Seven races down out of 22 and already several Formula 1 teams are feeling the pinch of the budget cap.
F1’s budget cap was introduced in 2021, set at $145m, in a bid to make the championship more sustainable and to improve competition. That amount was cut by $5m for this year, but the war in Ukraine and its impact on inflation has prompted a disagreement between teams over whether an adjustment is needed.
The situation is so serious that during the Monaco Grand Prix weekend Ferrari team principal Mattia Binotto said there was “no way” they could stay below the cap this year and is already grappling with the potential consequence of exceeding it.
“I’m pretty sure that at some stage we will go over,” he said. “In the regulations, there is a threshold, which is five percent. If you do not exceed the five percent, on the top of what’s the budget cap threshold, it will be considered a minor breach.
“What’s a minor breach in case of force majeure? What will the stewards and the FIA decide on that, in terms of penalties? I’ve no idea.”
He warned the FIA needs to make clear the ramifications of over-spending, and called on the sport’s governing body to take swift action.
“I don’t think there is any way for us – and for many teams – simply to stay within. Laying off people, I don’t think that’s a good and right choice. It’s already summertime. By the time you organise it, and you do it, the benefit it can have is not sufficient to cope with the excess of prices and costs we’ve got.
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“So what will be the implications? For me, the most important is many teams will breach it. And that, I think, will be simply bad for the Financial Regulations.”
Mercedes boss Toto Wolff agreed with his Ferrari counterpart. He pointed out several of F1’s bigger teams have already had to reduce their workforces to meet the original limit before the escalating inflation took hold.
“The cost cap was introduced for specific purposes to allow small teams to spend the same amount in the big ones,” he said. “There shouldn’t be a bargaining every year to lift the cost cap up.
“But I think we are facing a situation is that we have we have inflation that is that is north of seven per cent at the moment. Our energy prices in Brackley have tripled, our freight costs have tripled and we are talking about a high single-digit million amount.
“I think that is something which needs to be considered because we want to avoid under any circumstance reorganising and restructuring the big teams again, in a way that would be really damaging for us as a team and for the industry.”
“This is a force majeure situation. We’re having a raging war in the Ukraine and the consequences that it had on energy prices are not something that anybody could have foreseen.”
However Wolff acknowledged not every team regards the current situation as a “force majeure” case to change the rules. “In that respect, there needs to be some kind of compromise between the teams that are against the need for that inflationary adjustment and the teams that are for.”
Among the dissenters are Alpine’s Otmar Szafnauer. He said his team have done their maths, is confident they won’t go over the limit argued the cap should stay at the agreed level.
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“We all sat around for a long time trying to get the cap to the right level. We discussed inflationary pressures. There’s a mechanism in the cap itself to deal with inflationary pressures. I think [we should] stick with the rules that we have, that we’ve debated for a long time.
“The big teams had a different view on where the cap should be, the smaller teams wanted it at 100 million I remember. We came to a compromise, including what we do with inflation, and the first time we face inflation that’s a little bit over two-and-a-half per cent, we want to change it.
“I think that’s wrong. I think we should stick to the rules as they were written and see this through. And I don’t think it’s opportunistic for teams to say ‘don’t change the rules mid-season’.”
Many decisions teams make regarding how much they spend are made in advance: Upgrading the car, running a team and so on. But what about unforeseen costs, such as damage? For the teams already warning they may exceed the budget cap, a poorly-timed crash could prove disastrous.
Haas team principal Guenther Steiner estimated the damage to Mick Schumacher’s car when he crashed in Jeddah left the team facing a repair bill of up to £760,000 ($1 million).
Such a crash could have huge implications for a team in a championship fight. And of course it wouldn’t necessarily be the consequence of the driver’s actions, as Max Verstappen and Lance Stroll’s high-speed crashes during last year’s Azerbaijan Grand Prix demonstrated.
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The financial regulations threaten several possible consequences for a team that over-spends depending on the circumstances. These include fines, deduction of world championship points, a reduction in the cap for the following season and – for the most serious cases – exclusion from the championship.
As things stand, not enough teams are in favour of altering the cap for a rules tweak to be approved for this year. Therefore, how far each team is willing to risk breaching the cap, and whether they can avoid any costly crashes, is likely to have a bearing on their championship result.
