. It might be a bit different these days because they are a public company but I doubt that a full breakdown of the F1 team is included in the public reporting.
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Old 1 Apr 2019, 05:40 (Ref:3894594)   #3444
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Yes. the accounting figures would role up to the larger group that owns the teams. I am not an accountant, but at more of summary level. More like P&L type of thing.

Richard
On the other side of this spending or investment what would be te legality of an F1 team charging the parent manufacturer for the use of technology developed by the F1 team transferred to commercial products?
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Old 1 Apr 2019, 11:11 (Ref:3894649)   #3445
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As far as cost capping is concerned, I am really sitting on the fence; however, I have been playing devil's advocate in this discussion and continue to do so with my next observation.

Currently in Europe, we have corporations, many of which are American owned such as Apple, Microsoft and McDonald's, who participate in the most elaborate creative accounting to minimise their taxable revenue by offsetting costs to parts of their structure that reside in lower or more favourable tax environments. And it provides employment to an army of tax accountants and lawyers.

It is not beyond the wit of the likes of Mercedes to emulate this behaviour in their quest to win "at all costs"!
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Old 1 Apr 2019, 13:46 (Ref:3894668)   #3446
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On the other side of this spending or investment what would be te legality of an F1 team charging the parent manufacturer for the use of technology developed by the F1 team transferred to commercial products?
I can't see a problem with this. At best it generates funds for the team.

It looks like the proposed system does try to equitably share F1 revenue as generated by FOM, but does not trying to restrict other funding streams in any way.

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As far as cost capping is concerned, I am really sitting on the fence; however, I have been playing devil's advocate in this discussion and continue to do so with my next observation.

Currently in Europe, we have corporations, many of which are American owned such as Apple, Microsoft and McDonald's, who participate in the most elaborate creative accounting to minimise their taxable revenue by offsetting costs to parts of their structure that reside in lower or more favourable tax environments. And it provides employment to an army of tax accountants and lawyers.

It is not beyond the wit of the likes of Mercedes to emulate this behaviour in their quest to win "at all costs"!
You mention playing games with respect to tax laws which is different than tracking costs. But.. your point still stands. I think this comes down to how how comprehensive the auditing system that is put in place. Just like the technical regulations, teams will play in the gray areas of the cost cap regulations. I expect just like with the cars there will be creative ideas that will be tried, then challenged and then outlawed.

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Old 1 Apr 2019, 14:51 (Ref:3894675)   #3447
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F1 moving towards more spec parts, allowing the sale of more parts, a relaxing of the definition of construct could be one way forward.

If Merc want to spend 100mil on a new front wing let them but also require them to sell that part to other teams. The moment they price that part we know the cap hit they should take for said part (maybe even add a surcharge to it to cover the estimated r&d spend).

They set a sale price too high they reduce the amount of free budget space they themselves have. Set it too low and they fail to recoup their r&d costs and have aided a competitor with a quality product at a low price.

If the conditions for a small team/small budget team to beat big team exists (via a sale of parts below their actual cost) then the logic of overspending becomes unjustifiable.

Rather Merc only spend what they do because Ferrari also do...neither could justify their budgets in isolation of the other imo. Also i suspect the one that complies first will be able to draw shades of cheating allegations on the other. Fear of public shaming and all that.

Anyways, i think the way forward is to incentivize good behaviour (new revenue streams, special manu and historical payments tied to good behaviour and not just for showing up) as opposed to focus on constantly monitoring that behaviour with audits.

Really audits of any sort should be a last resort.
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Old 1 Apr 2019, 16:21 (Ref:3894688)   #3448
Mike Harte
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Ah, but we already know that Formula One teams like nothing better than to chea... NO, No, let me re-phrase that. They like nothing better than to creatively exploit potential grey areas in the regulations.

And most of the times that they are caugh... sorry, possibly discovered, then the punishment is totally insignificant. Remember when the winning Ferrari was discovered to be running oversize barge boards, they were allowed to keep the win and the points.

Plenty of other examples over the years.
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Old 1 Apr 2019, 18:40 (Ref:3894723)   #3449
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Ah, but we already know that Formula One teams like nothing better than to chea... NO, No, let me re-phrase that. They like nothing better than to creatively exploit potential grey areas in the regulations.

And most of the times that they are caugh... sorry, possibly discovered, then the punishment is totally insignificant. Remember when the winning Ferrari was discovered to be running oversize barge boards, they were allowed to keep the win and the points.

Plenty of other examples over the years.
Probably will be the case with this. Mostly likely the offending behavior will be allowed for the remainder of the season, then changed next. Or something like that. Depending upon how serious the violation.

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Old 1 Apr 2019, 18:53 (Ref:3894727)   #3450
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Isn't that what F1 is, among other things, about? Over 40 years ago people were bolting fans to the back of the cars just because it never said in the rules that was forbidden
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