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It's Only A Number (Part 2)

FEATURE BY MAX NOBLE
19/09/2023

Part one mused about numbers across a variety of domains while I'm now going to the grand spreadsheet of disappointment for the season. Namely all ten teams passing the FIA financial audit for 2022.

Your Pitpass Wordsmith has a long and joyful friendship with Microsoft Excel, and all the wonders hidden within. I first cut my teeth with VisiCalc, created for the Apple II way back in 1979. There was a brief courtship with Lotus 123, but since then it has been monogamy with Excel for many joyful years. Whisper it... but I run MS Office on my Mac hardware and love it. Pages and numbers are for emergency use only...

Readers of a certain vintage might recall when Microsoft Word was battling Word Perfect, and Excel was battling Lotus 1-2-3. Heady days indeed! The cheeky code-monkeys of the day used to hide "Easter Eggs" within the programs. By entering secret key strokes one could activate animations, the Word Perfect little men on screen would beat up Word, while one could activate a basic flight simulator within Excel. Such classic joys before it all became about world domination and share prices.

Goodness! My thanks for indulging a technology ramble. Back to the FIA Audit disappointment! After last year's excitement of both procedural breaches (Aston and Williams) and an actual minor breach of cash dollars by Red Bull... well this season's result has left me and the Southern Pitpass cats rather dejected. All ten passed with flying colours? No flashing red warning lights and screaming sirens as when Ripley flees the Alien, cat safely in hand? No dawn raids by armed squads in jet black body armour? Not even a "Please explain!" email from the FIA to the team CFO's?

Nope. It would appear that the simply genius Abacus pushers within the teams are that much smarter than the FIA auditors and simply proved that three, seven, zero, and twenty-five beans all make five. It is, as I and the Southern Pitpass cats both feared and predicted. The teams have once more outsmarted the gamekeepers, and are whistling away into the night, pheasants safely concealed within long voluminous coats, glowing with an aura of Nothing to see here.

A nine month wait for ten clean bills of health! Both numbers boring in this context. Measurement impacts behaviour! It is a rallying cry from Quantum Physics. One can know the energy level or the exact position of a subatomic particle, but one cannot know both at the same time. Energy level to 99 decimal places? Good luck finding it. Exact position to half the thickness of an angel's nostril hair? Good luck knowing how bouncing with energy it is. The act of measurement impacts the behaviour.

Scale that up to humans, and an expanded truth is revealed. Anything we care to measure about one another can have the most unexpected impact on behaviours. Certain motorways in Europe used to make travellers take a time stamped entry ticket which had to be presented at a toll booth on exit. A charge per Km was then applied, and the time stamp was checked to ensure you had not covered the distance too quickly. Yet motorbike riders would endlessly fly past at speeds suitable for the take-off run of small jets. How so? One soon learned. Arrive at one's selected exit gate, and just before it one would see many motorbike riders lounging on the grass, sipping water bottles, smoking and chatting, while occasionally glancing at their watches. Then, the necessary time having elapsed, they would jump back on their bikes and glide to the toll booth to pay their exit toll literally not a moment too soon. Measurement impacts behaviour...

I have previously mused in the articles "Numbers in my Magic Square", and "Cash on Delivery". In each I pondered the manner in which the teams might work to comply with the measurement framework the FIA was enforcing for matters financial. I pondered on the "useful leakage" from R&D projects outside the actual team. Well folks. We can report that if the teams are doing this, they have performed it in such a manner that the FIA has not spotted it as "breaking the rules".

How so? I hear you cry. We had a test year. First calibration. We had the first year. Second calibration and some minor breaches. We now have our third year. And All Is Well. Or is it?

The teams have calibrated the FIA audit team far more so than the FIA have calibrated the teams. The FIA audit team was initially massively understaffed and is now only modestly understaffed. Some light amusement can be found here, as the FIA believe the situation is the other way around. Such is the genius within the teams.
Consider professional fouls in football, or if you care to remember it, Maradona's "Hand of God" goal.