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66 comments on “Could F1’s budget cap impasse tip the balance in the title fight?”
9th June 2022, 7:31
I posted the following in an older (and frankly, less relevant) thread. Oddly, the article I referred to was very very similar to this (although it primarily noted fines in relation to minor breaches as far as I remember), so maybe Claire also writes for whomever that was (I do not actually recall where at the moment). Anyway, what I said was:
I just read an amusing point about budget caps.
Apparently (as in ‘according to what I read’) a minor overspend (up to 5%) could attract a fine.
Doesn’t that just mean that those with extra funds who would have happily spent more than the cap will just spend up to that 5% limit merely accepting that the difference will cost them somewhat more than that. In other words, if you have $180,000,000 to spend, and you exceed the $140,000,000 by $7,000,000 then as long as the fine is less than $33,000,000 you are good to go.
9th June 2022, 8:03
The reason the likes of Ferrari and Red Bull are asking to “clarify” the penalties @cairnsfella is IMO exactly that.
Remember, the rules mention there will be fines but there CAN also be sporting penalties. I am sure that Ferrari and Red Bull (and Mercedes) would gladly pay any fines. But sporting penalties might be too big a risk.
Therefore they want to have clarity, so that they can more easily decide if it is worth it for them to break the rules and by how much.
9th June 2022, 8:15
Deduct constructor’s and driver’s championship points corresponding to the breach.
5% over budget? Deduct 5% of their points.
50% over budget? Deduct 50% of their points.
Driver keeps crashing? Well then you’ll probably have to stop developing the car, or maybe there’s only enough new parts for the other driver. Find a better driver, there’s enough if them in junior formulas.
Tyre failure caused by running them out of spec provided by the tyre company? Tough luck bucko.
Tyre failure caused by inadequate tyres? Sue the tyre company. (Maybe it’s time for tyre failures to be investigated by an independent party.)
9th June 2022, 17:37
Well, that’ll be a fun series to not watch.
10th June 2022, 8:31
inflation rates who are almost 5 times higher then planned? They have marges but 5 times higher is a LOT. Transport and wages can be milions extra that is the same as totaling your car 10 times …
Sueing doesn’t help as that is seen as extra money and gives you fines… otherwise a driver who crashes his car is paying for the damage himself which is also seen as budget evading.
Euro Brun (@eurobrun)
9th June 2022, 7:50
Let them overspend, with a 100% taxation on anything over the budget cap.
Those collective taxes should then be distributed equally among any teams who remained below the budget cap.
9th June 2022, 8:01
Yeah, that might work @eurobrun – for every million spent over the cap they put the same amount, or better yet, double that into a pot for the teams that operated below the budget cap to be divided up.
9th June 2022, 8:14
It’s not a bad idea, although I really think sporting penalties would be hitting them where it hurts. That removes any incentive to overspend for increased performance as it ends up being counter productive.
Whilst admittedly a contrived scenario, in the event a less wealthy team ‘scraped’ to spend up to the budget, then breached this by a small margin (perhaps in error), they then need to find even more money even though their coffers are empty. And even in a less contrived scenario it remains the case the the financial impact is less consequential the bigger the team (assuming fines are not adjusted according to a teams underlying finances).
Sporting penalties are a level playing field with fair and (relatively) equivalent consequences.
9th June 2022, 8:26
Yes, sporting penalties (sitting out practice sessions, points deduction) would hurt these teams far more clearly than just money @cairnsfella – they have boatloads of that, it’s exactly why the cap was brought in in the first place.
9th June 2022, 9:06
Your post rather summarises what I have been trying to say quite neatly.
9th June 2022, 9:13
Lets do both
10th June 2022, 18:57
They have this in the NBA with the luxury tax and it actually works quite well to penalize teams that overspend, and promote greater parity with those that dont.
9th June 2022, 7:59
Lets not forget that in “real money” for the teams on the continent and in the UK the cap they were counting on in November, with inflation already quite high (so they would have accounted for it to an extent), was about 10 million LOWER than it is now because the USD has strenghtened vs both the EUR and the GBP since November as well.
The argument is only about the big teams wanting to spend more money. The smaller teams do not HAVE the money to spend more (they are not operating at the budget cap), regardless of the cap. They will all just have to manage and learn.
9th June 2022, 8:10
@bascb Spot-on. Someone should remind the biggest teams.
