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February 22, 2020
No Dirty Laundry, Just Motorsport News!

Home > Formula 1 > Fixing F1: Budget caps aren’t the solution to F1’s over spending problem

Fixing F1: Budget caps aren’t the solution to F1’s over spending problem

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It has become increasingly clear in recent years that Formula One is broken and needs some serious help if it has any hope of a sustainable future. In this seven-part series, we will explore the many possible solutions that could improve F1’s health.

Over the course of this series, we’ve discussed four viable solutions to solving the problems that Formula One currently faces: the DRS, ballasts, relaxed regulations and grass. In this article of the Fixing F1 series, it’s time to talk about the budget cap and why it’s not all it’s cracked up to be.

A budget cap probably seems like the most reliable way to reduce the climbing costs associated with running a Formula One team. While it has the potential to close the gap between the teams and help struggling teams that are low on funds, there is a problem.

The bigger teams will still have a financial advantage over the smaller teams.

This may sound like a bizarre claim, but there is some logic behind it. The system will only work if the FIA defines a standardized price for every conceivable expense the teams may encounter. That’s the price that needs to be tracked in a budget, not the actual money the teams spend.

Larger teams, like Mercedes or Ferrari, can spend their money more efficiently than the smaller teams, like Williams or Alfa Romeo.

For example, let’s consider wind tunnel testing. Assuming that Team A and Team B both spend $10 million dollars on wind tunnel testing, it sounds like the two have both spent the same money for the same benefit. However, now consider that Team A has an in-house wind tunnel and Team B needs to rent a wind tunnel from another facility. Although the two teams have spent the same amount of money, $10m likely got Team A a lot more wind tunnel time than Team B.

And this is just one example. Perhaps Team A is able to get materials for cheaper than Team B. Maybe Team A has more advanced equipment for creating parts than Team B. There are tons of examples.

The FIA plans to introduce a $175m budget cap for 2021. However, unless every single item is given a standard price, there will still be a gap between the teams based solely on their financial position. Even if the FIA does assign a standardized price, it still won’t work.

Again, assume that Team A and Team B are both doing wind tunnel testing. The FIA assigns a standard price of $1m per day that will be recorded by the accountants. Now assume that the wind tunnel testing actually costs Team A $500,000 per day and Team B $2m per day.

If both teams want to do 10 days of testing, it will cost Team A $5m to do so. However, it will cost Team B $20m to do the same amount of testing. This means that Team B will always have to spend significantly more than Team A to stay on a level playing field.

Whatever angle to look at it from, there will always be a gap between the larger established teams and the smaller or younger teams. So, although a budget cap may seem like a great idea at face value, there are some deep-rooted issues that can’t be ironed out easily.

In the end, there’s no one solution that will fix Formula One. It will take a combination of changes to improve the state of the sport and it will probably take some trial and error as well. Not every idea may work great. Some ideas may need to be fixed. But if Formula One wants to have any hope of a healthy future, changes need to be made.

While this is nearly the end of the Fixing F1 series, there will be one final bonus article tomorrow that will discuss three ideas that didn’t quite make the cut. Stay tuned.

The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of any other agency, organization, employer or company. Assumptions made in any analysis contained within this article are not reflective of the position of any entity other than the author.

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About Wesley Branton:

Wesley is a motorsport journalist from Canada who fell in love with Formula One many years ago. His work has been featured in other major motorsport news publications.