28/07/2021
FEATURE BY MAX NOBLE
Benjamin Disraeli is frequently credited as the first to say that, "There are three kinds of lies; lies, damned lies, and statistics." Mark Twain added to this view with his equally sharp barb being; "statistics is the art of never having to say you're wrong."
The only reason each uses statistics as a touch-point for evil is that 19th century tax law was, to say the least, primitive, and the "Big Four" accounting firms that have made an entire industry appear out of thin air to the benefit of no one other than themselves did not yet exist.
Should Benjamin, or Mark elect to reframe their sound-bites today I proffer that, "Lies, damn lies, and corporate tax accounting", would bless their new rendition with profundity. For it is not a world, not a solar system, but an entire universe of alternate reality whereby not only can two, plus two, equal whatever number one dreams of, but you can respectfully prove, beyond taxable doubt, that two does not equal two. Indeed for the bold within the Big Four, proving two is an invalid number and as such un-taxable, is entirely within a fine day's work.
Which brings us neatly to our delightful cast of pantomime villains currently acting out the "Cost Caps Cost Lives" drama within Formula One.
Oh dearest of readers, this is shaping up to be a classic. I can only imagine that on the odd morning when his bank balance does not bring a smile to his face, Bernie eases from his slumber, looks at the latest release from the financial, ah, "geniuses" at the FIA forensic accounting department, and promptly needs to be rescued from convolutions of laughter on his finely hand finished kitchen floor.
Those of you born into the simpler Disco-times of the 1980's or earlier, like, wow, when you didn't make mix-tapes for the car, because cars only had radios in them (you know who you are...) then you will remember the delights of a simple puzzle frequently called a Magic Square, a Gem Puzzle, or rather more dryly the 15 Puzzle.
Originating as a mathematical concept in 1879, it was first realised as a wooden sliding puzzle by Noyes Palmer Chapman a New York Post Master in Canastota in 1874. Zip forward to the 1970's and 1980's and this chipper-chap was more usually realised as a square of dubious-quality plastic, a touch larger than the palm of your hand, with space within for sixteen small tiles, arranged, it being a square after all, in a four by four matrix. Except! The cunning plan was the designers removed one of the tiles, leaving one with fifteen tiles, in the space of sixteen... thereby allowing for the endless high-jinks of sliding those chipper rascals into numeric orders other than one to fifteen. Ah! The hours of joy it gave us sweet innocent children before Candy Crush, Call of Duty, and Gran Turismo went all digital on our butts!
Hence the cunning display of jungle intellect that was the ability of your average seven-year-old to slide jumbled numbers back into the socially acceptable order of one to fifteen in increments of one, that is most often considered a sign of basic numeric literacy.
Accept dear reader, that just as the Formula One Piranha Club, aka Paddock, is not an utterly fair, reasoned, and loving place offering quiet evening hugs of moral support, so it was with the Magic Square. One of the first joys for the jungle-wise was to remove, say, the "3" tile, and add either a "6" or a "9" tile. Then ask your brainiac class mates to solve it in under a minute... Ah the simple joys! (For the slower out there, that's because "6", and "9" can look very similar hence in a sliding Magic Square easy to confuse...)
Next up was the discovery that differing magic squares were fractionally differing sizes. So you'd swap any tile between two sets and... The one with the out-sized tile would now jam, and not move, while the one with the small tile would now explode, spilling tiles all over the floor!
Ah, sides were splitting from Plymouth to Clydeside with that one... Once these merry japes were exhausted the final chuckle was to re-order the jumbled start point of the tiles as, due to the wonders of group theory, certain start positions could not be solved. Your, by now somewhat testy classmates could slide away all day. The only way to solve a Magic Square doctored in this manner is to pull out the tiles, re-order them correctly, and then jumble them without being naughty.
Magic Squares could lead to many a joyful playground civil war for the unsuspecting.
"Enough deranged scribe!" I hear you cry, dear, exhausted reader. Not to worry, I hear you...
Let me provide some words to hold lightly front of mind as we proceed; FIA; statistics; forensic accounting; magic squares; gullible folk; and, smart bunnies. Now, between corporate tax laws that bend the laws of physics, make the Pope cry, and generally turn innocent accountants into either alcoholics, mad axmen, or worse case, alcoholic mad axmen, and the sleight of hand that is confusing your unwitting audience with a skilfully manipulated magic square... one can, as the old teaching aid so amusingly noted... have "Fun with Numbers."
