Effects of the Budget Cap

[Everso Biggyballies]

Bottom post of the previous page:

The shit seems to be hitting the fan in terms of the smaller teams unwilling to agree with mainly Ferrari and Red Bull Bull, who are seeking adjustments related to increased inflation and increased costs resulting from the conflict in Ukraine, citing 'force majeure'.

In particular Alfa Haas and Alpine are digging in deep, suggesting that inflation was already high when they set their budgets at the end of last year. They all say the writing was on the wall and they knew habits of old would have to be reigned in to meet the objectives. They made sacrifices early knowing the difficulties ahead were not going to disappear.

I have to say I agree with the smaller teams on this one. Vasseur of Alfa summed it up well, saying his team, on seeing costs escalating faster than anticipated made early decisions to not bring updates to every race and not run their wind tunnel so much.

“For me, it’s absolutely not a case of force majeure, because inflation is not a case of force majeure,” reasoned Frederic Vasseur, Alfa Romeo Sauber team boss.

“We knew perfectly in November or October, when we did the budget, that we will have inflation.

“I think that at one stage that we have to agree on the fact that we won’t try to change the rule.”

Alfa Romeo Sauber is one of the teams which has not had to trim its operation in order to meet the budget cap, and is instead working up to the $140 million figure – which is set to become $135 million next year.

It gives Vasseur a different perspective to the likes of Christian Horner and Mattia Binotto at Red Bull and Ferrari respectively, who’ve both had to drastically reduce their costs since the introduction of the financial regulations last year.

“The difference is that we are not speaking about budget cap, we are speaking about budgets on our side,” Vasseur noted.

“It means that I won’t be able to overspend what I have.

“And I can understand their situation, but if we have some increase on the energy or freight, the best solution is to switch off the wind tunnel, to stop to bring updates every single weekend.

“We are in this situation, and sooner or later we will have to stop the development of the car because we will be at the limit of our budget.

“I think everybody can do the same.”

Alpine team principal Otmar Szafnauer is of a similar view.

With the way decisions have to be made I think 80% of the teams have to agree to any change. It seems that wont happen. Horner is bleating that teams might have to miss races to meet the budget cap. As I said previously that isnt going to happen. Are Red Bull going to sit at home while others race, watching there championship lead be eroded? Not a chance.

Interesting times ahead I feel. Something is going to have to give. The difference is I think that the smaller teams are not in effect having to change the way they have historically operated.... their meeting the cost cap is not in the same ballpark as the major teams who have had to cut costs by 50% or more. At the end of the day that is what the budget cap was always aimed at achieving, and the numbers arrived at were as a result of months of discussion and ultimate agreement of all the teams.

This is an article with no paywall or restrictions on views (can be read by all) which explains the current situation well.
https://www.speedcafe.com/2022/06/04/ri ... -increase/

[Ruslan]

In particular Alfa Haas and Alpine are digging in deep, suggesting that inflation was already high when they set their budgets at the end of last year. They all say the writing was on the wall and they knew habits of old would have to be reigned in to meet the objectives. They made sacrifices early knowing the difficulties ahead were not going to disappear.

Well, in my view the whole purpose of a budget cap is to keep teams like Red Bull, Ferrari and Mercedes from buying world championships, like they have repeatedly done in the past.

So, makes perfect strategic sense for the smaller teams to dig in their heals on this one.

The question is: has only Red Bull and Ferrari overspent? This could have a big effect on the championship. How about Mercedes?

[XcraigX]

Red Bull floor shape radically different as spied during Perez recovered vehicle from Monaco.

Now the larger teams will be tripping over themselves to copy this design and get it pushed out as an upgrade. Will it be worth the budget cap violation fine? Something tells me Merc and Ferrari will pay it.

[Everso Biggyballies]

McLaren has become the latest team to confirm it will exceed the Formula 1 budget cap in 2022.

Team principal Andreas Seidl said rising costs outside of the team’s control relating to freight and energy will make it impossible for them not to exceed the maximum spending limit.

“For us as a team that planned to run at the cap at the beginning of the year, with all these unexpected costs that came up we are at a position where we can’t make the cap anymore,” he said. “You have certain fixed costs in order to start the season, you have fixed costs with your resources which you have in place, the personnel and so on, which you can’t adjust any more.