9th June 2022, 8:15
As with the post above, I would suggest a punitive redistribution. Something like either:
– for every £X they go over the cap, they lose a point for each of their drivers plus they have to put £X in a pot to be distributed between those who didn’t break the cap, or
– they can have the cap increased by £Y million, but the teams who go into this extra cap must, together, give £Y million to every team who spent at least £Y million below the original budget cap.
9th June 2022, 15:40
@bascb “The argument is only about the big teams wanting to spend more money.”
No it isn’t. This is a discussion about the strain that the unforeseen significant inflation rates are placing and will continue to place on teams’ budgets and plans that had been set out before any of this could have been predicted. Yes of course the smaller teams do not have the money to spend and weren’t ever going to breach the cap anyway. All the more reason they are going to be affected even more than the top teams with these escalating costs.
This is why I keep suggesting that this not be about enlarging the cap, but rather I do not see why F1 cannot help all teams equally to cover the unforeseen and escalating costs of travel and freight. I’ve been going over Horner’s quotes, and frankly I think his words are being twisted by media and posters on sites such as this. I haven’t seen Horner suggest F1 increase the budget cap. Horner of all people knows that would do nothing for the teams that can’t even meet the cap. When Horner speaks of ‘budget relief’ I think people are assuming he means an enlarging of the cap, but I think he means that F1 should help teams to cover the unforeseen and large increases in freight and travel. In that sense, if as I have been suggesting F1 would cut all teams a cheque for 5 mill (just a number I’ve selected that seems in the ballpark), then the teams stand a much better chance of staying within their planned budget work, that being to stay within the existing cap, or if they weren’t going to meet the cap anyway, to still go through their planned program for the season, and to attend all races as well.
If someone can provide quotes from Horner, who is the one that seems to me was the first to bring this up, saying he wants an increase in the cap, then of course I will stand corrected.
9th June 2022, 15:54
That is utter BS @Robbie. If so, they would be talking about how to increase income for all the teams. But they aren’t. And as i pointed out in my post – the CAP is already about 8% higher in their currencies than they expected. But they want more, because there is a decent argument to be made when looking at inflation.
Red Bull, Ferrari, Mercedes really only care about being able to spend more than the budget cap because they have the money and would like to keep outspending the others.
You can think whatever you want, but all of the talk has been about the CAP since there is no involvement of the FIA in coming up with team budgets. To get Liberty to pay more money they need no involvement of the FIA, nor is there anything like needing unanimity. I am sure all teams would be in favour of getting more money from F1.
9th June 2022, 16:04
@bascb So, no quotes from Horner saying he wants a rise in the budget cap then? As I suggest, all the talk has been about the cap erroneously. I don’t believe a higher cap is what Horner is suggesting. Just financial relief, and he particularly cites the seven teams that are not the top 3 teams, who may potentially have to skip races. Financial relief for travel and freight so that all teams can carry on with their plans and complete a full season, within the cap or within their own budget even if it was never going to meet the cap. Note too, while you are insisting all the talk has been about the cap nobody is talking about exchange rates. Those can change direction in trend at any time.
9th June 2022, 16:14
I am not your personal assistant, nor am I your e-reader etc @robbie. You seem to want to ignore what is written in the article, and many many others before it on the same subject making it absolutely clear that Horner indeed explicitly mentions the budget CAP.
But anyway here is a quote from Horner (taken from a Racefans article, bold put in there by me):
9th June 2022, 16:24
@bascb Yeah still nothing on Horner saying he wants an increase in the cap then. But for sure a plea to FIA to address the inflationary issue. Of course Horner is going to mention the cap, for that is what they are all aiming to be within. And a way to help them all stay within the cap and have a normal season is to not have to miss any races by now having to spend so much more of their budgets on travel and freight such that they can’t run the programs they had set out to do.
Look, perhaps nothing will come of this and the teams will just be left to their own devices to adapt to the situation. But I certainly don’t blame Horner and now other TP’s for discussing the issues and the realities. And I just don’t think it is in FIA/F1’s best interest to just stand by and observe F1 go downhill throughout this season, the first of this new chapter and these new cars, when there is money there that could help all the teams weather the storm and still provide us with what will appear to be a seamless season otherwise.
