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F1 2022

Why the budget cap could have a crucial impact on the rest of 2022

Formula 1's cost cap has long been a hot topic, but the issue is now raising more talking points than ever, as RacingNews365.com Editorial Director Dieter Rencken explains.

Spanish GP start 2022
Column
To news overview © XPB

Whoever would have thought that Haas, which has its cars designed and built by a Ferrari subsidiary, could hold the key to the World Championship by effectively vetoing an increase to the budget cap due to global economic factors, in turn restricting Ferrari's performance upgrade programme? To be fair to Haas, they are not the only objector, but the irony is that are potentially scuppering their own technical partner.

That is, though, exactly the state of play: with the IMF's inflation rate running at close to seven per cent – and F1's own metric running even higher due to the impact of the Russia/Ukraine conflict on key expenses such as freight and energy – the major teams, who based their 2022 upgrades around forecast economic factors, now face overruns of $6-$8 million. In short, they need to cut back by that amount, or face FIA sanction.

The net effect is they need to reduce payroll by that amount, cut back on development – or do both. Either way, current projections have them plateauing on upgrades within the next three to four races, meaning an effective development freeze from July onwards. Thus, the pecking order will likely be locked in from the mid-point of the season, unless the cap is increased to cater for unexpected inflationary factors.

			© XPB Images
	© XPB Images

Major teams could be forced to cut staff

Worse, up to 50 heads could be cut by each of the major teams, so at least 200 hard-working folk and their families will suffer – and, crucially, once experienced F1 folk leave the sport under such circumstances, they seldom return. The seriousness of the situation is evidenced by the number of team CFOs meeting their counterparts in the Barcelona paddock, with various Zoom calls scheduled for talks with folk back at their bases.

The word is that the FIA/F1 axis is totally supportive of an inflationary increase, but the stumbling block is that changes to current season regulations require unanimity – in other words, all 10 teams need to agree. Four – Alpine, Haas, Sauber and Williams - are said to be anti any increase, simply as they are below the cap and view the situation opportunistically: Cutbacks on upgrades at the sharp end will help them close the gap.

The majors argue that the situation is one of force majeure, that no one could have foreseen the Ukraine conflict, and that F1 should adapt accordingly – citing actions taken at the start of the Covid pandemic, when the major teams, who had the resources to survive the lockdowns, agreed to massive cutbacks and regulation changes to assist the independents.

Questions raised over financial regulations

"Some payback we’re now getting," a team boss grimaced on Friday when we spoke to a number of team bosses across the spectrum.

Ferrari Sporting Director Laurent Mekies, responding to a RacingNews365.com question during the FIA press conference at the Spanish Grand Prix, said: "We've been [tuning] the technical and sporting regulations to make them rock solid as a sport [for many years].

"The financial regulations are still a very young set of regulations, and how do we collectively make them enforceable? How do we make them equitable in all situations? It's a big challenge right now.

“A simple example is how do we now deal with the sort of force majeure type of situations with inflation for example, that we've been discussing for a long time. We feel the FIA should have the power to ensure the rules are fairly applicable and have the freedom in that case to make sure that the system doesn't explode because of early days difficulties.”

			© XPB
	© XPB

The implications of the issue

Clearly the integrity of the financial regulations is a major concern: Introduced last year and thus still 'immature', they have not yet been tested. Provisions are, though, made for sanctions ranging from reprimands through to suspension and exclusion of teams and key personnel from the series. The fear is that a team could be excluded (or have points docked) for keeping staff employed under force majeure situations.

On the flipside, not sanctioning a 'guilty' entity sets a precedent which could stretch the very premise of the budget cap, which is to restrict spend by the majors to give independent teams a fighting chance, and not increasing the cap enables a small number of teams to benefit from a force majeure situation. Through whichever prism the matter is viewed, the integrity of the cap is threatened.

Clearly the regulatory process needs a full review, but the question is whether it can still be undertaken in time to save this year's championship fight. Or to save those 200 jobs…

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