“With this unexpected huge increase of costs, mainly on the freight side and utility bills, we’re in the same position as some other teams, so we can’t make the cap this year.”

Nuts and bolts of it some teams are operating to a budget, others are operating to a budget cap. Haas has a budget of less than the 140million cap, so to stay in budget with all the freight and power variances have had to trim back on planned upgrades so as not to overspend . Which they have done. (No doubt compounded by the loss of ongoing Russian money)

On the other hand teams like McLaren, Red Bull Ferrari and Merc have spent their planned upgrade budget (ie Merc chasing a porpoising fix, Red Bull with their fancy floor as above etc. So they are using the power/freight as the issue that is taking them over the cap.

Wrong. What is taking them over the cap is that knowing the freight was blowing out 3 months ago as they all did, they did not trim in other areas to compensate. Now they have continued to spend on upgrades they are on the wrong side of the limit overall they are calling foul. Its nothing to do with anything but poor financial planning. The mitigating area is that they have all made cut to their operations to get down to 140million whereas team like Haas Williams, Alpine were already at that sort of level, due to already running at a shoestring level.

[Michael Ferner]

So, what happens if they overspend? Will there be a penalty? And what sort of a penalty - somehow I can't imagine they will have to pay a fine!

[Everso Biggyballies]

So, what happens if they overspend? Will there be a penalty? And what sort of a penalty - somehow I can't imagine they will have to pay a fine!

Keep up please Michael....

..... yes, spend too much money and the penalty is to spend more in fines..... up the page is a breakdown of the penalties, but here again

A fine through to a deduction of points to a DSQ depending on the level of breach.

Will the teams be penalised if they spend too much?

Put simply, yes. There are three categories of potential breaches. The first is a procedural breach, such as a team submitting their accounts late or inaccurately. The second is a minor overspend breach, when a team’s report shows they have exceeded the cost cap by less than 5 percent or the Cost Cap Administration finds they have exceeded that percentage. The third is a material overspend breach, where a team’s submission of their accounts or an investigation by the panel shows they have exceeded the cost cap by more than 5 percent.

Once a breach has been identified, three forms of penalty are possible. The first is a financial penalty. The value of the fine will be determined on a case-by-case basis. The second is a minor sporting penalty which could be a combination of a reprimand, deduction of constructors and/or drivers points, a ban for a certain number of races, limitations on testing – both CFD and on-track – and/or a reduction of their cost cap.

The third is the material sporting penalty, which is the most serious as it can involve all of the above plus exclusion from the World Championship.

https://www.formula1.com/en/latest/arti ... seCHO.html

* The article linked is a couple of years old but is a good source of info as to what is/ isnt included in the cap, how its regulated (by the 'Cost Cap Administration) and how the teams have to file reports

[Aty]

Speaking as an anti-budget person, it appears some people are forgetting that with extremely inadequate testing, a lot can, and will go wrong as time goes on. Take porpoising - a word of this season so far. All teams were surprised with its impact. How do you budget for fixing something of that kind?

Today budget is there, whether it makes sense or not, yet battery and variety of technical constrains remained and expanded. It all seems messy to me. I am not against restrained spending, but there are better ways to do that IMHO. Budgetary imposition upon teams is probably worst of them.

[Michael Ferner]

I'm sorry Master Biggyballies [snicker in the backrows], I promise I will pay attention henceforth!

I do wonder, however, about the effectiveness of some of those penalties: a race ban? Sounds like shooting your own foot...

[White six]

I don't think anyone will be complaining about gaffa tape usage by the end of the season

[MonteCristo]

I don't think anyone will be complaining about gaffa tape usage by the end of the season

Some might be reduced to picking gum out of the soles of their shoes.

[White six]

I don't think anyone will be complaining about gaffa tape usage by the end of the season

Some might be reduced to picking gum out of the soles of their shoes.

Haas have asked loctite about a sponsorship deal, save a few quid

[Everso Biggyballies]

FIA agrees to budget cap compromise

After all the discussions and arguments between the larger and smaller teams over whether budget cap increases were necessary, with predictably the smaller budget teams saying they have made other cuts in their budgets to compensate for the freight and inflation increases over the larger resourced teams saying they need more money and rather than limit upgrades to cover just want the cap raised, today the FIA have announced an inflation related increase of 3.1%. It seems that the required agreement of 9 of the 10 teams has been reached and thus the increase has been approved.
It isnt the significant amount the larger teams wanted.

