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Over 1,500 F1 jobs at risk due to budget cap

NEWS STORY
21/04/2020

With five UK teams having placed a large percentage of their workforces on the taxpayer-funded furlough scheme - as has F1 itself which has placed 50% of its staff on the scheme - there is already fear amongst employees that the financial crisis that will surely follow the pandemic could hit the sport hard leading to redundancies.

However, the planned budget cap is already set to hit the sport hard, with the UK based teams likely to lose 1,599 employees according to new research.

Originally set at $175m (141m), the budget cap - which is still set to be introduced next season even though the other planned rule changes have been delayed for a year (or two) - was subsequently reduced to $150m (120m).

However, even before the coronavirus some teams were arguing for it to be cut further, with some seeking a $100m (80m) limit, among them McLaren boss, Zak Brown, who told the BBC that otherwise he "could see four teams disappearing".

The Daily Telegraph reports that according to the latest accounts filed by the UK-based teams, the average cost (in 2018) was 193.4m ($236m), while Brackley-based Mercedes led the way courtesy of its 321m ($392m) budget.

After research and development, salaries are the biggest expense for the teams and according to the filings the teams employ a total of 4,276 staff who are paid 372m.

Worryingly, the budget cap could see staffing levels reduced by 37.4%, with 'Motorsport Valley', which covers the region in Northamptonshire and Oxfordshire where most of the UK-based teams are located, likely to be the hardest hit.

The Telegraph arrived at its estimate of the number of jobs lost by calculating the percentage of total expenses that staff costs represent on the teams’ latest accounts. The percentage is then applied to the proposed $150m to calculate how much money teams would spend on staff under the cap.

That figure is then divided by the current average salary to give the number of staff each team would employ under the cap, the result is then deducted from the number of current employees to reveal how many jobs would need to be cut.

Though the exact cap has yet to be agreed, it is already known that staff who work on the design, development and manufacture of the engines are excluded from the cap as are marketing staff, senior management and driver salaries.

While teams are free to hire more staff by increasing what they spend as a percentage of their total costs, this would impact the money there is available for research and development and other key aspects of the team.

Alternatively, more staff could be retained by reducing their pay, but this wouldn't be a good look if drivers were still being paid the big bucks.

"If the top teams have to make hundreds of layoffs in light of the budget cap and we continue to pay the drivers several tens of millions per year, I find that there is something not right about that," said Cyril Abiteboul recently, his star driver Daniel Ricciardo understood to be on 20m a year.

The likes of Mercedes, Ferrari, Renault and McLaren could transfer staff to other parts of their companies, indeed McLaren and Red Bull have subsidiaries that work in other technology areas, however, the fact is that the entire automotive industry is likely to be hit hard by the pandemic and what follows.

While the teams are still bickering over the cap, the fact is that it has been needed for some time, indeed better men than the sport's current management tried and failed to make it work.

Fact is, with the teams, the manufacturers and F1 itself likely to take a financial pounding in the months ahead, something needs to be done, for as it is the sport simply isn't sustainable, not to mention the fact that currently it is essentially a three-tier competition.

Sadly, however, much like the pandemic itself, there are likely to be a lot of good people about to suffer.

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READERS COMMENTS

 

1. Posted by alvarezh3, 22/04/2020 16:57

"Just read an article on Forbes, written by Peter Ferrara back in 2013 that includes quotes from George Gilder's book "Knowledge and Power: The Information Theory of Capitalism and How It Is Revolutionizing Our World:"

“After World War II, when ten million demobilized servicemen returned to an economy that had to be converted from a garrison state to civilian needs, economists steeled themselves for a renewed depression. A sweeping Republican victory in the Congressional election of 1946, however, brought an end to the wartime government-planning regime [overregulation]. Dropping from 42 percent of GDP to 14 percent, government spending plummeted by a total of 61 percent between 1945 and 1947. One hundred fifty thousand government regulators were laid off, along with perhaps a million other civilian employees of government."

So, was the U.S.A. to justify maintaining or starting another war in order to keep people employed? Not by any means, right?

Certainly feel sorry for those who will loose their income, unfortunately, it's either they go or additional thousands would find themselves looking for another job if, by way of loosing teams, Formula One ultimately collapses."

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2. Posted by Editor, 22/04/2020 7:51

"@ Bill Hopgood

F1 is struggling to keep the teams it already has... currently there is no hope of attracting new teams."

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3. Posted by nnails, 22/04/2020 7:49

"No budget cap. Half of the teams go bust. The sport no longer exists "

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4. Posted by NS Biker, 22/04/2020 2:54

"In a certain way, I find this article a bit disturbing.
The real question this brings up ... "where have you been and what have you been smoking ..."
Staff reduction as a result of a meaningful budget cap is a simple as A+B =C. If you artificially limit the size of C, then either A, B or a combination, will NEED to be reduced. And yes, this translates into Italian and German.
Impending staff reductions resulting from a budget cap are, or should be, old news. The question is who, where and when, but the inevitability of it should be no surprise. Especially in this forum.
Bad news ... a large number of brilliant and skilled people will be let go. Very unfortunate.
Good news ... and I appreciate that this won't cure much for those affected, British industry stands to gain some awesome talent and expertise.
Like the Vitality Effect at GE, Jack Welch era, the 10% of management staff he tossed aside every year were sought after by other industries recognizing them as 10% of the best of the best.
We should see some of the same for those loosing out in the F1 Budget Cap process.
"

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5. Posted by Bill Hopgood, 21/04/2020 20:31

"What if there were more teams competing in F1 to spread the talent around?
Would say four more new teams soak up the loses from the current 10 (not that all 10 will drop the same amounts of staff)?"

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