Referees make errors. They only see so much. Professional footballers know this and will push their luck, and indeed make "professional fouls" to slow the other side at critical moments, safe in the knowledge that either the referee will not see it, or if they are witnessed that a simple warning, or possible yellow card, will be all that results, and life goes on.

The teams have calibrated the FIA and know the level of "Professional Foul" that they can commit and not get a red card. Your scribe was being a wild optimist to think this would be the UFC of finances this year. No octagon for us dear reader. It is quiet ledgers sweetly humming "Silent Night" as all the excel spreadsheets fall into a contented slumber. They are only numbers, and they need their afternoon nap! They are only numbers dear FIA, and they all add up, trust us...

Christian Horner recently spoke about his journey in F1 resulting in him now being one of the longer-serving Team Principals. He talked of moving from a single building, and a few hundred people, to over 1,800 staff spread across many buildings.

OK... back to the numbers. At a $150m budget cap, with 1,800 staff... that's only $83,333 per staff member per year. Now given F1 average salaries are above that, and one needs all those pesky computers, and all the carbon fibre battle armour for the cars, which the dear drivers turn into black confetti on a regular basis... well... the maths simply does not add up.

We have operational costs, being buildings, heating, electricity, internet, computers, software licenses, professional insurances, security guards, gardeners, coffee machines, fridges and so on. You know all those things that let a business exist. Then you have raw material inventory costs. All the bits you can stub your toe on. Then you have salaries. Then travel. Then marketing. Then consumables. Then let's not forget how much each team spends on CFD and simulators now we are "saving money" by not having test days.

Seriously. The top teams know they can learn as much on their home computers, so they don't really need to fly to the cheaper parts of Europe for test days that take them away from family and their latest baby super computer... No wonder Christian laughed about the new Pirelli tyre deal being about money! We've not even bothered covering R&D, prototyping, sub-system integration costs and engines. Why the list goes on, and on, and, well, on...

Dear reader. When the top teams are announcing sponsorship deals for amounts which exceed the cost cap value, how on earth do the numbers add up!?

Yet, ignoring material costs, Christian is successfully running a 1,800 person business for $150 million a year. If ever there was a moment at which either the Infinite Improbability Drive or Bistro-matics could be proven to exist it is now. How else to explain the numbers simply do not add-up on a Cab-Sav infused napkin, let alone MS Excel on a Mac Book Pro.

The answers dear reader are to be found in measurement impacting behaviour. The subatomic participles otherwise known as F1 team members have adjusted their orbits, habits and location beacons such that the FIA see what they are supposed to see. The Schrodinger cat is alive and well, or as dead as Marley's Ghost, both at the same time during the same lunch hour, in the same Japanese Sushi restaurant.

If ever there were layers of story within story, I'm thinking Inception here, it is the multiple realities hidden within the team's spreadsheets that are tales of wonder. Close your eyes and imagine the FIA auditors on that Parisian street as the buildings fold around them and the way in is the way out is the way in... And all of a sudden all the numbers align, and there simply is no breach of the cost cap.

I would point the FIA auditors at the Book of Revelation, and highlight the terror of the Number of the Beast. But I do not want to scare the dear lambs. For they have already been slaughtered on the altar of MS Excel, yet they do not know it.

So relax FIA lambs, they are only numbers, and you like the story that you believe they tell. Just ask the teams. They will assure you that you can count on it...

Max Noble

Editor's Note: Absolutely nothing should be read into the choice of pictures accompanying this article... honest!

Learn more about Max and check out his previous features, here

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READERS COMMENTS

 

1. Posted by ARL, 23/09/2023 11:38

"I'm with spindoctor on cutting my teeth on Supercalc, back when Gilles was Ctrl-Xing his way through any F1 race and I could stick oil sucking platforms in the North Sea with a clear conscience. Back to the present I wonder how many wind tunnels and engine manufacturing plants are stacked up inside Herr Marko's Hotel chain? "

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2. Posted by Max Noble, 22/09/2023 7:48

