01/06/2022
NEWS STORY
Whilst reiterating the need to revise the budget cap, warning that failure to do so risks "mass redundancies", Christian Horner seeks to clarify his comment over teams needing to miss races later in the season. Not everyone agrees.
It was always too good to be true... while Bernie Ecclestone and Max Mosely fought with the teams for decades without success in a bid to reduce spending, almost risking the break-up of the sport, clever old Liberty appeared to reach an agreement almost overnight.
However, just a few races into the second season of the agreed cap, reality begins to bite.
Unforeseen circumstances such as global inflation in the wake of the pandemic and the ongoing war in Ukraine, combined with the need to develop their cars has left some teams facing the stark reality that before too long they may hit the budget cap ceiling with several races still to go.
Speaking in Barcelona, as his team faces a down-to-the-wire battle with Ferrari, and possibly Mercedes, Christian Horner suggested that teams may need to miss races in order to stay within the budget.
With F1 having a duty to field 20 cars at each race, social media went into overdrive at the thought of 16 or 18 car grids, however, speaking in Monaco the Red Bull boss was keen to clarify his comment.
"What I was trying to point-out last weekend, when I was asked the question, was, it would be the equivalent of... we would have to miss numerous races to get anywhere near getting costs under the cap," he said.
"I think certainly all the major teams are going to breach that that 140 count this year," he continued. "There a 5% threshold for a minor breach but what is the penalty for a minor breach?
"What we don't want to do is end up playing a game of chicken. As to say: does he go to 4.9 over? Do we go to 4.7 over? And that would be one upgrade that could be the differentiating factor of, you know, this World Championship.
"So, I think what we do need is clarity, and clarify quickly," he insisted. "Because, quite simply, it's not right to be held to ransom by a couple of teams that aren't perhaps effective, because that was never the design of the budget cap.
"The budget cap was there to limit the top teams from a spending frenzy. None of us could predict, when we came up with a budget cap figures, which if you remember, were reduced by $30 million from where they were originally set, during the pandemic. When we sat down and agreed those figures, nobody could have even contemplated world events that are driving inflation.
"We don't even know what that inflation is going to be in the second half of the year," he continued. "We're all seeing the cost of living rising, we're seeing utility bills going through the roof. Where is that going to go in the next six months?
"So we do need the FIA to take early action on this. Because you know, we're coming up to the mid-year point. And, you know, there's only so much you could do.
"I think we have a responsibility to our employees as well. I mean, we reorganise, we reshape, we had to say goodbye to many long-time employees through redundancies last year to get down to a point that was consummate with the cap, before inflation came along. And I don't think it's right, that the pressure should be put on mass redundancies, within the sport.
"So, I think hopefully, common sense will prevail. It is a force majeure situation, it is a situation, obviously, that none of us could have foreseen, that have driven these costs up. And pragmatically, we just need to come to a common sense solution."
"I agree," said Mattia Binotto, "I think many teams are agreeing with him. It's something we already discussed between us.
"We believe that the budget cap, it's the second year of the financial regulations, but it's the one we are discussing the most about it. And the reason why is that there is an unforeseen force majeure - maybe - situation of inflation, which is so high and no one was predicting it.
"Six per cent of inflation is really a lot of pressure on our shoulders. So, we could have prepared ourselves for a reduction on the budget gap, 145 to 140, we could have prepared ourselves for a brand new car, no carryover parts, which was not the case last year, but we could not have prepared ourselves for such high inflation.
"So, I'm pretty sure that all of us - and not only the top three teams, medium teams - will hit the budget cap very soon, and I think it will be really a shame that a sport like F1 will be dictated by their budget cap at the end. It has to remain a sporting and technical challenge.
"The budget cap, or the financial regulation, is certainly a very green regulation. It's only the second year and it will take many years to fine tune it. And I think, again, because of that low maturity of the financial regulations, where maybe there will be even no fairness or equity through the teams in the way we are interpreting it I think it, I think it will be completely wrong that a budget cap is dictating the challenge on track.
"So, I think the only thing we can do, as F1, sense of responsibility to give a bit of breathe, increase the budget cap for inflation, which is something as I said, which we never foresee. And I think that will be the right thing to avoid even maybe discussions at the end of the year and the championship, or maybe the team winning the championship was simply the one spending the most. And that will be wrong."
"Early on, we had a plan to land on the budget cap and work within it, as I'm sure everybody did," said Andrew Shovlin. "And then as costs like the freight were coming in, at being multiples of that, or energy, and just the effect of inflation. That's gone from being looking at ways to peg it back, to stay within, to a point where the challenge becomes insurmountable.
"You have got levers that we've touched on, that you can push and pull your spending with. But the impact of those is not immediate. And the effect of them is not all-powerful. And that's the situation we're getting in now. Which is why I know Toto is very well-aligned with Christian and Mattia on this, is that everyone's facing a position where, even with the with the best will in In the world, it's almost impossible to bring the teams in.
"People have talked about development budget. But development budget also goes to provide the parts that you're racing with. So, it's not this, this huge stash of money that you're only spending on wind tunnel parts, or go-faster bits. We as a team, and I'm sure we're no different, we're racing parts that are more worn out, we're carrying a lot fewer spares than we used to do. Every weekend, we're in situations where serious incidents could see as being either unable to field the car, or you're really cobbling together a car. And if we, if we're not constantly replacing parts with faster ones, we'd just be spending a considerable amount of money on the same parts.