9th June 2022, 15:55
This still affects smaller teams because they have their own “soft” budget caps. If your team budget is only $100m, you will still need to account for inflation even if you are not in danger of getting penalized by breaching the actual cap.
9th June 2022, 15:56
@bascb I just re-read your original comment, I think you are saying the same thing.
9th June 2022, 8:07
‘No way’ how? Sacrificing car development & other less critical things should be enough to stay within the cap.
Red Andy (@red-andy)
9th June 2022, 8:26
Yeah, but spending slightly less on car development is less dramatic than threatening to make your staff redundant. I wonder who is the first team principal we’ll see walking around the paddock in rags just to make a point.
More seriously I also wonder about the effect this has on the employees of those bigger teams. It can’t be very nice hearing your boss using your continued employment as a bargaining chip in negotiations with the sport’s governing body.
9th June 2022, 11:29
@red-andy Good points, although I suggest entirely stopping car development for the remaining season than merely doing less.
9th June 2022, 11:29
Isn’t it implicit in the suggestions that the teams should stop developing their cars though?
If you are saying that the teams should cut back further on development, then by definition you are saying that the teams should cut their workload for their staff.
That, in turn, is ultimately cutting back on the need for at least some of their current staff – and, at that point, why should teams keep on staff that are not needed?
9th June 2022, 13:38
You know as well as most of us that there is a really good reason to keep staff you do not need at RIGHT NOW, unless you plan to not use them at all Anon. Once you let them go, you won’t get them back.
I think making a couple of front wings less, cutting maybe a few runs of CFD and leaving the last 3-4 hours of windtunnel operating might save enough that they can stay within the budget cap, if they want.
9th June 2022, 21:09
@bascb as noted below, wage costs are a fairly significant part of the operations of the team – for a team like Alpha Tauri, for example, their wage costs are around 30% of the entire budget of the team. Significant savings will cut into staff numbers sooner than you think because they make up a larger chunk of the budget than you seem to think they do, whilst you also seem to be rather over-optimistic about how much you might save from “a couple of front wings less”, for example.
Secondly, how quickly do you think that the problem of high inflation rates is going to disappear? Three months? Six months? If you take the OECD’s recent predictions for the UK, they’re expecting inflation rates to track around 7% until late 2023 – their predictions for high inflation rates are in terms of a couple of years, not a couple of months.
9th June 2022, 13:40
You’re not wrong. A large part of the development costs are staffing. Even entirely stopping the development of the car will achieve little in the way of savings if they continue to pay for the staff who would have been doing that development.
9th June 2022, 9:20
There have to be multiple ways to skin this cat. But one thing I’d be keen to see is the ring fencing of the salaries of crew (ex drivers and TP) and factory staff, to ensure their livelihoods don’t become a discussion point. I’d have expected there also (can) be some sort of inflation indexing to the cap to protect against the pre agreed cost categories that cannot be controlled by the team.
9th June 2022, 10:16
It would be impossible to keep staffing costs excluded (or safe) from the budget cap Xmyass.
Excluding staffing from the budgeting aspect would effectively lower the budget cap to significantly less than half of what it is now, as HR is by far most teams’ largest ongoing expense.
There simply isn’t enough left to cut back on to stay within budget – especially not this far into the year.
Equally, if the budget cap were raised, what is the first thing the teams would spend it on, do you think?
Right – staff. More people get more work done in less time.
Budgeting = compromise and sacrifice.
The article notes above that there is some compensation for inflation built into the budget cap already – but as the budget cap decreases each year, it’s still down to the teams to make cuts and increase efficiency where they can so that they stay under the cap.
Provided F1 don’t ruin the whole concept and raise the cap this year, next year the teams will have $5m less to spend than they did this year – and nothing’s going to be getting any cheaper.
Thus is the challenge of working within a restrictive budget – just as most of F1’s smaller teams have been doing for as long as F1 has existed.
9th June 2022, 9:35
I don’t know how much these comments are about not able to use enough resources to fight for the championship. Of course big teams want to spent every penny and every working hour possible to win the title. And now fia has limited their spending and all of those 3 (Ferrari, Red Bull, Mercedes) think what if the other team will use more money and will be able to develop their car to win the championship but going over budget. Because if smaller teams can stay within the gap so can the big teams. They just don’t want to become any smaller than they are now.