However, the FIA confirmed:

.... that at the meeting it “brought a proposal to the Commission that was approved by the required majority with support from the FIA, Formula 1 and nine of the teams.” A contingency for inflation was originally outlined at 3% from 2023 onwards, but an agreement has now been reach to introduce that figure at 3.1% this season.

“The proposal recognizes the unexpected increase of costs incurred by teams in 2022, thereby permitting indexation at a limited rate of 3.1% (which takes into account the original 3% inflation threshold already set out in the regulations) and permitting compounding of this rate as from 2023. This will preserve the long-term integrity of the financial regulations.”

[Ruslan]

A reasonable adjustment.

[Everso Biggyballies]

A few more details and specifics of what went on.

Needless to say Horner has already been in the media saying it isnt enough for the bigger teams (but is too much for the smaller teams!)

"Is it enough? Not compared to inflation, and what it is today,” Horner said of the 3.1% inflation increase.

"It's not enough for us, and it's too much for the little ones. So it's a compromise, and a consensus was found in the end."

Asked if his team could still get down to the new cost cap total Horner said: "We're going to have to do everything that we can."

Under current governance rules eight out of 10 teams had to support the 3.1% proposal today, and in the end nine agreed to back it.

The only dissenter was Alpine, whose boss Otmar Szafnauer has consistently opposed any allowance for inflation.

"I'm obliged to accept it because of the governance,” Szafnauer said. “Eight teams voted, and then it goes through. And now, that's the new rule, and we've got to follow it.

"It's difficult to start changing rules in the middle of the season. The FIA believed it was a compromise."

Asked if Alpine accepted the final figure he said: "It should have stayed the same."

Alfa Romeo had also previously opposed any change to the cap, but in the end team boss Fred Vasseur supported today’s proposal.

"I think it's important to find a deal,” Vasseur said. “A deal is always a compromise. If everybody was happy or everybody was unhappy, it means that it's a good deal!

“And at the end, we need to move forward and to find a solution. The situation is critical for everybody."

Haas also supported the inflation boost despite the US-owned team being well under the original limit.

"A good compromise is a lot of unhappy people, and we achieved that!,” said Guenther Steiner.

“It's a compromise, and we had to come to a conclusion, because you cannot keep on going.

“At some stage, we needed to find the solution, and we're discussing it long enough now. So we need to move on.”

The 2022 inflation adjustment figure of 3.1% will then be added to that for a provisional total of $142.9m.

Teams also know that they can start preparing for a higher cap limit in 2023.

The original figure of $135m remains as a starting point, and with F1 aiming for 24 races an extra $3.6m will be added for the 22nd, 23rd and 24th event for a total of $138.6m.

The 2022 inflation adjustment figure of 3.1% will then be added to that for a provisional total of $142.9m.

However, that is still not the final amount for 2023, because the FIA will make a further inflation adjustment based on the G7 figure as of April 2023 – and whatever that figure is, whether it 0% or 10%, will then be added.

At least they have a reasonable compromise in place for this year and a basis for setting their budgeting for 2023

[Ruslan]

Decent article on the budget cap from Autosport: https://www.msn.com/en-us/sports/more-s ... 7a07964c5b

Few comments:
1. Vasseur: "I think F1 is in a good shape because we have the cost cap."
2. Vasseur: "We were really on the edge to lose three teams."
3. Revised budget cap is $145.5 million.
4. They added a 5% cut-off for a material breach, so $152.7
5. Mclaren will also break the original budget cap (along with Red Bull, Ferrari and Mercedes).
6. Up to seven teams were in danger of breaking the original budget cap.
7. By the way, is the budget cap in Euros or dollars? I gather dollars.
8. Adjudication by CCAP (Cost Cap Adjudication Panel) in 2023.

[Everso Biggyballies]

Decent article on the budget cap from Autosport: https://www.msn.com/en-us/sports/more-s ... 7a07964c5b


7. By the way, is the budget cap in Euros or dollars? I gather dollars.

US Dorrah.