What is this dispute really all about? Is it about an attempt by some
teams to take over the commercial rights to Formula One? Or to take
the regulatory function away from the FIA? Or even just a clash of
personalities? It has elements of all of these, but the real issue is
philosophical; it goes to the fundamentals of Formula One. It is about
technical freedom. It is recognition by the FIA and several teams that
you can have technical freedom - the freedom to innovate - or you can
have freedom to spend without limit. But you cannot sustain both.
The lesson which emerged from five years of attempts to contain engine
costs was that real savings could only be achieved by the removal of
technical freedom: the engine freeze. All attempts to limit
expenditure by ever-tighter technical restrictions failed. This is why
we currently have a frozen engine, which will soon have to be
replaced. The consensus is that the replacement will have to have a
budget - a limit on what can be spent on development and a limit on
unit cost, just like the engines being developed for road cars. The
alternative would be to go back to unlimited expenditure on racing
engines by the major car companies. This was never a rational
approach, but would be insane in the current climate.
If we apply these lessons to the rest of a Formula One car, we can see
that attempts to rein in expenditure with detailed rules will not
work. They did not work on the engine and they will not work on the
chassis. Detailed rules stifle inventiveness and innovation. But,
worse, they do not significantly reduce costs. As with the frozen
engine, real savings could only be made with a frozen chassis, an
obvious absurdity.
If we wish to see innovative technology in Formula One, the only way
is to limit expenditure and allow the engineers freedom to do their
best within a fixed budget. This is exactly what happens in the real
world and it is the only way forward for Formula One. Without
technical innovation, Formula One will wither and die. Without
real cost constraints, Formula One will lose its teams. This is why
the FIA is insisting on cost restraint as part of the Formula One
regulations.
The final and overwhelming advantage of a cost constraint regulation
is that it will provide technical freedom on a level playing field.
With a limit on expenditure, the cleverest and most innovative
engineering team will win. It will no longer be possible to substitute
a massive budget for intellectual ability. In a technological sporting
contest this must surely be the right way.
Setting the record straight
The FIA and FOM have together spent decades building the FIA Formula
One World Championship into the most watched motor sport competition
in history.
In light of the success of the FIA’s Championship, FOTA – made up
of participants who come and go as it suits them – has set itself
two clear objectives: to take over the regulation of Formula One from
the FIA and to expropriate the commercial rights for itself. These are
not objectives which the FIA can accept.
Background
When Honda announced their withdrawal from Formula One in December
2008, they had already entered the 2009 Championship and were
contractually bound to compete. Two things were then clear to the FIA.
First, any of the manufacturers could stop at any moment. The FIA
would have no recourse against the main company, only against the team
which would have no assets in excess of its debts. Secondly, it was
quite possible that other manufacturers would stop before 2010.
Renault was dependent on the French government. It seemed doubtful
that taxpayers’ money would continue to be used to contribute to
this team’s high levels of spending. Toyota’s car
manufacturing operations were facing their first loss in modern times
and might not wish to continue to pour hundreds of millions into a
race team while BMW, who were making sacrifices in their core business
in order to cut costs, might not want to continue to spend heavily on
their team.
Faced with the prospect of only 18 cars in Melbourne 2009 and the
possibility of worse to come in 2010, the FIA had to act. There were
two obvious steps. First, approach Mr. di Montezemolo to see if the
car manufacturers would guarantee the presence of their teams in 2010
so that we would not have a repeat of the Honda situation. Secondly,
begin talks with FOTA about reducing costs to the point where the
manufacturers would be less likely to stop, the independent teams
would be viable and perhaps some new teams would enter to fill the
empty spaces.
Mr. di Montezemolo promised to secure the necessary guarantees from
the main car manufacturing companies (not to be confused with
guarantees from the teams). He continued to promise this all
through the winter, most recently at a meeting he had with the FIA’s
President on 23 February 2009. Not one such letter has been
forthcoming – not even from Mr. di Montezemolo's own company FIAT.
At the same time FOTA and Mr. di Montezemolo rebuffed all attempts to
hold meetings to discuss cost reduction. There was no need, the FIA
were told. FOTA's own measures were adequate and they would make up
for the shortage of cars by each running a third car. By March it was
clear that FOTA had no intention of facilitating the entry of new
teams, indeed were opposed.