Not just any old fun, but civil war in the playground, I'm telling your mum, taking my bat and ball home fun. The sort where you watch all those not in on the secret proceed to rip one another into very small pieces of lamentable babbling incoherent blubber.
Which brings me so neatly to Christian Horner, long may his larynx wax sweetly, Mr Stroll Senior, long may his wallet of plenty overflow, and the FIA, long may they not run with scissors, or be given pencils that are over-sharpened (Esteemed Editor Balfe - my theory is the FIA wear Blazers to protect themselves from both scissors, and sharpened pencils. Club Bar acceptable body armour if you will... possibly a future Pitpass exclusive investigation...?).
To listen to Christian you'd think that Lewis just blocked the Suez Canal when he punted V. Max into the river bank. It is going to cost seven times the GDP of Lichtenstein to repair the RB16B! Not to mention all those potential future gird penalties, the implication being they will ruin a close end to the season. Not to mention all the trauma counselling for all the boys, and girls back at the factory that built the dang thing in the first place.
Mark my eccentric-typing well dear reader. This is a strategic long play to box the FIA into a corner on the cost cap killing great seasons. The funny thing being all the teams are already in on it, but the FIA are simply too slow-witted to notice a nod-and-a-wink approach to, well, anything. There is no team collusion here! They all know where they need to go, and they are all smart enough to go in that direction without any secret "Team Principles Star Chamber" to work out how to be smart. Trust me dear reader. These people are already alarmingly smart...
...which brings me neatly to Mr. Stroll senior, long may his Joe Biden Aviators sparkle in the rising sun of a perfect new day (I admit I own a 1980's pair of Randolph Aviators which I can now wear for irony, amusement, to irritate others, and if necessary to keep bright lights out my eyes... but I really, really do digress...)
Mr Stroll? Oh yes. Some napkin-bistromatic-maths coming right up.
The King of the Magic Square is making the finest job of reforming a Formula One team in many years. Paul Stoddart was the last Man of Money, that I really wanted to see succeed in Formula One. Eddie Jordan is actually an alien, so he is an exception in many more ways than one. Frank Williams, Bruce McLaren, even Max and Bernie in the early days, and dear lord do not get me started on the insane delights of Lord Hesketh! They made it on a range of no-money-at-all, through to a modest pile which I set fire to in less than two seasons.
Let us examine that factory expansion...
So, Aston Martin F1 is currently at 535 workers, according to Otmar Szafnauer, and wants to expand to 800.
Ok. So $150m divided by 800 is $187,500 per staff member. Now those manic accountants from a few paragraphs ago can quibble with me if they wish, but a general rule is that salary is around 50% to 60% of the cost of running a staff member. This is because of the business impacts of paying for rent, insurances, IT infrastructure, buildings, and depending on how you structure your business, it also needs to cover research, and development, marketing, and corporate overhead costs recovery. Yes, I am making this a simple model so that this article can remain shorter than Australian Tax Law, so please, let us ease down the road on this musing.
We will split the difference and say that 55% of that figure is salary. That implies Aston pays a typical staff member around $103,125. A quick conversation to UK pounds makes that a figure of around £75,200. Which, given the UK average salary is currently stated as £29,600, looks like a jolly fine deal for all those chaps at Aston!
Oh. Hang on. We pay all of 800 people the same amount? Nope me neither. Ok, let's ignore that for a moment, and keep moving.
Engines are $20m a year. Christian is saying a couple of car park scratches came to $1.8m. And last time I checked senior members of teams tended to make more than the national average. Oh... And we are assuming the 45% left over will actually cover operating costs, travel costs, testing costs, simulators, wind tunnels, COVID-19 tests, car park dent removal, and new tubes of super glue to repair broken carbon fibre... Not to mention a free flowing supply of new carbon fibre. Which, as any reader who skis, fishes, cycles, or generally partakes of a sport that can use light, quality items will know, is always alarmingly expensive.
Let's revise our salary pool down a fraction (breaks out vintage abacus, and uses sleeping cats paws to carry the ten...)