9th June 2022, 11:24
Not sure what F1 have to gain by keeping the status quo. It is clear that development and financial plans were locked in well before inflationary issues were becoming an issue so unless something is done most teams will be forced into mass redundancies which will be a bad look. You can say why didn’t you have a contingency, but a top tier F1 team isn’t going to leave 5%+ contingency if a championship is on the line.
If there was a glut of prospective new F1 teams coming along, mass redundancies wouldn’t be as much of an issue as like-for-like employment opportunities will remain. However if there aren’t then you will lose a lot of skilled people who will take their high value skills elsewhere and won’t return.
If you were really machiavellian about this, F1 could be trying this angle to force teams to be more accommodating to new entrants, given the cool reception that Andretti have had.
However what strikes me as really odd about this is that the budget cap appears to be set in nominal terms rather than real terms. Unless it was and freight costs are going up well above any suitable index.
9th June 2022, 12:06
Really, @chimaera2003? How about the importance of respecting and adhering to the regulations? The very same ones that F1 and the teams themselves created….
How about relevance – F1 teams are private businesses just like the butcher, baker and candle stick maker are. They exist within the real world and are bound to local and global economies. They don’t exist in a bubble, so must be prepared to suffer the real-world consequences of their budgeting decisions.
Mass redundancies aren’t the only solution – cutting work hours would reduce expenditure without costing any jobs at all. Staff accepting pay freezes and cuts would also provide some assistance.
Remember it’s still a choice to work in F1 – you could negotiate a reduced pay just to stay in your job – or, depending on how much money you want, you may decide that leaving the industry (or at least that particular team) may be most beneficial to you.
The wider issue is if they do provide financial ‘relief’ this year, then they are just deferring the problem and it will be even bigger next year.
9th June 2022, 13:25
I have replied to this further below in the thread.
Christopher Rehn (@chrischrill)
9th June 2022, 12:01
If inflation is at roughly 6% (and they knew this back in November), then staying within 5% should be super easy. Cutting down on some development, taking fewer staff to tracks, and being lucky with few incidents should be all it takes to stay within the cap. Shooting past 5% would practically prove you never meant to stick to the cap anyway.
9th June 2022, 12:11
I’m pretty confident that at least 2 teams (likely 3) had this intention anyway, regardless of inflation or rising costs.
9th June 2022, 12:34
@chrischrill I don’t think back in November they could have possibly predicted 6% inflation. If they had known, then they would have planned for it back then and this wouldn’t be an issue now.
9th June 2022, 15:36
If they’d seen 6% coming back then, they’d just have demanded more money sooner.
9th June 2022, 15:43
A cynical assumption on your part.
9th June 2022, 16:16
Yeah. That’s what happens when you’ve been watching F1 for so long….
They are never upset when they receive money – only when they have to spend it on something that doesn’t make their cars faster.
9th June 2022, 16:41
Lol for sure but of course as with you, having been watching F1 for so long, we should acknowledge that this is a wholly new chapter now with caps that had been talked about for decades that ‘were never going to be able to be policed,’ fairer money distribution, and cars much less clean air dependent. Unique season for those reasons alone and then throw in the record breaking inflation etc etc. No reason why next season shouldn’t see much much more of the dust settled once teams can genuinely adapt to the world’s new realities. I don’t expect next season to hear any of the kind of talk that is going around now re caps and surprise travel and freight expenses.
9th June 2022, 17:03
F1 teams aren’t children at their first day of school. They can handle all of that stuff perfectly well if they desire.
They have the money, the skills, the knowledge – and the ability to procure whatever they don’t have.
And they’ve already spent a year under a budget cap anyway.
Next year will be more of the same, I expect. Regardless of the status of the Russia/Ukraine thing (which could still go either way) there will be things that come up that weren’t foreseen in November this year.
A real danger is that F1 may set a precedent if they provide relief this year, and then just like that the whole idea of a budget cap is dead. Just like F1’s sporting rules, there would be exceptions for this, that and something else that teams will work very hard to exploit.
With costs continuing to rise, teams will inevitably need to make further cuts regardless.
Raising the cap or providing handouts only makes it even harder later on.
