14 February 2014
Kate Walker: Cost cap
In her latest exclusive column for Crash.net, Kate Walker says a cost cap is the only option for teams hoping for a future in F1
Without a cost cap of some sort, Formula One will become unsustainable. The current division of the financial spoils has created a situation not unlike that which we see in the broader social landscape: a dearth of upward mobility, and a system heavily weighted in favour of those already in a privileged position.
But it doesn't have to be that way, and thankfully change is on the horizon. Unfortunately, some of the sport's most high profile figures have used their public platforms to denigrate either the concept of a cost cap or the minutiae of its application. This week's criticism has come via Red Bull, but the Milton Keynes team are hardly the first to have voiced an objection or two.
What is ironic about the recent comments challenging the current concept of the cost cap from Christian Horner and Dietrich Mateschitz is that – in the medium term at least – Red Bull will actually benefit from it.
Initially, the better-funded teams will have to go through a period of adjustment as they get used to a reduction in headcount and budget. But when the teams adapt – and they all will, quickly – Red Bull will see a sizeable chunk of its restricted operating budget covered by the bonus payment they agreed with the commercial rights holder last year, plus whatever they earn based on their championship standings the preceding year.
To put it into context, had a $200 million budget cap been introduced in time for the 2014 season, Red Bull would have earned around $160 million from bonus and winnings, leaving them with only $40 million to find through sponsorship. At the other end of the grid, where teams' operating budgets are a score or two below $100 million, the share of the prize fund is between $40-50 million, leaving those teams with a far greater share of their budget to make up through sponsorship.
So the budget cap is flawed. But that doesn't stop it from being a necessity.
As things stand, teams and the FIA are beholden to individual financial agreements with FOM that run through 2020. Until those agreements expire, Formula One will be as unequal as it's always been. But the simple introduction of a cost ceiling – and of a regulatory mechanism to ensure that said ceiling is adhered to – is the first step in what will be a long process.
To create a more level playing field, the cost cap will need to be gradually lowered until it is at a level that the backmarkers and mid-field can afford. If that can be achieved by 2020 – and there is no logical reason why it couldn't be, if the teams can adopt a utilitarian approach to the debate – then the next step is to negotiate deals with the CRH that bring prize fund pay-outs more in line with the sort of proportional distribution seen in England's Premier League.
The two-tier process would be painful for the current big spenders, and for those who currently benefit from preferential deals at the cost of their rivals, but for any team on the grid that hopes to still be racing in ten years' time, it's the only option.
Kate Walker is a senior F1 writer for Crash.net. A member of the F1 travelling circus since 2010, she keeps an eye on the behind the scenes wheeling and dealing that makes Formula One a political melodrama.
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