Lando Norris, McLaren, Circuit de Catalunya, 2022

Sticking to budget cap “pretty much impossible” due to rising costs – McLaren

2022 Spanish Grand Prix

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Formula 1 must find a way to adjust the budget cap due to the sharp increase in costs teams have faced since the beginning of the year, says McLaren’s Andreas Seidl.

McLaren have long supported the budget cap which was introduced last year. Each team is limited to spending a maximum of $140 million this year, plus an additional allowance for extra races, and with certain types of expenditure excluded.

However severe rises in energy and transportation costs since the season began will making it extremely difficult not to exceed the limit, says Seidl.

“It is clear for us sticking to the cost cap is an absolute necessity for the sport,” he said. “It’s not a secret that we were pushing quite a lot for introducing this budget cap and also pushing towards the numbers we are having now.

“At the same time I think it’s important that if exceptional circumstances arise like the ones we have this year – if you just look at our utility bills and we look at the unbelievable increase of freight costs – that it must be possible to have a discussion between all the teams together with the FIA in order to find fair solutions.”

Andreas Seidl, McLaren, Circuit de Catalunya, 2022
“It would be fair to increase the cap” – Seidl
At this point in the year, teams have committed to so much of their expenditure that they are running out of opportunities to save money to reach the cap limit, said Seidl.

“We are in the middle of the season now, everyone has prepared for the season in order to somehow run at the cap and with these exceptional circumstances and these rises it’s pretty much impossible to still stick to the cap.

“That’s why I think it’s just fair to discuss solutions between all teams. And that means, from our point of view, it would be fair to increase the cap maybe linked to these specific costs that have increased significantly.”

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The additional costs teams are facing run to “several millions”, said Seidl, “”because that’s the increase we see in freight costs, for example.”

F1 announced last week it had decided not to replace the Russian Grand Prix, which was cancelled in September. This has positives and negatives: Teams will incur lower freight costs but F1 will miss an opportunity to create more income as the total number of races has fallen.

It also means the budget cap will be reduced further. “By losing a race now the cap goes down by $1.2 million,” Seidl confirmed. “At the same time, you also save costs by not going to that race. So I wouldn’t say that’s the biggest point of discussion at the moment.”

Seidl said he supported F1’s decision not to replace the Sochi round. “In principle we are committed to do these 23 races this year and we have lined up everything in the team in order to do it. But of course, not doing a race now at this specific weekend and doing one less is definitely something which is quite welcome by everyone within the team in terms of the burden we put on our people.

“In the end it was a decision F1 had to make – after being clear that we don’t go to Russia, which was the right decision – to see if it makes sense to do another race. This is something that they studied in detail and in the end they came to their conclusion which is the right compromise when you look at the financials, but also in terms of the logistics, and so we are happy with that.”

The cost cap was set at $145 million when it was introduced last year and was due to fall to $135 million by 2023. Beyond that teams had discussed how to adjust it for future rises in inflation, said Seidl, which may offer a solution to the problem they face now.

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“One of the points that got looked into at the moment is what’s actually the right mechanism to adjust the cap based on inflation. There was a mechanism defined two years ago when the regulations were done which would have been in place from ’24 onwards. That’s part of the review at the moment: Is that the right mechanism or can we actually improve it to better react to what’s going on in the world?”

F1’s top spenders have already made big cuts
However Seidl believes teams whose budgets are well beneath the cap will oppose any relaxation in the limit.

“As always, there’s different interests around, which is normal,” he said. “There’s teams that are in a strong sporting position, for example, at the moment. Teams that are not running at the cap so they don’t have this issue. Obviously they don’t want to give up this sporting advantage they’re having at the moment because they see it as an advantage for them.

“That’s why you have the different positions, which is normal for Formula 1, it’s part of the game. Each of the teams is very opportunistic. But that’s part of the competition we are in and that’s why it’s important that you have a strong FIA in Formula 1 on topics like that to steer it in the right direction in the best interest of the entire paddock and the sport.”

Asked whether he believes a solution can be found, Seidl laughed: “It’s the Formula 1 paddock so it is very unlikely!”

“But I still hope,” he added. “I think we have shown in the past in recent years that whenever there was something which just made sense most of the time we found common sense solutions steered by Formula 1 or FIA. So I’m still hopeful with the FIA steering this topic that we’ll find a good solution.”

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41 comments on “Sticking to budget cap “pretty much impossible” due to rising costs – McLaren”

  1. And i thought DHL took the bill for all the transports as sponsor or is this the cost to move people around?

    1. As far as I am aware they get paid for the logistics @macleod, while at the same time spending some money on advertising.

