Monisha Kaltenborn calls it as she sees it.

[Moxie]

http://www.autosport.com/news/report.php/id/111860

Unfortunately, the interview ends with MK calling for the budget cap to be "policed" The truth is that is the real source of the difficulty. What enforcement schemes are being discussed? Will they actually be effective? Have the team principals offered any constructive insight?

[raymondu999]

As long as outsourcing exists, then such budget capping cannot be enforced. McLaren could make a "McLaren Design Tech Ltd" company, and "outsource" all the F1 design to that company - and then MDT would sell the design back at a token 100 quid, with a promise of 10quid per upgrade package. The expenses would come up as 200 quid (assuming 10 upgrade packages).

Cynically speaking, I suspect (though I have no proof) - Red Bull Racing do this with Red Bull Technologies. And what of what HRT did with Dallara? What Virgin did with Wirth Research (when Wirth was a separate entity)? As a businessman & entrepreneur myself - honestly speaking - that's what I would do too.

[tim|away]

As long as outsourcing exists, then such budget capping cannot be enforced. McLaren could make a "McLaren Design Tech Ltd" company, and "outsource" all the F1 design to that company - and then MDT would sell the design back at a token 100 quid, with a promise of 10quid per upgrade package. The expenses would come up as 200 quid (assuming 10 upgrade packages).

Cynically speaking, I suspect (though I have no proof) - Red Bull Racing do this with Red Bull Technologies. And what of what HRT did with Dallara? What Virgin did with Wirth Research (when Wirth was a separate entity)? As a businessman & entrepreneur myself - honestly speaking - that's what I would do too.

Spot on, that was my very first thought as well. Even without outsourcing you'd have way too many loopholes that could be exploited. The entire staff could be hired for an annual salary of $1 each (or minimum salary if there is one), in combination with an additional contract for a christmas consulting company that is completely unrelated to F1. They'd practically get their annual salary for showing up at the christmas party.

They've been talking about a budget cap for ages now and it just isn't realistic to enforce this. Bernie said a few years ago something to the effect of "So what? You cap their budgets and they will still overspend." and I agree with him on this occasion.

As for Monisha Kaltenborn (and a few others that are very vocal about a budget cap), there is always the implied notion that money buys success in formula 1. I completely agree that a bigger budget allows to hire potentially smarter people, but does anyone remember toyota? It just isn't that easy. What I would really like to hear is detailed suggestions how this budget cap would be monitored and how loopholes the size of barndoors would be avoided.

[xpensive]

As long as outsourcing exists, then such budget capping cannot be enforced. McLaren could make a "McLaren Design Tech Ltd" company, and "outsource" all the F1 design to that company - and then MDT would sell the design back at a token 100 quid, with a promise of 10quid per upgrade package. The expenses would come up as 200 quid (assuming 10 upgrade packages).

Cynically speaking, I suspect (though I have no proof) - Red Bull Racing do this with Red Bull Technologies. And what of what HRT did with Dallara? What Virgin did with Wirth Research (when Wirth was a separate entity)? As a businessman & entrepreneur myself - honestly speaking - that's what I would do too.

Xactly, which anyone with a bit of engineering/manufaturing/business xperience would know.

[GitanesBlondes]

http://www.autosport.com/news/report.php/id/111860

Unfortunately, the interview ends with MK calling for the budget cap to be "policed" The truth is that is the real source of the difficulty. What enforcement schemes are being discussed? Will they actually be effective? Have the team principals offered any constructive insight?

I really hope Monisha is not as dumb as she comes across in that article, because if is, no wonder Sauber continues to face extinction.

The budget cap is not the way to get costs under control, and is another bandaid fix in a sport filled with them. Among the many things that come to mind --including Ecclestone's domestic appliance quip when it came to another female-- one of the more relevant things is the KISS principle.

Furthermore, has anyone actually charted how the onset of the cost-prohibitive F1 started coming to prominence when Mosley and Ecclestone joined forces in the early 90s? I seem to recall the sharp rise in costs starting under Mosley and Ecclestone. How is it, for a few million you could easily field a team of 2 cars. Whether or not the car was anything more than a competitive backmarker (quite the oxymoron I know) was another story. Now the cost to play is around $50 million or so?

Her comment about needing to establish the sport in countries where there is little to no fanbase after multiple races is just dumb. I can't tell if that is posturing to try and support Ecclestone's robbery of taxpayer dollars across the globe in the hopes that he will take pity upon Sauber, and offer a cash infusion to help them stay afloat for a little longer. Or if she actually believes having an established fanbase will somehow have a positive impact on team finances.

[Pup]

Cynically speaking, I suspect (though I have no proof) - Red Bull Racing do this with Red Bull Technologies.

RB's current ability to do that is somewhat limited, since RBT does little outside of F1 and their budget is accounted for; i.e., there aren't a lot of places within RBT to hide spending. That's not to say that they don't use it at all, or that it wouldn't be a larger advantage should they choose/need to exploit it further. But at the moment, I think the larger advantage for them is in skirting the RRA, which supposedly has more to do with where you spend money rather than how much.

