Why does Formula One need cost capping?

Formula One faces a period of great uncertainty during this harsh recessionary period. Funding a team is increasingly seen as a discretionary spend for the majority of team owners and sponsors. To ensure a healthy grid all are agreed that costs need to be cut.

Two main philosophies have emerged, either i) reduce activity levels through very restrictive technical rules, plus a degree of standardization if required; or ii) restrict the money that teams are allowed to spend (cost capping).

The FIA believes that unfettered technical competition is part of Formula One's DNA, and would like to see this flourish, but in an environment of strong, responsible and innovative management, not a spending race. For these reasons cost capping is preferred.

What is covered by the cost cap?

Everything except:

Marketing and promotion – we want Formula One teams to look good and to entertain their partners. We want manufacturers to show off their cars at exhibitions and city centre displays, and we want teams and their sponsors to promote Formula One through inclusion in advertising campaigns.

Drivers and young driver programmes – Formula One is the pinnacle of motor racing. Fundamental to this is attracting the world's best drivers. Moreover we wish to encourage continued investment in young driver programmes.

Engine costs – In order to attract manufacturer owned teams to take up the cost capping option, the FIA have decided to exclude engine costs for 2010 (only)

Furthermore, we are allowing manufacturers to honor existing supply arrangements, provided there is no element of subsidy that could have a cartel-like affect on the engine market.

How did the FIA arrive at the £40m figure?

We arrived at the figure by analysing both revenues and costs in Formula One.

We know what the FOM (Formula One Management) revenue is likely to be in the future, and we have some understanding of realistic sponsorship revenues during the recession. Taken together, it's possible to project total external revenues for all finishing positions in the Championship. At £40m we believe that 70 per cent of the grid can generate a profit. This transforms the business case for owning a Formula One team, for both manufacturers and private investors. The desired net result is to have a very healthy commercial environment for present and new owners.

We also had a good look at costs, and believe that £40m in combination with greater technical freedom will allow engineers to create Formula One cars even more interesting and exciting than today's cars.

Will the £40m cap for 2010 be changed for future years?