"@ClarkwasGod - sorry better late than never. Got a real chuckle out of your “Lotus 1-2-3” comment. Quite confident no one in Liberty Media is old enough to get either side of that joke! Sweet simple times… (both the spreadsheet and the team…)
"

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3. Posted by Max Noble, 22/09/2023 1:36

"*division, not “decision”… good grief auto-correct…"

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4. Posted by Max Noble, 22/09/2023 1:35

"Great conversation on this one. As I’ve noted a number of times, no one is “cheating” the cost cap, but they are “pushing to the very limits of the rules” - which is a perfectly valid endeavour. As I noted in earlier articles… Mercedes diesel truck decision is a world leader in Turbo charger design (they’ve since been sold off I beleive). If they have fifty years of knowledge and capability, and put it all into a lovely two hundred page engineering directive, and then sell the document to the F1 team for $25 (the cost of printing it…) how do you say they are cheating…? What value is 50 years of your own pre-existing knowledge? You then hire some Turbo charger experts into the F1 team as consultants at a “fixed price service provision” of $10,000 for a year of consulting… just so they know how to read the document… As you cannot go and buy the document or the consulting on the open market, how do you say it is “mis-priced”? One cannot.

@Spindoctor, @acient70! - The cost of running a staff members is usually considered to be approximately 2.5* their actual salary. The rest covers such things as… building rent, marketing budget, R&D budget, office supplies, IT license fees, office furniture, utility costs, pension payments, professional insurances, government fees… etc.etc… If one considers a typical senior engineer has a salary of 40,000 pounds (I just checked a couple of UK job sites…) it implies that they cost in the region of 2.5*40K = 100K to actually run.

Then I’ve not even considered input costs such as raw materials, external vendor supplies, engines, travel, hospitality… the list goes on and on! So what I’m saying is a basic “back of the iPad” estimate says it is impossible to run 1,800 staff within a $150M cost cap, especially if one builds ALL the costs up that I’ve mentioned.

…so… what the FIA is actually measuring, and what the teams are successfully complying with, has nothing to do with what to actually costs to run a team… Jus’ Sayin’ ….!
"

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5. Posted by kenji, 22/09/2023 0:46

"@Pavlo Tks your response. As I have previously stated, I'm quite certain that the FIA would have certainly given a great deal of thought to where expenditures can be hidden , eg transfer pricing would be quite high on the list. I have never seen any details of what does and doesn't get considered within the cost cap but it would certainly be an interesting document to peruse. For example, the treatment of non related entities with some commonality via the share register would make interesting reading but as I have said, so many times,I'm certain that the FIA would have that prospect well and truly covered. My initial response was that the assumption that the 'public [ ? ] figures are hiding an unsavoury truth' reflects an opinion without any supporting facts. I too did some back of the envelope figures a long time ago when considering Wolff's comments re '2000 plus people working to provide two cars to go racing !!. Make of that what you will but the cost cap is here to stay IMO and that, if nothing else, may help the lesser teams become more competetive. "

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6. Posted by Spindoctor, 21/09/2023 11:43

"@Clarkwasgod. So true!

@Pavlo you're quite correct, but I was trying g to be uncharacteristically brief!

@ancient70! 83k is well over 2x annular UK earnings, so pretty good. Not sure exactly how it's derived though. Many in UK need government support because of high cost of living & low wages less than 24k"

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7. Posted by ancient70!, 21/09/2023 10:43

"I am trying to get a feel for what does a yearly pay check of 83k mean in the UK. That is nearly 7k a month, is that good or or bad ? I converted it to ZAR and that comes to R140k a month, which is pretty good in SA. "

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8. Posted by ClarkwasGod, 20/09/2023 17:50

"I still yearn for the days when Lotus 1-2-3 meant the podium comprised all Chapman cars"

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9. Posted by Pavlo, 20/09/2023 15:48

"@Spindoctor: escrow account will not help, because it's not a problem of accounts, it's a question of prices.
As correctly mentioned in one of the previous articles, one of the issues is a price of inter-company services. Imagine, Ferrari F1 team buys engine valves from Ferrari factory at a price of 10 dollars apiece, is it cheating or not? It's obviously a breach of intention of a cost cap, but not at all breach of formal cost cap.

