Although the sporting and technical regulations were largely rolled over from F1’s 2020 ‘Covid’ season – although minor changes did cause some headaches – during 2021 the teams grappled with another regulatory variable, namely the financial regulations, or ‘budget cap’ in popular parlance, that were finally introduced after a protracted gestation period.
Exclusions to the cap are marketing and hospitality costs, team travel – primarily to prevent cutbacks on the standards of accommodation and flight classes – and car demonstrations and heritage (museum) operations. Crucially, despite drivers being a major performance differentiator their wages are (currently) excluded from the cap, in turn enabling better-funded teams to gain a distinct advantage from this quarter.
Equally, the top three salaries paid to team personnel are also excluded, enabling the wealthier outfits to recruit and retain superstar designers or strategists at wage levels these are able to command. Still, the cap redresses some imbalances, although such are the facility and operational advantages accrued by major teams that, according to AlphaTauri team boss Franz Tost, their momentum will carry them for three years, at least.
“There will still be mismatches in facilities and things for a little while,” believes McLaren technical director James Key, “but as things begin to settle down and coalesce between teams I think you’ll begin to see much more of the performance engineering influence than what we’ve been used to as a financial influence.”
However, a complicating factor is that the introduction of the (then-$175m) cap was intended to coincide with F1’s new technical regulations, originally planned for 2021. Thus, teams would have open budgets during 2020 under which to design their (totally) new cars while having the headroom to spend on campaigning their outgoing designs. Thus, the cap would only kick in during the first year of operation for the ‘new era’ cars. All seemed sweet.
Then, though, came Covid, forcing F1 to reduce the planned cap by $30m and simultaneously roll over the existing cars on cost saving grounds. While these moves likely saved various teams from bankruptcy and arguably saved F1, the bottom line is that they threw F1’s plans for an orderly transition out of the windows situated on the top floor of the FIA’s building at 8 place de la Concorde, Paris and onto the square below.
Still, the governing body had little choice but to act swiftly and decisively and deserves enormous credit for not only the way it quickly got all teams onside despite the effects the further, unplanned cuts would have, particularly on the big three. Indeed, they, too, deserve praise for having put the survival of F1 ahead of their interests by cutting their own staff numbers. That proves how acute the need was.
“[The revised] cap cannot be achieved without further significant sacrifices, especially in terms of human resources,” said Ferrari team boss Mattia Binotto at the time. “However, if the current situation puts the existence of some of our competitors in this sport in doubt and make it necessary to revise certain cornerstones, then Ferrari would be open to it.”
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After much argy-bargy – and a six-month glide path to June 2021 to ensure all statutory requirements were met – the larger teams thus accepted budgets under which they would not only operate their 2021 cars but simultaneously design, develop, and commence manufacture of their 2022 cars – any work on which was outlawed until 1st January 2021 to prevent them sliding design and development costs aimed at 2022 ‘under the table’.
A measure of how the financial regulations have impacted on team operations was revealed during the Monaco Grand Prix, when Mercedes F1 CEO Toto Wolff admitted that the team was unable to conduct a wet tyre test aimed at 2022’s 18-inch tyre development due to budget constraints.
“We are trying to make the budget cap, which is not trivial, and we couldn’t take the costs related to the tyre test and we wouldn’t have been able to send our mechanics on such a long journey,” he said, adding that the estimated $1m costs of damage from Valtteri Bottas’ Imola crash had tipped the balance.
Ferrari stepped into the breach, with Binotto saying, “As Ferrari we always said that 2022 is our priority over 2021. Testing Pirelli tyres, helping Pirelli develop the new tyres, we believe is important for us. Luckily enough, we didn’t have a crash in Imola so eventually we have some more contingency to Mercedes today, so we are happy to accept and support.”
The unstated implication is, though, that Ferrari had to pick and choose between 2021 and 2022, whereas in the past the team would have given both season’s equal status. “No compromises have been done in developing 2022 cars…so we compromised the 2021 car,” the Italian later admitted.
To ensure that employees grasp the full implications of the financial regulations, teams ran internal training courses for staff at all levels to reinforce the need to save in all areas. Still, considerable financial juggling was required to ensure maximum efficiencies, with savings made in one area – such as freight costs – enabling other activities such as car performance to benefit.
“In my specific area the main impact is the freight,” said McLaren executive director of racing, Andrea Stella. “This isn’t an operational element of going racing that’s sometimes not in the spotlight, but actually is a considerable opportunity to generate savings and efficiency.