      1. @bascb – Maybe they should keep transport outside the budget then if they can’t control that anyways.

        Ofcourse the development department isn’t to cut cost but a driver of the transport get fired and some of the logitic, catering and market departments. So the little guys get stuffed.

        1. Thing is, how much do you want to exclude before it gets completely random what is and what is not part of the budget @macleod.

          As described in the article the teams had been discussing some form of inflation correction for the future anyway, so they should just have a look at that. This year is going to be hard. But clearly not as hard on everyone as the last 2 were. And it will get better again, because inflation won’t be at the same level. Also, it affects everyone more or less equally.

  2. Electroball76
    25th May 2022, 9:32

    They could probably save a bit on their driver salaries. Isn’t Daniel paid as much as Russell, Ocon, and Gasly combined?

    1. Well he has won more races than those three combined :)

      1. Until you narrow it down to the past four years.

    2. Scotty (@rockonscotty)
      25th May 2022, 11:25

      If memory serves, driver salaries are not included in the budget cap.

      1. @rockonscotty True, nor do top-3 personnel salaries.

  3. Makes sense with all the inflation and recent high costs that would definitely eat into a race budget that was made before this all happened. Just make some adjustments for inflation and transportation costs and move on.

    1. @redpill part of me agrees, however I can also see why Williams, Alfa & Haas are licking their lips at this not happening as the combination of cost cap and inflation is essentially inflating away their disadvantage. Ultimately, this is just another external factor which some teams are lucky enough to benefit from and some not – why should the rules be changed?

      It’s early enough in the season that large teams could save money by putting some developments on ice – or if they choose to skip races, that’s on them.

  4. That sounds like common sense, @redpill. But this is F1, so only uncommon sense need apply.

    We can only hope the FIA hire a team of experimental economists with highly inflated reputations to tackle this expensive issue. They would meet 10 times a year in the most expensive resort locations, from Davos to Monaco, from Necker Island to the Maharajah Pavilion. And after careful deliberations present a gold-bound report filled with indecipherable graphs on pages freshly stained by dribbled Domaine Leroy Richebourg Grand Cru.

    1. Jimmi Jimmi, you are just Cynic don’t be sarcastic as well. Cheers mate, you made my day!

    2. And their solution would be a 7 lap mini-sprint (re-named ‘The Dash’ in the second year), squeezed somewhere into the weekend at select venues

    3. @jimmi-cynic

      They would meet 10 times a year in the most expensive resort locations, from Davos to Monaco, from Necker Island to the Maharajah Pavilion. And after careful deliberations

      You forgot to add that their probable assessment is to keep the budget where it is, but the group will need to reconvene soon at several chosen locations to reassess the data and talking points : )

      Joking aside, I know teams will always be up to their old shenanigans for a gain anywhere they can find it as that’s just how it’s always been and always will be in F1; but out most excuses for budgets and expense impact talks; I totally understand this one that teams are asking to revisit as the budget cap amounts were set two years earlier and way prior to the crazy un-forcasted new inflation and transports costs that literally touches everything related to running an F1 team. It will certainly impact every team as it has impacted every person reading this post.

      1. Good point, @redpill.

        Better to make this a 4 year fact-finding mission – achieving almost definitive financial solutions for the 2026 season. All going to plan, of course.

  5. If teams have to stop car development sooner to stay within the cap, so be that.

    1. Yup, that is the most likely outcome, I would say @jerejj. And I don’t think fans will be “poorer” for it if they just have to get on with the cars they have that way. Throwing 140 million + drivers, team principals and marketing cost at racing 2 cars is already a huge amount, they should just see how to manage.

    2. no an expert, but “stop development” sounds a lot like “fire a bunch of aerodynamicists” (or at least use them for different things than f1)

      1. @allyita Not necessarily. More precisely, I meant stopping this season’s car development sooner & subsequently fully switching to next season.

        1. Isn’t that just moving costs from this year into next year’s budget? Surely that’ll only screw them over earlier next term.

  6. There’s an article out today where Christian Horner is saying similar, Going as far as saying teams may have to skip races to save costs.

    1. That article was out yesterday already @stefmeister. I like the answer from the Alpine team pricipal to that – “oh, that would be great for us if they skip the races” – before getting more serious and saying that Red Bull will just have to cut some of the planned development for this year.

  7. Typical F1. Wealthier teams want to spend more using whatever excuses they can think of, while poorer teams are of the opinion that this is what they have to go through every year regardless.

