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Old 25 May 2022, 10:15 (Ref:4111250)   #1
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The Budget Cap

I see on the Autosport website that Christian Horner is claiming that “Probably about seven of the teams probably need to miss the last four races to come within the cap this year, from the consensus that there has been up and down the paddock.

“It’s not just about the big teams now, it's teams in the middle of the field that are really struggling with the inflationary rate that we're seeing that could even get worse in the second half of the year..."

Whereas Alpine boss Otmar Szafnauer is dead against raising the cap and says that all the teams need to do is reduce the amount of money spent on development to help cover the increase in other costs.

I must admit that with all of the talk surrounding costs & the budget cap recently I had started to wonder what would happen towards the end of the season if a team was to suffer expensive accident damage and couldn't afford (within the cost cap) to carry out the repairs. Would they b able to call 'force majeur' (sp?) and not run the car or are they contractually obliged to attend & run at every Grand Prix?
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Old 25 May 2022, 11:27 (Ref:4111262)   #2
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Originally Posted by VIVA GT View Post
I see on the Autosport website that Christian Horner is claiming that [I]“Probably about seven of the teams probably need to miss the last four races to come within the cap this year, from the consensus that there has been up and down the paddock.
I wonder who he thinks the seven teams are?

If we assume 1-4 are Red Bull, Ferrari, Mercedes and McLaren (who have requested an inflationary adjustment). You can add Alpha Tauri to support the Red Bull position and Aston Martin have said they support an inflation adjustment.

Alfa Romeo, Alpine, Haas and Williams have all voted against the adjustment though.


Sanctions for breaking the cap are not precisely defined, but if the breach is serious a team could be disqualified from the championship.
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Old 25 May 2022, 12:21 (Ref:4111267)   #3
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I don't discount the inflation topic. But at the same time, having to operate under a budget is a reality for nearly 100% of the people and businesses on this planet. It is not rocket science. But people (and businesses) make poor financial decisions every day. And some F1 teams might do the same.

Nothing prevents teams from spending all of their budget on hookers and blow (actually I think those are not covered by the budget cap ) and then crying that they are out of money late in the season. Look at who and who has not been bringing updates to races and how significant those updates are. I suspect teams like Williams, Haas, etc. might be in a better place as they have been used to living on pennies for years, while larger teams may have challenges to downsizing and not just falling back on "lets dig into our deep pockets" when they feel the need. The big teams are on a diet and they are now feeling some sugar withdrawal. Just put a lock on the kitchen door.

My general feeling is that those who are complaining the most now, have been on a fast and furious period of mid-season development (like the good ole days) and are looking at their balance sheet and are getting worried. I have no doubt they could make it to the end of the season. They would be idiots to not have run those numbers. But they probably don't like what the accountants are telling them. It probably looks like they may need to stop (or severely limit) development and tighten their belts. But the alternative is to whine and complain that they need more money.

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Old 25 May 2022, 12:23 (Ref:4111268)   #4
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Sounds like it is working.
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Old 25 May 2022, 12:30 (Ref:4111270)   #5
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Originally Posted by VIVA GT View Post
I see on the Autosport website that Christian Horner is claiming that [I]“Probably about seven of the teams probably need to miss the last four races to come within the cap this year, from the consensus that there has been up and down the paddock.
And this would be fantastic! It would be interesting to see some new race winners for teams who were able to live within the budget.

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Old 25 May 2022, 12:32 (Ref:4111271)   #6
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Freight rates have gone through the roof, and utilities and fuel of course increased a lot too. But as the guy from Alpine said (I cant remember where I read the actual quote) there is nothing stopping teams reducing other areas of their budget to cover such costs.

This might of course mean cuts to R&D and car upgrades - which in particular might not suit the teams fighting it out for the championship. I always take anything that Horner says with a pinch of salt. All team principals are self serving, but with him it seems more blatant than with others.
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Old 25 May 2022, 12:51 (Ref:4111272)   #7
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I think his statement that ‘seven teams might have to miss races’ sort of undermines his argument, because that means three teams are going to stay within the budget cap perfectly and prove it is perfectly possible to run an F1 team within the budget cap. If these seven teams (and really it’s three teams) have spent too much money you’d have to say they have nobody to blame but themselves (although you would get more points from 18 races in a Red Bull than 22 races in a Haas).

In the future I would certainly not like to see teams skipping races to stay within a budget cap because it is worth it for the increased car performance from development on a regular basis, but in a one-off year it would be interesting and fairer than allowing a greater budget cap to advantage the teams that have made the mistake of spending too much. Not that I think it is particularly likely that any team will have to miss races to stay within the budget cap.
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Old 25 May 2022, 12:52 (Ref:4111273)   #8
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The budget cap is good in theory, but when you have 7.8% and rising inflation in the UK where a lot of the teams are based, and staff salaries (other than a few, specific exceptions) are included in the budget cap, then it makes things very difficult.

Changing the total size of the workforce is not the work of a few months, and in the short-term will probably cost significantly more than it would save. It's not realistic to expect Red Bull to lay-off design and engineering staff at a few months notice.

