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“With regards to that proposed cost cap…”

December 10, 2013

Beyond some of the controversial regulations dialled out by the FIA / F1 Strategy Group yesterday was that of a seasonal cost cap, to be introduced from January 2015.

Now in theory, there is no issue what so ever with a cost cap, but perhaps it is best we sit back for a moment and think about this. And I mean really think about it.

According to the proposal, the FIA state that:

  • “The principle of a global cost cap has been adopted. The limit will be applied from January 2015.
  • “A working group will be established within the coming days comprising the FIA, representatives of the Commercial Rights Holder and Team representatives.
  • “The objective of the working group will be to have regulations approved by the end of June 2014.”

Fine. No problem there – as long as everybody is honest and up front – but maybe we should ponder the possibilities at this early, early stage. Please bear in mind that this is merely a theory.

But… let’s consider for a moment that an incredibly rich person owns a drinks company that has some involvement in motorsport, including an increasing involvement in Formula One amongst other categories. This company is called ‘Red Drink GmbH’.

Now some time ago, Red Drink set up a subsidiary motorsport division to capture the business practices of all the various categories they compete in (or used to compete). This isn’t as unusual as it sounds, as much of Red Drink’s target market are based within the oft-youthful extreme sports demographic and as such have specific divisions governing practices in those particular sports.

In preparation for their move to Formula One as a manufacturer, Red Drink began as a sponsor with a midfield team and when a purchase for that team fell through, they moved in and bought a different midfield squad – eventually calling them ‘Red Drink Racing’ – and turned them into a dynamic outfit that would eventually collect four consecutive drivers’ and manufacturers’ titles.
But it is known within the walls of Formula One that Red Drink racing are the biggest spenders in the category. This desire to win has indeed driven Red Drink to pour almost endless amounts of money into Red Drink Racing – specifically research and development – as they pursue success at almost any cost.
As far as Red Drink Racing are concerned, success means headlines and they must have both – at this level, one does not exist without the other.

Yet now, the F1 Strategy Group have declared a cost cap.

It is a regulation that has the potential to threaten Red Drink Racing’s success. Now let’s not forget that Red Drink racing are not a private racing team, but are merely a limb on a larger corporate body that sees funding allocating according to worth of importance and use. One could even argue that there are no true private enterprises in Formula One anymore, but rather all teams are to some degree mere limbs on a larger corporate body.
For example;

  • Fessari are just one company in the FAIT organisation;
  • MacClarem Racing are part of MacClarem Automotive Engineering;
  • Litis are part of Ungravity Sporting Management;
  • Merseedy Racing are part of Bent-Merk Inc;
  • ForthIndia are part of Queenfisher Engineering and Aeronautics;
  • Sober are part of Swiss Timing and Advanced Engineering Corp.;
  • Walliams Racing are part of Little Britain Inc.;
  • Maryrus are part of MaryRus AutoMotiv;
  • Catsham Racing are part of Catsham Cars;

The only exception being the “Rora Tosser” team, who are the now unwanted lovechild of Red Drink GmbH and, as such, are forced to live on scraps of bread, pennies, carbon fibre and Jos Verstappen’s burnt out Benetton from Hockenheim 1994.

Red Drink Racing have in their ranks a genius designer called Alan Newboy and, as noted above, it is Newboy’s push for R&D that has helped shove Red Drink Racing’s budget through the metaphorical roof.
Noting the incoming cost cap, Newboy departs Red Drink Racing to form an independent company called ‘Newboy Engineering, Research and Design’ – ‘NERD’ for short. Naturally NERD are open to do R&D for all kinds of companies – no limitations at all; they are an independent organisation after all.

Meanwhile Red Drink Racing have decided to – sadly – close their R&D department; however at the same time Red Drink GmbH have noted an opportunity with an independent company called NERD and – liking their pizazz – are willing to bankroll the new company to the tune of €100 million per year, which mysteriously matches the budget of Red Drink Racing’s now defunct R&D department.
(Luckily, all the staff that were originally employed by Red Drink Racing’s R&D department have all found positions at NERD, doing the exact same jobs as before and at the same wage. How very strange.)

For all intents and purposes, the expulsion of Red Drink Racing’s R&D department has brought the budget of Red Drink Racing within the F1 Strategy Group’s expressed limit and therefore legitimises Red Drink Racing’s efforts in Formula One under the cost cap.

As all this is going on, Red Drink Racing sign a deal with NERD to licence in aerodynamic parts for a small fee – let’s say €1,000 for an intricate front wing that will give Red Drink Racing up to half-a-second per lap on a standard circuit. That the wing cost €1.5 million to develop is irrelevant to NERD, because, as we know already, NERD is being bankrolled by Red Drink Gmbh and therefore the R&D has been properly costed against monies available.
Indeed, every team – bar the forgotten Rora Tosser – are employing similar strategies and from 2016 will have licenced their entire R&D programme to these 3rd party companies. Once the designs are licenced in, the building process begins.

Come the audit period, Red Drink Racing (et al) are asked to submit to audit by the FIA and as noted above, each team comes under the budget, but the FIA – wary of the number of independent or subsidiary design companies that have cropped up since the unveiling of the cost cap – demand to audit the accounts of the likes of NERD.
However, as NERD (et al) are technically independent entities, they do not fall under FIA audit conditions – they merely do R&D to a technical programme as an independent company. The FIA may therefore not be in a position to fully audit teams in the manner they so wish, because while money is still being spent, a large proportion of costs have been foisted onto independent companies, bankrolled by parent companies to whom F1 is merely a side order.

But then again, I may just be making this up as I go along…

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One Comment
  1. This whole thing is preposterous. Everybody knows that all of the drinks that are involved with Fomula 1 are a weird yellow-ish color, not red. This scenario could never happen.

    Seriously, though, excellent piece, Leigh, and food for thought. The fact that you made up a bunch of 8-bit Nintendo game-esque team names put this well into the stratosphere for me. Nice work.

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