9th June 2022, 17:16
No they aren’t children which puts into perspective that if there is an issue that has caught them off guard well there must be valid reasons for that, and of course we know it is because of the unforeseen size of increase in expenditures that have been too new for them to have been able to account for them in this year’s budgets, and which will likely only get worse this season. There is no reason F1 couldn’t help them this year on a one-off basis and with full explanation that for next season these huge rates for freight and travel etc must be included in their budgets (like the teams would need reminding anyway). No, the teams would only look foolish asking for handouts next year if no big financial curve balls were thrown at them such as what has happened this year.
10th June 2022, 10:03
Of course there are reasons for that. Greed.
They spent (budgeted) too much on manpower and development and didn’t leave enough contingency. Now that is isn’t working out for them, they want to be bailed out.
And then next year when it rises again, or something else goes up ‘unexpectedly’….?
“Oh, well, you gave us extra last year… So we need more again this year.”
The teams have no problem with looking foolish if it helps them to win.
9th June 2022, 12:31
Okay…. the 140M was obviously based on adding amounts for various outlays together and then letting teams decide how to spend the total. Reduce the 140M by the amount anticipated for freight and allow teams to spend actual costs for freight.
Then (and I can’t believe teams aren’t clever enough to do this sort of thing already), make drivers pay for all crash damage but add ‘bonuses’ for crashing to the contracts to offset. LoL
9th June 2022, 12:51
Just a few thoughts. For one, I’d throw out anything Otmar Szafnauer has said as he thinks inflation is ‘a little over 2 1/2%.’ Not sure what world he is living in. Secondly, I don’t understand why this has to be a discussion about raising the cap when some teams can’t even meet the cap. That to me seems obviously an unfairness to the lesser teams who would not benefit from a rise in the cap. Why doesn’t F1 just cut a 5 mill cheque to each team to compensate for the force majeure level of inflation that has hit the globe? It’s not like they can’t afford it and it would help keep a seamless season to carry on without the strife of penalties and/or job reductions. Again, this a force majeure situation. F1 has the money so they are fortunate that they don’t need to have this global issue wreak havoc on the season if they so choose. If the globe is looking to be in the same boat into next season well then the teams will be able to budget and adjust unlike this season when they could not possibly have foreseen this level of turmoil.
9th June 2022, 15:41
That is entirely debatable.
Which, strangely enough, is exactly what the teams are doing.
Some would say that this is just the global economy being the global economy.
Nothing to see here, move along, folks…
9th June 2022, 15:49
Yeah ‘some’ with blinders on I suppose. The fact remains the whole globe has been caught out with what has happened since Putin invaded Ukraine. The people that might say it’s just the economy being the economy, and nothing to see here, are still paying record rates at the gas station and the grocery store. There is undeniably something to see here, even for those who are not financially strained in spite of the high cost of living now.
9th June 2022, 16:27
Exactly @robbie. The entire world is experiencing it, not just F1 – which means there is no reason for F1 to need special treatment for it.
Fuel prices have gone up and down forever (generally up). Grocery prices too are on a constant rise with changing inflation and are largely affected by weather, climate, natural disasters, other such natural forces and many human-induced ones.
The global economy is volatile at the best of times….
So what makes this any different?
Who thinks things are all going to ‘go back to normal’ when the war stops?
This is normal.
9th June 2022, 16:51
Hmm I don’t think it is just F1 that is (or for all we know isn’t) looking into special treatment. Good ole ordinary citizens around the world are, or at least should be, putting pressure on their governments to take measures to provide relief. Eg. here in Ontario Canada the provincial government is going to take some tax off the price of a litre of gas at the pump. Governments, who of course suffered in tax revenues during the pandemic but are now raking it in off the high tax revenues from the high cost of goods, can provide rebates for folks of certain levels of income etc.
As far as what will be normal? For sure I don’t think things will go back to the way they were, but I also fully expect things such as gasoline to go back down somewhat eventually. We’ll just have to see how it all plays out but one thing is for sure, it can’t get to the point where we’re all just hiding in our basements and not generating much of an economy at all.
9th June 2022, 16:04
At this point in time, I think we’re already at a stage where it would be difficult to put forward a solid argument against this being a force majeure situation. There are no signs of it slowing down either and by the end of the season, it may be that it’s impossible to put forward a vaguely decent argument against it.
If they try to heavily punish the teams that go over the cap, this will end up in court and I wouldn’t want to be stood in a court room saying “this is just the global economy being the global economy.”