It was also clear that if the FIA wanted new teams in 2010, it had to
publish regulations, otherwise it would be too late for a new team to
build a car. The FIA also had to consider what level of expenditure
would work for a new team and how to ensure that a new team with
relatively limited resources would not be dangerously slow.
This led to the World Motor Sport Council (WMSC) decision of 17 March
which introduced a voluntary financial regulation and technical
freedoms for the capped teams to enable their cars to achieve Formula
One levels of performance. Ferrari voted against the financial
regulation at that meeting but not against special technical freedoms
for the new teams (i.e. Ferrari did not vote against the
"two-tier" system).
Even after this vote, FOTA were not prepared to talk. Neither was Mr.
di Montezemolo, even privately. In the absence of any negotiation or
any sign that the promised guarantees of participation from the car
companies would be forthcoming, it was essential to publish detailed
regulations and invite entries from new teams. Otherwise there was a
real risk that there would not be enough cars for Melbourne in 2010.
The detailed regulations were discussed and voted on at the WMSC
meeting of 29 April. The new Ferrari representative on the WMSC was
Mr. di Montezemolo, replacing Jean Todt whose Ferrari contract
finished on 31 March. Mr. di Montezemolo chose not to attend but gave
a proxy to Mr. Macaluso, the Italian president of Karting, who also
did not attend but joined the meeting by video link. His was one
of two votes against the new rules but no reasons or alternative were
offered.
An exchange of letters then began with Ferrari's lawyer and a meeting
was arranged between all the FOTA teams and the president of the FIA
on 15 May. John Howett as vice-chairman of FOTA led their
delegation in the absence of Mr. di Montezemolo. As soon as the
FIA raised the question of the financial regulation, Mr. Howett tried
to lead a walk-out of the teams. This did not succeed but during
the meeting it became known that Ferrari had begun emergency
proceedings in the French courts seeking to prevent the introduction
of the 2010 rules. It was clear that FOTA had no intention of
negotiating anything but simply expected the FIA to agree to all its
demands.
A further meeting was held on 22 May, this time with Mr. di
Montezemolo present. FOTA explained that they had three major
reservations. Rule stability, governance and the 2010 regulations, in
particular the "two-tier" system. It was explained
that it had already been agreed to substitute technical help from
established teams for the two-tier system at the Heathrow meeting, so
this was no longer an issue. This was pointed out to Mr di Montezemolo
at least five times during the meeting but he and FOTA are still
talking about it today.
The FIA also offered to extend the 1998 Concorde Agreement, which
would take care of stability and governance at least to a degree that
had satisfied all the teams for 10 years up to 2008. The FIA was asked
to postpone its entry date. It was explained that the Sporting Code
did not provide for such a suspension and that, in any event,
potential new entrants needed to know urgently if they had a place in
the Championship.
On 29 May, the eight remaining FOTA teams submitted conditional
entries. Among the conditions were a requirement that the FIA
forthwith sign FOTA's new Concorde Agreement (which diluted the
Sporting Code, made an outside body, the CAS, the ultimate appeal
court, allowed any team to veto rule changes and removed the FIA's
right to insist on changes if the cars became dangerously fast). FOTA
also crossed out references to the International Sporting Code on
their entry forms and wanted the 2010 Rules rescinded notwithstanding
that a number of new teams had already submitted entries.
A further meeting was held on 11 June at which FOTA were represented
by Ross Brawn (Brawn), Stefano Domenicali (Ferrari), Christian Horner
(Red Bull) and John Howett (Toyota). After nearly five hours of talks,
it was agreed that the FOTA and FIA cost-reduction objectives were
very close if not identical and that the financial experts from both
side should meet without delay to seek a common position on detail.
Also, the FIA's proposal to extend the 1998 Concorde Agreement in
order to avoid interminable negotiations was well received. Agreement
was also reached on some minor modifications and clarifications to the
2010 rules.
No sooner had all this been agreed than FOTA put out a statement
saying no progress had been made in the meeting. This blatant
falsehood demonstrates once again that elements in FOTA simply do not
want agreement.
On 15 June, the meeting of the financial experts took place. However,
the FOTA representatives had been forbidden to discuss the FIA’s
financial regulations, thus rendering it impossible to seek a common
position. The meeting did examine FOTA’s ideas on cost reduction,
but, as presented, these amounted only to a voluntary system which
would be incapable of preventing a wealthy team from outspending its
competitors and triggering another financial arms race.
