27/11/2008
NEWS STORY
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The day of the Formula One teams seizing the reins of power has dawned. It may not seem like it, and it's certainly not something they are boasting about, but, as Pitpass' business reporter Chris Sylt reveals, never have the F1 teams had such control over the future of the sport.
As Pitpass recently reported, all it takes is for the teams to stick to their guns and demand a 30% increase in the amount of prize money they get from F1 and they have both the sport's rights holder and the governing body, the FIA, by the short and curlies. Given the gloomy economy, this demand may not be far off.
The reason it puts the teams in the driving seat is simple - if their demand was realised it wouldn't leave enough money in the bank for F1's rights holder to pay off the debt it took out to buy the business. The upshot is that F1 would face bankruptcy which could even put races in jeopardy. Since the FIA ultimately owns the sport's rights, this is not something it wants to happen and this may well explain its drive to bring more money to the teams by cutting their costs. However, it is rapidly coming to light that if the F1 teams want to spend then they'll do it come what may.
The recent news that in 2007 the Honda F1 team had costs of £147m, the highest of any UK-based F1 team, has come as quite a blow for the sport. Last year, for the first time ever in F1, teams ran with engines frozen to the previous year's specification and there was good reason for this homologation.
Way back in June 2006, FIA president Max Mosley said "the reason for homologation is that we want to eliminate engine development costs." The freeze was due to be introduced in 2008 but he specifically added that bringing it forward to 2007 "would save everybody a fortune and avoid a great deal of unnecessary expenditure." The critics cried that since many of the teams are fuelled with almost-bottomless budgets from car manufacturers, they would just divert their spending to different areas of the F1 programme and it seems they were right.
In 2007 Honda's costs accelerated 21.9% on the previous year despite the engine freeze. Perhaps, mindful that this would happen, the FIA began talk earlier this year of introducing a cap on budgets but as soon as it had made this announcement, the critics began their crying once again. One of the biggest criticisms was that the system would be tough to police since it could be disputed whether certain aspects of the teams expenditure related to F1. Once again, it seems that the critics were right and the budget cap hasn't even been introduced yet!
A website report has recently emerged claiming that the revelation about Honda's record costs for 2007 is inaccurate since "Honda was being forced to pay for most of Super Aguri's operations in addition to its own activities." It's a nice little yarn but, unfortunately, the facts about it aren't in black and white.
The company which runs the Honda Racing F1 team is called Honda GP. Its accounts state that "the activities of the company are all dedicated towards the design and development of a car to complete successfully in Formula One motor racing," and the team's website states that it is "the official website of Honda GP." In short, any spending by Honda's F1 team shows as costs on the accounts of Honda GP. There is no mention of Super Aguri in its accounts.
Of course, Honda GP may have spent the money on Super Aguri. The accounts contain no breakdown of its costs so it could have spent money on aunt Bessie and uncle Tom Cobbley too. But even if it did, this would still be spending by Honda GP. Nothing can change that and any suggestion to the contrary is in itself inaccurate.
It is logical to assume that the reporter had a source at Honda who said that Honda GP was footing the bill for Super Aguri and it is true that this would lessen the blow of being known as the UK team with the highest costs. After all, just last week Honda GP's ultimate parent, the Honda Motor Company, announced plans to cut production at its plant in Swindon, which will close for 50 days next year. Either way, it is highly doubtful as to whether nitpicking over whether Honda GP's accounts include Super Aguri or not will impress the FIA, far less improve the mood of the 4,800 Swindon employees as they look forward to a bleak beginning to 2009.
Record spending on F1 isn't something to be proud of at the moment but the bottom line is that without proof to the contrary in the accounts, the evidence shows that Honda takes this accolade. The team may have swayed a sports reporter to write that its costs weren't as high as originally stated but without evidence in the accounts, this isn't going to appear in a serious business publication such as the Financial Times, where its record spending was originally revealed.
The alternative report, no matter who is behind it, reveals the fundamental flaw behind the concept of the budget cap since one can reasonably presume that if it was in place, the FIA would also be told that some of Honda GP's costs were spent on Super Aguri. Whether the FIA would believe it is another question.
Interestingly, Nick Fry, chief executive of Honda's team, has been quoted as saying "an overall budget cap is something that should be seriously investigated... what we see at the moment, if you look at the accounts of any of the UK F1 teams, is that the costs keep going up."
Until the FIA works out a way to effectively police team spending, a budget cap will be just about as effective a method of cutting costs as freezing the engines. The governing body's latest idea of course is introducing a standard engine. It made a lot of noise about this in the lead up to the opening of a tender to produce the motor but since this closed a few weeks ago nothing has been heard. Time will tell whether even this solution has any effect on curbing the lavish spending of F1's teams but the reality check had better come soon since the future of the sport depends on it.