9th June 2022, 16:39
What would a court do about it, @petebaldwin? What can they ‘win?’
The teams collectively created and agreed to the budgetary conditions that F1 now operates under and the rules which control it all.
Legally binding contracts have no doubt cemented everything firmly in place.
As one of the 4 teams in opposition of raising the cap, I would be more than happy to stand up in court with my contract, FOM documentation and the notes/audio/video of all the meetings that took place to agree on these financial regulations.
There’s nothing stopping the individual teams from paying more and exceeding the cap, except the threat of penalties which they themselves made up. Could be financial, sporting or a combination of the two.
What is it worth to them to breach the rules, though – that’s what they need to decide.
9th June 2022, 19:45
Isn’t Ottmar with Alfa Romeo now? Who are based in Switzerland? Well, that 2,5 % number is about what they currently have for inflation over there @Robbie, so maybe you just need to educate yourself a bit more and look outside of England for a change …
9th June 2022, 22:06
@bascb Maybe you should appreciate that the inflation rate in Switzerland would have little to do with the global travel and freight expenses of which Horner speaks, and the effect that is having on all the teams. If OS wants to quote a low Switzerland rate to shade things to make his point that’s up to him. And of course I’m sure you realize that while 2.5, or 6, or even 10% might not sound like a lot, those are averages, and indeed I’m sure you’re aware fuel itself has gone up way way more than that. Eg here in Ontario Canada we are now paying $2.10 per litre for gasoline and only half a year ago we were paying $1.25. That sound like 2.5% to you? You think diesel and jet fuel is only 2.5% higher? Get real.
9th June 2022, 22:40
It matters to Sauber / Alfa Romeo, because it is the country where they are based.
9th June 2022, 13:24
I agree that F1 teams exist within the real world, however I do take issue with the fact that people may be forced to lose their jobs by an artificial limit on spend rather than outright unaffordibility. If redundancies are forced as the teams can’t afford it, then your points are valid.
People are of course allowed to leave F1 if their pay and conditions worsen, I just don’t think it is in F1’s interest to lose experienced, top talent to other industries.
As an aside, I was never a huge fan of the budget cap in the first place. Given that it was sold on the basis of performance convergence between teams and making it more enticing for other teams to join F1, it hasn’t succeeded in either of these objectives (the cold reception to Andretti wanting in should worry F1). Unless F1 can deliver on the justifications behind the cost cap, I just don’t think the impact of the cost cap is worth it.
9th June 2022, 13:50
I agree, the effects on employment opportunities isnt being talked about. Its not like F1 attracts cheap labours.
9th June 2022, 15:34
People lose jobs all the time in every industry. There’s nothing special about F1.
Redundancies can be a part of life for any worker – especially so for one in such a competitive industry. Any business needs to make these decisions, and it’s always about money.
Liberty and the teams collectively chose to implement a budget cap the way they did, and this is a natural effect of that.
Ironically, if they’d included the drivers and other top 3 paid staff in the cap as well they’d now have heaps of headroom for temporary cutbacks.
I don’t think F1 would really miss too many people who wouldn’t take a pay cut during a ‘crisis’ to keep doing what they enjoy and specialise in. Everyone is replaceable, after all.
I’m totally for a budget cap, I just think they’ve done it poorly.
To me, it was less about car performance convergence and field spread (that’s what technical and sporting regs are for) and more about closing F1 off to outsiders and turning existing teams into franchises that can be sold for a profit, in much the same way as other series have done before.
Performance was never going to close up substantially as the teams are still vastly different in scale and technical capability, and these cars were allowed to be developed prior to the cap’s introduction.
As for Andretti – if they can meet the anti-dilution fee that came with the budget cap and also demonstrate that they can bring substantially more commercial money in to F1, then I’m sure they’d be welcome. But if they can’t, then the other teams don’t want them there – and they have more than enough power now to deny their entry.
It won’t worry F1, because F1 is in on it.
9th June 2022, 13:49
The answer shouldn’t be that difficult (yes, yes, it’s F1 everything is difficult). If inflation trips over a certain percentage during the season (say 2.5% for argument’s sake), then the in-season cap is then increased with inflation. If it stays below that point, then nothing is adjusted until the end of the season, at which point it is adjusted regardless of conditions.
It’s asinine to not adjust for global conditions the teams cannot plan for.