Add to that the fact that the increase in cost faced by the teams is likely far in excess of general inflation, due to their reliance on specific industries such as shipping and fuel which have seen enormous price increases over the last few years. General freight costs have doubled since this time last year.
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Old 25 May 2022, 13:05 (Ref:4111277)   #9
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Surely if inflation is a problem under a budget cap then it would have also been a problem under a no budget cap system right?

spending their way out of every problem would only serve to increase the divide between have and have not teams and imo that system already proved itself to be unsustainable.

That said, I’m down for dropping 4 races from the calendar!
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Old 25 May 2022, 13:22 (Ref:4111281)   #10
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The budget cap is good in theory, but when you have 7.8% and rising inflation in the UK where a lot of the teams are based, and staff salaries (other than a few, specific exceptions) are included in the budget cap, then it makes things very difficult.

Changing the total size of the workforce is not the work of a few months, and in the short-term will probably cost significantly more than it would save. It's not realistic to expect Red Bull to lay-off design and engineering staff at a few months notice.

Add to that the fact that the increase in cost faced by the teams is likely far in excess of general inflation, due to their reliance on specific industries such as shipping and fuel which have seen enormous price increases over the last few years. General freight costs have doubled since this time last year.
This is the problem with trying to artificially control markets.
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Old 25 May 2022, 13:58 (Ref:4111287)   #11
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The budget cap is good in theory, but when you have 7.8% and rising inflation in the UK where a lot of the teams are based, and staff salaries (other than a few, specific exceptions) are included in the budget cap, then it makes things very difficult.
I can't speak for the UK, but here in the US, I don't think people are typically getting salary adjustments mid-year due to inflation. So the "employee pay" part is real year to year, but I don't see it mid-year. That is why I think year to year inflation adjustments do make sense.

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Freight rates have gone through the roof, and utilities and fuel of course increased a lot too.
I need to dig into the FIA F1 financial regulations, but there is a lot of exclusions. For example cost of airfare and lodging for testing and races is excluded from the cap. Same goes to things like utilities for your factory, etc. What it not clear to me is who all pays for freight to/from races. I think the FOM manages that (DHL?) but I don't know if that is a fixed cost value that can be planned for or is variable over the duration of the season. I am sure someone here knows the details on how freight costs really works.

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Old 25 May 2022, 14:36 (Ref:4111292)   #12
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I need to dig into the FIA F1 financial regulations, but there is a lot of exclusions. For example cost of airfare and lodging for testing and races is excluded from the cap. Same goes to things like utilities for your factory, etc. What it not clear to me is who all pays for freight to/from races. I think the FOM manages that (DHL?) but I don't know if that is a fixed cost value that can be planned for or is variable over the duration of the season. I am sure someone here knows the details on how freight costs really works.

Richard

Yeah - this is from 2019:

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If it’s not a back-to-back race weekend, cars will be flown back to the teams’ factories to be repainted. Suspension and wiring is checked and replaced if needed and then the machinery is packed once again and driven to the airport. Ferrari, Toro Rosso and Sauber’s cargo will meet at a mainland European airport, while the British teams’ goods arrive at the East Midlands airport. From there, the crates are handed over to DHL, F1’s official logistics partner, and are loaded onto cargo planes which are chartered by FOM. The teams still have to pay for this service, though.
https://f1destinations.com/the-logistics-of-formula-1/

Not sure whether anything has changed since 2019. It's not something that I have thought about much before, even though I am tenuously linked to the shipping industry.
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Old 25 May 2022, 14:43 (Ref:4111293)   #13
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Originally Posted by Richard Casto View Post
I can't speak for the UK, but here in the US, I don't think people are typically getting salary adjustments mid-year due to inflation. So the "employee pay" part is real year to year, but I don't see it mid-year. That is why I think year to year inflation adjustments do make sense.
I don't know how the F1 teams operate, but it is very typical for UK business to have a pay review for the beginning of the new financial year which is April.
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Old 25 May 2022, 14:54 (Ref:4111294)   #14
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I don't know how the F1 teams operate, but it is very typical for UK business to have a pay review for the beginning of the new financial year which is April.
So I can imagine some expected increased being planned for. Then it would be higher than anticipated inflation making it hard. But in the end, they should include some wiggle room in their budget.

I wonder if the economy was to go the other way, would team ask for the budgets to be reduced?

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Old 25 May 2022, 15:02 (Ref:4111295)   #15
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so a thought occurred to me which was how does a long term contract not already have a clause in it to mitigate the risk of inflation and/or rapid inflation to all involved parties? particularly an agreement negotiated/amended during covid where supply shortages and inflationary pressures were already on the horizon?

so i looked, and while this isnt from the rule book per say, according to this it does.

from the F1 web site:

There was a mechanism in the regulations which allows for an increase in the cap to take into account general cost inflation from 2024 onwards. This has been brought forward to apply in 2021-23, if inflation is running at over 3%.

https://www.formula1.com/en/latest/a...l4PyVZtUJ.html

from 2020 and while things may have changed, the need to have an inflation mechanism would not have changed...

so if the mechanism does exists then we will see budgets increased as a matter of course...that then begets the question about what is Horner on about this time?

is he just starting the conversation in order to help activate this clause of the budget cap?

or is he just looking to spend his way to the title? which if you have an abundance of money losing value in whatever bank account it is sitting in, that you are better off spending it today at 7.8% inflation and before it hits 10+% in the future (and the future in this case potentially being a few months from now) makes a lot of financial sense.

anyways and as always, games within games!
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