Max Mosley's letter

January 27, 2005

Gentlemen

Attached is an agenda and lists of measures for discussion at our meeting on 28 January.

The measures which might reduce costs are divided into two categories: possible changes to the FIA's technical and sporting regulations; and possible general regulatory measures. At this stage each of these measures is an item for discussion rather than a proposal. Also attached are copies of the teams' responses to our fax of 10 December.

In our fax of 10 December we invited discussion of cost saving measures for 2006 and 2007. Having considered this further, we feel the best approach is to start with 2008, which is the earliest year for which the FIA is free to implement change. Once 2008 is fixed, it may be that agreement can be reached to implement certain changes in 2006 and 2007, but we see this very much as a second stage.

We believe plans for 2008 can be finalized in a matter of weeks, following which we hope the currently competing teams will give urgent thought to 2006 and 2007. We trust you will agree that early implementation of cost-saving measures is highly desirable in order to achieve financial stability in the interests of all competitors, but particularly the independent teams.

We look forward to seeing you on the 28th.

With best wishes.

Yours sincerely,

Max Mosley

The Proposals

AGENDA:

1. Why costs must be reduced
2. Possible technical and sporting measures to reduce costs
3. Possible regulatory measures to reduce costs
4. Possible proposals to the commercial rights holder
5. Fax votes of the Formula One Commission
6. Structure of the Formula One Commission after 1 January 2008
7. Any other business

1. Why costs must be reduced

The problem

Current levels of expenditure in Formula One are not sustainable. Even if some car manufacturers are willing to spend 250 million US dollars per season on engines for a single team or some teams are able to employ up to 1000 people and make significant capital investments just to put two cars on the grid, we cannot expect this to continue for long. If we do nothing we will lose the independent teams and end up with a money-spending contest between an ever-smaller number of major manufacturers. As with all unstable financial systems, if action is delayed, the final crisis will be all the greater.

The solution

Urgent measures are needed. First, we should eliminate expenditure on items which neither interest nor entertain the public. Money spent on technology of which the public is wholly unaware is wasted. For example, ever more expensive and sophisticated gearboxes add nothing to the interest or appeal of Formula One other than to a tiny group of specialist engineers. The same is true of ultra-light monocoques and their ballast. There are many other examples in current Formula One cars.

Secondly, we must reduce the importance of expensive technologies so that the improvement in performance achievable by spending large sums of money is minimal. Put another way, the curve of performance against expenditure should be as flat as possible. For example, although we cannot stop a team using several expensive wind tunnels for 24 hours a day, with clever aerodynamic rules we may be able to ensure that the advantage gained by doing so is minimal when compared to a less well-equipped team.

Team profitability

It is certainly possible to reduce costs drastically without altering the look, sound or (public) technical appeal of Formula One. Public interest and thus sponsorship can be expected to remain at current levels, while other sources of income (television, prize fund, etc) will rise following agreement between the teams and FOM.

Increased income combined with very significant cost reductions will make all properly-managed Formula One teams profitable. This will preserve what we have and enable new teams to enter and compete with the best. We will only have the full and competitive grids we need for an attractive public spectacle if teams, particularly the independent teams, are profitable. At present the independents are hopelessly handicapped by lack of money.

The effect on performance

If we systematically eliminate expensive items which add nothing to Formula One and simultaneously adopt rules which minimize the gain in performance per dollar spent, we will soon have several different teams capable of running at the front.

Timetable for introduction

Formula One is currently the FIA's most important circuit racing championship. Motor sport at all levels has an interest in its continuing success. Accordingly, the FIA intends to introduce significant cost reduction measures from 1 January 2008, after full consultation with the teams, and then encourage the teams to agree on an earlier introduction where practicable.

2. Possible technical and sporting measures to reduce costs

• standard ECU for car and engine;

• restrict or eliminate sensors and telemetry;

• standard brakes;

• centre of gravity and minimum weight regulations for chassis and certain chassis components analogous to those for engine;

• bodywork regulations to reduce potential for aerodynamic development;

• bodywork regulations to improve visibility of sponsors;

• designs to be homologated and fixed for specified periods of time;

• long-life components;

• extend life of engine further;

• RPM limit for engine;

• very substantial reduction in downforce (eg down to 10% of current levels);

• standard transmission and drivetrain;

• limitations on materials which may be used throughout the car, similar to those for the engine;

• driver must be able to start car unaided with on-board system;

• single tire supplier;

• slick tires with only three compounds, fixed for entire season;

• prohibit tire blankets and all tire warming devices;

• no spare car;

• two-day Grand Prix weekend;

• eliminate 3rd car on Fridays;

• further measures to reduce number of staff needed at races.

3. Possible general regulatory measures to reduce costs

• freeze technical and sporting regulations for a long period (3 years?);

• announce changes well in advance (2 years?);

• significant testing restrictions, possibly:
  - enforced by the FIA
  - based on mileage rather than days;
  - based on other criteria
  - no testing during season except on Fridays at Grands Prix;
  - different restrictions for in- and out-of-season testing;
  - no testing on Grand Prix circuits;
  - restrictions on technology available at tests (eg sensors).

• compulsory breaks in race and test programs;

• engine suppliers to make engines available on similar basis to current tire supply rules;

• freedom to sell components (including entire chassis) and transfer intellectual property between teams;

• salary cap for drivers on same principles as those adopted in other sports (eg NBA); maximum age for second driver;

4. Possible proposals to Commercial Rights Holder

• full market research into all proposals to change Grand Prix format (eg qualifying);

• full market research into any proposed change to Formula One which will be apparent to the public (eg eliminating tire changes during a Grand Prix or going to a single tire supplier);

• full market research into what the public want from Formula One (more overtaking? different race format? more and better information from TV commentators?);

• in-depth investigation into the appeal of Formula One;

• seek new sources of revenue for the teams (eg testing).

5. Fax votes of the Formula One Commission

• results of the most recent fax vote;

• rules for future fax votes.

6. Structure of the F1 Commission after 1 January 2008

The current Formula One Commission has 24 members with 26 votes. Because meetings inconvenience so many people (particularly non-European organizers), they tend to be held rarely. The previous Formula One Commission with only 13 members (six teams, four organizers, two sponsors and one FIA) was arguably more efficient.

Also, there is a tendency for sub-groups within the Commission (particularly the teams and the organizers) to hold pre-meetings and agree on a line which is intended to be maintained in the subsequent Commission meeting, irrespective of the discussion which takes place. If this continues, each such group will need only one representative in the Commission who will simply recite the line and exercise the relevant number of votes. This may not be the best way to make progress.

Perhaps we should completely re-think the constitution of the Formula One Commission for 2008.

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