9th June 2022, 14:20
@hobo They could have just set the budget cap in real terms (with suitbale reference year) rather than nominal. Although this has complications in that different countries will have different rates of CPI and it would require an element of retrospective checking. Even allowing for that this is still better than nominal. However they may have done this already but the freight costs could be going up well above inflation.
Phil Norman (@phil-f1-21)
9th June 2022, 14:58
I completely understand the unfairness to the smaller teams who might not get anywhere near the cap limit. However, I think the real problem is making sure there is a level playing field between the top teams this year. We don’t want to have a situation where one team gets away with spending more than another with this ending in better results.
So the obvious option is to stick with the cap. They are then all dealing with the same budget and have to manage it. An alternative maybe to allow them to overspend but for every £1m over they have to donate £5m to a pot for the smalller teams i.e. £5m over their individual donation is £25m. This to be distributed next season.
9th June 2022, 15:55
We all know how this is going to play out eventually. Mercedes, Ferrari and Red Bull are going to go over the cap and that’ll leave F1 with the decision of how to punish the 3 biggest teams without causing major issues for themselves.
I do have some sympathy for the teams… It’s easy to say “the cap stays at it is – they just have to manage their money better” but we don’t know what their financial situation is. For the teams that wouldn’t be hitting the cap, they need to find more money to cover their costs. For the teams that have lots of staff, it’s more difficult. It’s a bit simplistic to say “stop development” because you still have to pay for the equipment and the staff anyway. Firing staff would mean paying redundancy payments etc which depending on their time in the role, could cost more than simply keeping them.
Where my sympathy runs out though (both for the teams, the FIA and the sport) is to hear the teams questioning what the penalties are, what happens in the case of force majeure and so on. They’ve been arguing over the cost cap for years – are you seriously telling me that no-one thought to clarify this stuff during the discussions? That’s next-level stupidity if that’s the case!
Ultimately, if the punishments aren’t set in stone and Ferrari, Mercedes and Red Bull all go over the cap, the punishments are going to be extremely lenient. There is no chance they will risk upsetting the 3 biggest teams, excluding all of the drivers in the title fight, deciding the Championship based on financial issues or anything like that. They’ll say “you overspent so you’re fined x amount.”
9th June 2022, 16:13
@petebaldwin But you just argued above that this is indeed a force majeure situation or certainly will be deemed so later on, so in that sense I find it hard to imagine anything but lenient punishments for this particular season. I’m going to assume this is still going to be an issue for next year except that the difference is the teams will actually be able to plan ahead for the massive freight and travel costs that they could not have foreseen for this year. I guess I’m just surprised that a situation that has caught the whole world off guard somehow just needs be swept under the carpet because Horner, and now others, are expressing the reality of the financial strain to F1 teams now under caps. And he’s actually really talking more about the seven teams that aren’t the top three teams.
10th June 2022, 1:40
I’m actually excited to see what happens at the end of the season, I love the fact that teams may have to stop development or not attend races. (I also believe there is end of year distribution penalties for teams not turning up to races). HAAS could still be in with a chance! Everyone else in the world is facing the same issues and we all have to deal with it, so should F1. Allowing them to spend more is only going to further increase inflation anyway.
The more important issue for me is when do the actual spends get analysed or submitted? As Horner suggests, if the penalties include points deductions, which I think they should, and budgets don’t get audited or submitted until after the last race, then the championship could well be decided long after the final flag has fallen.
Hopefully there is some mid season submissions and auditing done so the regulators have some insight into teams that are likely to run close to the cap, so that they can be monitored more closely towards the end of the season? They should at least be able to audit the championship/s contenders prior to the final race, or earlier if they look like being decided before the final race.
As far as points penalties go, my suggestion is
championship points / (1 +n) where n equals every $1m over the cap.
That way the penalty is biggest for going over the cap, encouraging teams to treat the cap the same way as a driver treats a concrete wall.
bull mello (@bullmello)
10th June 2022, 2:12
This gets to the part of force grandeur of the cheating of the moneys by the hoi polloi, not of the wonders of the racing itself.
Maybe Red Bull, Ferrari or Mercedes are the top spenders. But, even Toyota spent so much more, and lost the most on the track.
Accounting hyperbole is the war the teams nevertheless fight, to divide the winners into losers.
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