Governance
FOTA says, "the sport needs better governance." The
FIA and Ferrari extended the 1998 Concorde Agreement back in 2005 and
the FIA is prepared to do the same with all the teams that enter.
Once that is in place the FIA and the teams can look at updating it to
a 2009 version. But this is not the point. Formula One
needs a strong and impartial regulator because of the nature of the
sport, the high stakes and the competitors - people who want to win
(literally) at any cost. There are several well-known examples
of this - involving at least four FOTA members - over the past few
years.
Good governance does not mean that Ferrari should govern. Ferrari now
claim that the procedures followed by the FIA are contrary to their
agreement with the FIA, but in reality they never objected to these
procedures (indeed they voted for them) until they were not happy with
the decisions themselves. Ferrari has been officially (as well
as unofficially) represented on the WMSC since 1981 and never objected
to the process or decisions until April and May this year.
Technology
FOTA says, "The new rules dumb down the sport". Not
so, the 2009 regulations introduced greater technical freedom in
several areas. The 2010 Regulations will allow even greater freedom.
Compare this with the FOTA proposals: almost no testing, no KERS,
homologated gearbox, homologated bodywork, limitations on factory
activities, enforced shutdowns and so on. Instead of finding
economic ways to do innovative things (which is the spirit of Formula
One and also the challenge for the automotive industry) the FOTA
proposals would impose restrictions on activities and minimise the
technical challenge. When Brawn and others came up with the idea
of the double diffuser, the other teams attacked them in the media,
challenged them in front of the stewards at two race meetings and then
took them to court. The FIA will ensure that Formula One is the
most technologically challenging motor sport - and it will be
financial restrictions that make this possible.
Two sets of rules
FOTA says, "Two sets of rules will ruin the sport."
The 2010 regulations were structured so as to allow new entrants some
technical advantages in order to enable them to get to the back of the
grid. The original intention was not to have the 2009 teams race
under those rules. What is interesting is that for several of
the existing teams, the idea of greater technical freedom with
financial constraints was very attractive. Left to their own devices,
at least half the existing teams would have adopted those rules.
In any event, it was agreed as far back as the Heathrow meeting that
there would only be one set of rules and this was re-affirmed in
Monaco and again last Thursday. Now that the new entrants are in
place, one set of rules can be agreed.
Intrusiveness
FOTA says, "The FIA will be able to intrude on our
businesses", referring to the FIA’s proposal to regulate the
amount of money spent. If there is no intention to cheat, regulation
should not present a threat. The FIA already regulates every aspect of
technical performance and deals with vast amounts of confidential
proprietary technical information without partiality or
‘interference’. In any case, the FIA has already agreed that
the financial regulations will be managed primarily by
self-verification by the team's auditors and directors.
DNA of Formula One
FOTA says "A budget cap will damage the DNA of Formula One."
Setting a limit on expenditure on certain aspects of competing in
Formula One evens the playing field. Isn't Formula One above all
about competition? It also allows new teams to come in - the
only new team into Formula One in the last several years was Super
Aguri which could not survive even with manufacturer backing.
But when you analyse the total cost for a manufacturer it will still
be uncomfortably high, even with a €50 million cost cap. Take
Ferrari: with €50 million on the chassis and racing, add the same
again for drivers, about €80 million for engines and another €20
million for marketing and you have a total spend of €200 million.
Perhaps that is less that the €400 to €500 million their lawyer
said a top team is spending now, but surely it is enough for a team to
spend on entering two cars in 20 races a year?
And finally
The FIA remains committed to finding solutions for Formula One and has
always been ready to accept reasonable compromise whilst retaining the
overall principle that it will continue to lead and regulate the sport
for the benefit of all stakeholders. Formula One will have a full grid
in 2010 with a single set of regulations. It is essential that these
include clear and precise financial regulations.
Relevant Documents
1.
Correspondence between Ferrari lawyer Henry Peter and FIA Secretary
General Pierre de Coninck
2.
Correspondence between Ferrari President Luca di Montezemolo and FIA
President Max Mosley
3.
FOM-FIA-Ferrari announce Concorde Agreement extension
4.
Letter to Ferrari President Luca de Montezemolo from FIA President Max
Mosley