“I really welcomed the push given by the budget cap, because we generated efficiency in the way we ship stuff around the world. We know what we need to go racing, that’s one element and I’m really pleased in the way we have been able to generate this efficiency [to benefit performance].”
However, as always in F1 there is no gain without pain, as Binotto admits. “With the financial regulations we cut some of the development and cut parts of our organisation. When you’ve got a cap, you need to limit yourself.”
Key stresses that McLaren has needed to be more cautious with its materials selection process: “We’ve done a lot of work on seeing what alternatives there are, in certain areas, trying to make sure that we’re not ‘over engineering’. There are some carbon fibres, which are very expensive but very effective, and you sort of default to them knowing that your part will work as intended.
“It adds a layer of workload and complexity onto material selections, but it’s the right thing to do to reduce costs.”
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The 2022 overhaul also includes changes to the sporting regulations as part of F1’s cost saving ethos, including a reduction to three-day race weekends, meaning teams need to pack the same workload into one day less. This, too, has complicated Key’s task as the cars ideally need to be simpler to work on, in turn saving money.
“So, you want to have a car which is slightly easier to operate, and you don’t find yourself up against time or rushing or having to complete the car in the morning,” he says, “which is never a healthy condition to be in because you end up missing other important aspects of the weekend if you’re constantly flat out with your car.”
Having worked for a number of independent teams before joining McLaren, Key has seen first-hand the effects of cost restraints. “I’ve seen how much efficiency you can gain by thinking in a different way, trying to extract maybe 80% [performance] out of 30% of the cost.
There are definitely ways of working which are kind of smart and to the point and prioritised and lean and kind of aggressive and agile. That’s where you need to be under the cost cap.”
It was, though, a massive balancing act, with Key admitting that restructuring the technical department to meet the cap was no easy task.
“There was an element of restructuring we had to go through with the team, but we tried to minimise [staff losses and disruption] as best we could because obviously we wanted to save the workforce we had, we wanted the team to be internally recognisable, because it settled down into a rhythm of work now with various groups operating very well together,” he says.
“We didn’t go through a massive restructure or a huge rehash in the way the team operates; we just looked at the sensible directions.
“We needed to find efficiencies and found many efficiencies. Disrupting the team would have been counter to what our objectives are longer-term. We played a very careful balancing act between the size of the team and other budgets. We’ll see if we got it right next year, more so than this year…
But the big question is how Mercedes and Red Bull – both of which pushed car development to the maximum for as long as they dared in their quests for both titles without compromising their 2022 cars – will fare once F1’s financial adjudication committee scours their respective accounts. Of course there are no suggestions either team broke or even bent the rules, but the two faced the highest pressure to continue making gains with their 2021 cars without losing ground for next year.
In terms of the financial regulations, all teams are required to supply full reporting statements – containing all the information required for the full operating year as outlined in the regulations – plus any declarations they may wish to table by 19:00 CET 31st March of the subsequent year. In addition, the FIA reserves the right to impose spot-checks at any point during the year.
“There’s quite a lot of checks going on,” Alpine executive director Marcin Budkowski told RaceFans in Jeddah. “We get regular visits from the FIA, regular requests for data and for information. Probably more than we were expecting and they are at very short notice and including surprise visits to the factory. We are very happy about it, because that’s how it should be and that’s how it should be policed.”
McLaren team principal Andreas Seidl concurs. “I see no red flags,” he said. “I’m very happy with the entire process that is in place at the moment, regarding enforcing the budget cap or the financial regulations.
“I have full trust in the system that is in place and in the FIA, and that if there is a breach, depending on what the breach is, there is the right penalty for it.”
However, the acid test will not be whatever outcomes arise from the adjudication process, but rather any penalties that are applied should a team be found in breach of any area of the financial regulations.
Crucially, no prescribed tariffs exist, as is the case with sporting and technical breaches. Any financial breaches will be subject to penalties handed down on a discretionary basis, with sanctions ranging from reprimands through points deductions to disqualification from the championship for both the team and its nominated responsible executive.
“The regulations, as they are written, don’t specify what the penalty is for [a specific] breach,” says Budkowski. “The reason they are not defined is that as soon as you define a penalty teams start to calculate whether [a certain interpretation] is the right thing to do or not.
“If you know you risk a five-second penalty in a race for track limits or something like that you make a call whether it’s better to serve your penalty or not, then build a gap to gain an advantage.
That’s exactly what the regulations are trying to prevent. We haven’t seen any breaches yet, we haven’t seen any sanctions yet, so we will see effectively if it happens, but hopefully it won’t be necessary, and everybody will respect them.”
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