I doubt that the FIA would allow teams to be completely cynical about a budget cap. So it's unlikely (I guess) that we'd see a team set up an obvious shell to skirt the cap. But we would certainly have questions about larger teams who run separate legitimate businesses which are related to F1 technology and into which spending could easily be lost.

McLaren and Mercedes would be in a better position (at the moment) for this type of account shuffling - but Ferrari would by far be the best off, since Italy's requirements for financial disclosure are...nonexistent? I suspect this might be the reason Ferrari hasn't yet used their veto on the plan.

But yes, Kaltenborn's strategy of...

1. Institute Budget Cap
2. Magic
3. Sauber Wins WCC

...is perhaps only sellable to naive sponsors. Oh, wait - maybe she does know what she's doing.

[sectionate]

I have always wondered with the budget cap, why don't they simply state that all work shall be carried out by a auditable company, thee must be a way of writing the regs to stop outsourcing...

[GitanesBlondes]

I have always wondered with the budget cap, why don't they simply state that all work shall be carried out by a auditable company, thee must be a way of writing the regs to stop outsourcing...

What happens when sponsors start setting up shell companies to hide all the R&D teams are doing? How do you find out about it? Sure I recall some novel solution about rewarding whistleblowers (I think WhiteBlue suggested this) for revealing indiscretions, but as we know, whistleblowers tend to find themselves blacklisted permanently.

Essentially what is going to happen if a budget cap is implemented, is that while on paper teams will "finally be limited", the expenses required to even attempt to check that the letter of the law is being followed will be outrageous. Who funds that? I don't see the FIA footing the bill for an accounting firm. Is FOM going to when that would start eating into CVC's profits? Unlikely.

You can write the regulations to say whatever you want them to say, but without any way of enforcing them, it is pointless.

[Pup]

It's tough. You can't audit transactions that aren't recorded. As an example, just look at how much wind tunnel work is being outsourced these days. McLaren could easily run that work as R&D through McLaren Applied Technologies, or Automotive, or GT3 Racing and it would never show up on McLaren Racing's books. And in fact I think McLaren's own wind tunnel is officially owned by MAT, or at least their new one will be, so they wouldn't even have to outsource the work to hide it. Short of posting round-the-clock FIA observers in every wind tunnel in the world, there's no way of policing it.

Now, if there were a big lawsuit like in the whole Stepney thing, maybe the FIA could get emails and such that would prove what they were doing, but short of that, the FIA would just have to trust. And we know how far that gets you in F1.

[xpensive]

What in this world is so difficult to understand? As long as we live in a free market there's simply no way to tell who's really paying who, faked invoicing and counter-invoicing, phoney advisors, trainees, students and what have you paid by sponsors.

Snap out of it!

[langwadt]

As long as outsourcing exists, then such budget capping cannot be enforced. McLaren could make a "McLaren Design Tech Ltd" company, and "outsource" all the F1 design to that company - and then MDT would sell the design back at a token 100 quid, with a promise of 10quid per upgrade package. The expenses would come up as 200 quid (assuming 10 upgrade packages).

Cynically speaking, I suspect (though I have no proof) - Red Bull Racing do this with Red Bull Technologies. And what of what HRT did with Dallara? What Virgin did with Wirth Research (when Wirth was a separate entity)? As a businessman & entrepreneur myself - honestly speaking - that's what I would do too.

Xactly, which anyone with a bit of engineering/manufaturing/business xperience would know.

yeh, There will no shortage of accountants who know how to do it, every international company already does it to
move profit to low tax countries

[xpensive]

...
yeh, There will no shortage of accountants who know how to do it, every international company already does it to
move profit to low tax countries

There you go, why do Apple and Google pay sh*t for tax in the US and why do IKEA pay no tax at all, big mystery that?

[raymondu999]

Cynically speaking, I suspect (though I have no proof) - Red Bull Racing do this with Red Bull Technologies.

RB's current ability to do that is somewhat limited, since RBT does little outside of F1 and their budget is accounted for; i.e., there aren't a lot of places within RBT to hide spending.

I'm not sure that matters - because you make one entity that is under the budget cap (the team) and one entity that is outside of the budget cap and therefore allowed to overspend (the design firm).

The budget cap has no jurisdiction over the design entity in such a scenario, I should imagine.

[zeph]

I have suggested this in another thread, but it feels appropriate to reiterate:

Budget caps cannot be policed, but resource restrictions can certainly be monitored. That'd be the way to go.

[GitanesBlondes]

I have suggested this in another thread, but it feels appropriate to reiterate:

Budget caps cannot be policed, but resource restrictions can certainly be monitored. That'd be the way to go.

How can the resource restrictions be monitored?

I mean honestly, take Red Bull as an example, would anyone really know if the past few seasons they were running a 100% wind tunnel?