"So, when you look at it, the challenge that our team faces, and we're not the only one, as you know, it's probably the majority, is a very difficult challenge. And there are one or two, who if you were if you were targeting to be below, things have fallen in your favour. But it's an area where everyone's working together, and hopefully, we will find a solution."
"Obviously there's a couple of teams that are against," admitted Horner, "and I think the voting process within in-season changes in the budget cap obviously requires a certain threshold, which currently there isn't.
"But of course, you've got to look at the bigger picture: is this a force majeure event? I would say an Act of War that has driven the inflation will be classified as a force majeure event. And I think, what we really want is clarity, because none of us want to end up, at the end of the season, all rushing to Courts of Appeal, or in Paris saying: 'he spent a million dollars more than we did', and so on.
"So I think we just got to come to a sensible threshold. For the smaller teams, there are levers that the FIA have, the components that are transferred, for example, gearboxes, suspension, the old listed parts components that carry a substantial tax: a cost cap tax, not a real money tax, but a cost cap tax. Maybe that's something that the FIA could look at, in revaluing those, because your teams that are even P7 in the championship are looking at breaching the budget cap at the moment due to some of that effective taxation."
"Whatever is the situation, small teams, top teams, that it's a sense of responsibility that we've got all towards the regulations and F1," said Binotto. "As I think, we had at the time, 2020, when we were reduced 175 to 145, it was certainly not in the interest of the top team to reduce to 145. It would have been so simple for us simply to stop it and keep 175, and today, there will there be no discussions at all.
"I think we made an effort, because we understood the importance of it, we understood the importance try to balance a bit more, the cap and the financial situations within teams. But I think, as we did at the time, now we are experiencing the regulations, we know where are the limits, what needs to be improved. And I think as an entire community, all the teams should understand that, and be responsible.
"If a team is simply looking at its own individual interest, we will never move on. And the thing that, as Ferrari we accepted, even in 2020, to freeze regulation, when we knew that our car was very bad. Put all the criticism on our shoulder for an entire season. But we did that, for the simple sense of responsibility. If someone is not doing it today, when there is such a situation, which is force majeure, which is obvious, which everyone can understand. I would simply not understand it."
Asked if he genuinely fears further (mass) redundancies, Horner said: "Obviously redundancies come with costs. So, you couldn't make enough people redundant to lose enough cost to come under the cap, so it becomes a superfluous situation.
"Redundancies isn't the answer to this," he insisted. "We just need to find a solution because we only have a six-month effect. As Andrew said, there's only so many levers that you have in your armoury that you can pull, but so many of our costs are dictated - the calendar, we know what that is, the freight costs, the component costs, to service and build these cars. They're all pretty much fixed. And so we're very limited in the amount of levers that we have to be able to reduce costs when we're seeing energy costs going three-fold increases, when we're seeing freight going through the roof, we're seeing component costs, becoming way beyond anything that we've ever seen previously."
"In a situation like that it's important that the FIA and Formula 1 are listening to the different positions of the teams to get a good picture of what is the situation and then find a solution in the best interest of the sport," said Andreas Seidl. "We are clearly in favour of finding a clearly defined solution that we don't end up in an... let's say, unknown, foggy territory, because I fully agree that this could put the principle of the budget cap into doubt in general, which would not be good because, again, the budget cap is an absolute must-have for Formula 1, in order to take part in this sport in a financially sustainable way and in a way where you can also be competitive on the sporting side."
"You know, we all sat around for a long time trying to get the cap to the right level," added Otmar Szafnauer. "We discussed inflationary pressures. There's a mechanism in the cap itself to deal with inflationary pressures and I think to stick with the rules that we have, that we've debated for a long time, and the big teams had a different view on where the cap should be, the smaller teams wanted it at 100 million I remember. And we came to a compromise, including inflation, you know, what we do with inflation, and the first time we face inflation, that's a little bit over two and a half percent, we want to change it.
"I think that's wrong," he added. "I think we should stick to the rules as they were written and see this through. And I don't think it's opportunistic for teams to say, don't change the rules midseason."
"It's absolutely not a case of force majeure," insisted Frereric Vasseur, "because inflation is not a case of force majeure.
"We knew perfectly in November or October when we did the budget that will have inflation," he continued. "And now it's up to the teams to decide if they want to develop the car all the season and to miss four events or if they want to slow down now and to do the full season.
"Honestly, I think that at one stage that we have to agree on the fact that we won't try to change the rule. If after two events that it was exactly the same story with the weight, the way it was clear, some teams didn't achieve it, they wanted to change the minimum weight, you know that and the numbers of teams were not able to achieve the target. It's not a topic, that if you have eight cars under the weight after the qualifying the eight cars will be disqualified. It's not because you have one or two teams, it doesn't matter."
Asked about how Alfa Romeo is handling the cap, Vasseur echoed the comment made by his good friend Guenther Steiner in Spain.
"We are not speaking about budget gap, we are speaking about budget," he said. "It means I won't be able to spend what I have.
"If we have some increase, and I can understand their situation, but if we have some increase on energy or freight, the best solution is to switch off the wind tunnel to stop bringing updates every single weekend," he added with a grin.
"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. And I think everybody can do the same."