So our $150m cost cap is broken down something like... minus $20m for engines. Minus $5m for travel. Minus $5m for simulator. Minus $10m for a useful wind tunnel. Minus $5m for breaking stuff during the year. Minus $5m for upgrades. Minus $5m for effort focussed on next year, and minus $5m for stuff we didn't think of that exploded in our face... leaving... roughly... $90m.
Dividing $90m by 800 gives us a figure of $112,500 per staff member. Now multiply that by our 55%, gives a take home salary average around $61,875. Let's covert that to UK pounds... Giving us £45,168. Or, in round figures, 1.5 times the UK national average salary. OK so the numbers on Mr Stroll's Magic Square can be made to look as if they add up. So far, so good right?
It is plausible the estimated figures are at least in the same orbit as the possible real ones, may-be? That the Magic Square is not rippling too far into the Twilight Zone alternate reality of Corporate Tax Accounting?
Based on figures by Christian Sylt, the 2016 wage bill as reported by Mercedes (for the UK based segment of their operation, please note... nothing from Germany, or any other country for that matter) was £73.88m for 849 employees. Giving a figure of $111,000 per person. Which is surprisingly close to the $112,500 figure developed above. You need to take me on my word that I developed my Napkin-bistromatic estimate first, before checking Christian's figure. But two independently generated estimates that close together imply we are either going in the right direction, or both being flawlessly misled by manipulation of the same Magic Square.
Is it all doctored Magic Squares, or are the teams really sticking to the cost cap? Have we seen half of the current Formula One company employees out on the street as 50% of the company gets retrenched? Are we going to see the cost for a Mercedes F1 power unit drop to that of a reconditioned Corolla engine? Or have they met the cost cap by keeping all the people, because team owners are all heart, while reducing the R&D budget to zero? Or the entertainment budget to zero? Or the media engagement budget to zero? Or the community engagement, science in schools budget to zero? Or the bonus payments to top performers dropped to zero? Or the motor home budget dropped to zero? Or the "crashes we did not see coming repair budget" dropped to zero? Or the pay it forward investment in next year's car budget dropped to zero? Or that utter fan favourite the simulator running cost dropped to zero...?
No doubt it has been used to clobber Business Class air travel for 99% of staff, but all of industry has been doing that for years, so no surprises there.
Applying Occam's razor with our usual steady hand. Is the simple answer the mostly likely to be correct?
Is it that Horner, Stroll, Toto, and the rest of the Piranha Club have all swapped tiles within their Magic Squares, and then passed them to their intellectually inferior F1 playground school chums, and respectfully stood back, laughing so quietly on the inside, gazing cheerfully on as those mismatched squares proceed to variously jam, pop-out, or simply not add up?
It might not be Looney Tunes Space Jam - A New Legacy, but with the aid of Magic Squares, and a modest sprinkling of fox cunning I believe that the school yard pranksters of the Piranha Cub are awash with jokes, smirking behind the FIA's collective backs, and generally slam dunking one, and all. Not least those poor tortured tax accountants.
All this Magic Square trickery safely in place, Christian already lobbing grenades about the cost cap killing the end of season drama, and the Team Pranksters still have their next trick up their collective sleeve. All those international companies, unrelated, existing within differing tax environments, which each has their own Magic Square to solve to work out what an item really cost. They are saving that gem for when the FIA finally work out the current Magic Square. It will be an exciting time to be an FIA Forensic Accountant over the coming decade!
So from sliding all those tiles around our remarkable Pitpass Magic Square what have we learned? I think we can possibly posit that; When the cost cap turns out to not have cost very many jobs; Not to have impacted the R&D activity of a single team; Not to have changed the on-track running order in any manner whatsoever. While we are not exactly in on the joke, we are at least aware it exists. This will allow Pitpass Intellects to smile, aware that the cost cap figures are all down to the delicate, dexterous manipulation of those magic squares by Horner, Toto, and the gang.
The FIA Forensic Accountants, being the poor souls reduced to whimpering in darkened corners over spreadsheets from another World.
But what if the team boss pranksters should get bored with the modest options for teasing the FIA with a two dimensional puzzle? Why naturally they already know the answer. Rubik's Cube anyone?
Max Noble
Learn more about Max and check out his previous features, here