    If they raise the budget cap it’d be a real shame. This is budgeting at work – if some teams fail at budgeting for the unexpected, then that’s entirely their own problem. Plan better next time – I don’t think too many cars would have been noticeably slower if they’d spent $1m annually less on staff salaries, or had slightly less fancy coffee in their cafeteria.
    As it is, they should feel incredibly grateful that there are exclusions to it. Most businesses don’t get that luxury.

    1. Witch Staff are you talking about? I don’t think The floor personnel’s salaries is of a major inflation concern. If Horner, Newey, Brown, Seidl, Wolf and gang etc. were willing I’m certain they could find a few inflationed Millions on their own Pay check.

      1. Yes I know these Pay check are not withing the budget cap! Mmmmmm…. wonder why?

    2. Yea I agree with your comment about wealthier teams wanting more but; with todays snapshot in the championship I can’t see poorer teams like Williams getting any closer to the front due to the slowed development costs of Redbull and Ferrari…

      1. Alberto I’d say it is pretty clear Seidl was thinking of Alpine (see also the Horner ‘teams might have to miss races’ article) and especially Alfa Romeo who have been a clear competitor for the 2nd half of the points positions.

        1. Maybe the teams that want the cap increase should pay a proportion of the increase to the teams that don’t want the cap increase?

          So up the cap to $150M and each team that operates to the $150 cap puts $2M of that in a pool for distribution to the teams that still operate to the $140M cap. Win Win.

          Now I just need to put that in a gold-bound report filled with indecipherable graphs and grab a wine glass.

          1. Yes, this makes good sense!

          2. Sounds more like bribing lower teams to stay in thier humble positions if you ask me.

  8. What happens if inflation is different in different countries? For example, it could be as high as 9% in the UK but lower in Italy. Similarly, energy costs are rocketing in the UK but not increased nearly as much in France. In that scenario would Ferrari and Toro Rosso get given a different cap to the UK teams?

    To extend this thought, if the UK goes into recession and it effects F1 teams (or wider supply chain) significantly, what happens then? Is it a sporting issue for the FIA?

  9. Neil (@neilosjames)
    25th May 2022, 13:52

    Much as I support the idea of a budget cap and think it’s a big positive, it’s a fair point they’re making about the impacts of inflation.

    The budget cap was designed with a particular version of the global economy in mind, but sadly (for many of us, F1 teams included) that version has packed its bags and sailed away over the horizon. We’re in a different economy now, one that wasn’t expected when the cap was created, so adapting it to account for the different situation isn’t a terrible idea.

    1. That’s the point of a budget cap though – that it’s the most they can spend.
      How they spend it, and when, is down to their own financial management.

      If transport costs rise by $5m (for instance) then they just need to take that money from another part of their budget.
      If it means next year’s car is less developed, then so be it. If it means some people need to be redeployed, then that’s just tough. Welcome to the real world, F1 teams.
      Raising the budget cap completely undermines what the cap is for, and more broadly, what budgeting actually means.

      Remember they’ll still have $135m for next year. There isn’t an organisation on the face of the Earth that couldn’t build a pair of F1 cars with that money.
      They just might not be perfect.

  10. There are a number of people in/around F1 who have been long time supporters of a budget cap who are starting to feel that it’s going to end up been detrimental rather than beneficial.

    I’ve heard several supporters of the cap have a ‘Be careful what you wish for’ attitude about it.

    1. The ones who manage their money well won’t be the ones complaining about it.

  11. If even one team can stay under the cap, then they can all stay under the cap. Saying it’s impossible while spending megabucks on strictly unnecessary items is disingenuous.

    It’s like saying it’s impossible to save money in a household budget while visiting the orchestra regularly and eating $50 steaks.

    Also it will actually be good for some teams to go over, so that we can see what the undisclosed penalties for going over will be… If they just pre-penalise themselves by skipping races that would be pretty funny.

  12. Inflation will eat the budget cap very quickly unless they adjust it. Very simple just use 2021 dollars equivalent and adjust for inflation. If not, teams wont be able to buy much for the budget in a few years. Maybe run F2 for that.

  13. Rather than lift the cost cap, this is the moment to cut costs further. Make the teams run on a modest 100m euros a year. Whatever the number, they will make it. And the smaller the number, the better the racing will be.

    1. Sounds to me like you’re a recruiting officer for the dole queue rsp123. The price F1 team personnel are likely to pay from what you suggest is too ludicrous to contemplate.
      There’s plenty of money is in the series, check out Liberty/FOM figures, why not allow teams to spend it with present workforce.

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