@kenji: I think now that the problem with RB - why exactly they were caught - is that Ferrari and Mercedes can very easily overcome the cap by such trick, so if RedBull company wants to spend similar amount of money but can't really do it via drinks, they have to come up with different accountancy.

"

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10. Posted by Superbird70, 20/09/2023 15:25

"The real numbers to look at are the odds of RBR and Max clinching one or both titles in Las Vegas. How much have they changed in the last week? The truth is out there.
"

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11. Posted by Spindoctor, 20/09/2023 14:17

"@kenji
I don't recall having accused RBR of any chicanery[sic], but as Mr Noble has pointed-out (for the umpteenth time) F1 is an entertainment (formerly a "sport") which is predicated on working right up to the limits of any & every rule; both those of Ms Physics & those concocted by FIA. My problem with the cost cap isn't "cheating", it's that it is stupid in conception and almost certainly unenforceable in practice.
I refer you to Mr Noble's back of a spreadsheet calculation about costs: 150m dived by 1,800=83,333 Do it in GBP or USD, but the result will be the same.

A genuine cost cap might involve (for example) each team placing it's $150m in escrow and all expenditure on EVERYTHING it does would come from that pot. Any other solution (and probably that one too) is subject to the vagaries of "Accountancy" a peculiar human invention which allows companies & IHNW to determine a level of profitability, value of assets, costs of operation, EBITDA etc. which is only very loosely related to the physical reality we inhabit."

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12. Posted by kenji, 20/09/2023 12:05

"@ Max I was commenting on what are the usual diatribes against the likes of Red Bull et al. The assumption that some team/s are not adhering strictly to the intent of the cost cap rules is akin to cheating in the eyes of some. especially public forums. By stating that the 'devil in the details doesn't facilitate getting at the 'unsavory' truth behind the public numbers would indicate suspicion of more than a few incorrectly characterised ledger entries. Loopholes are, if found, a legitimate source for exploitation. No problem there. I do in fact think that the cost cap is no real bad thing at all.
"

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13. Posted by Max Noble, 20/09/2023 9:29

"@KENJI - Respectfully… they are not cheating at all! They know how to work the system to make the numbers *as measured* meet the FIA requirements. “Pushing the bounds of the letter of the rule” is very different to “I cheat.” Think of Mazda and th eLe Mans winning rotary. As soon as it won and no one else had one… banned. Think Cathy Freeman and skin suit… banned. Think Australian swimming team and body suits with “Shark like” dimples - banned. Each pushed the rules as far as possible, not cheating, and then the rules evolved to ban the action.

No F1 team cheated. They all acted to ensure the numbers, as measured, met specification…
"

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14. Posted by kenji, 20/09/2023 1:45

"@ Spindoctor...Do you have any definitive proof that any teams are absolutely cheating via the 'cost cap' ? If so would enjoy reading. I would also refer you to a quote made by Wolff some time back this year when he was being questioned by the media when their abysmally engineered '23 car was at its worst. 'normally we would just build a new B spec car' but since the cost cap has been put in place we cannot do this.' [ or words to that extent ] Now that quote is worth contemplating! Very few teams would be able to match this 'level of expenditure' and that alone tells me that the cost cap is effective if indeed it's being correctly monitored and policed.Surely if any teams [ or F1 forum fans ] have proof of cheating they would be the first to lodge a protests with the FIA. Failure to do so would be a dereliction of their duties towards upholding fair and ethical competition.IMO that is.
'."

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15. Posted by Spindoctor, 19/09/2023 20:48

"Ahhh, nostalgia. You neglected Supercalc...Excellent is a wonderfull tool, beloved of Accountants and as dangerous as semtex in the hands of most managers.

Loved your beautifully simple demolition job. I guess that the apologists will point out that lots of stuff is outside the CAP, but the devil in those details doesn't alter the fundamental idiocy inherent in a cost cap, nor facilitate getting at the unsavoury truth behind the public numbers.
"

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