The financial regulations that came into force last year will take on a new dimension this season with the title fight between Ferrari and Red Bull.
The fight for the Formula 1 title in 2022 promises to be particularly tight and is to be fought out financially, but not in the usual way. This is the end of this frantic development race where generous spending could make all the difference; From now on, the budget ceiling requires careful selection of each investment made.
F1’s financial regulations came last year, but chassis were frozen due to the pandemic-related financial crisis, so their impact on development was less. This year it takes on its full extent; The Ferrari and Red Bull teams, who claim the top two steps of the podium at every Grand Prix, are aware of this.
With 22 grands prix on the schedule this season, teams must meet this annual budget ceiling of $141.2 million, which excludes certain costs such as the salaries of the drivers and the team’s three other highest-paid employees or marketing expenses.
Christian Horner, director of Red Bull Racing, had set the tone since the beginning of the year: “I think more or less all teams are very close to the limit this year. [Cette limite] is very aggressive, so you have to be very strategic when it comes to allocating funds to development: instead of just racing as fast as possible and getting as much performance out of the car as possible, you have to be much more selective about what you do choose , depending on the cost.”
Eventually, though, the approaches seem to diverge: while Ferrari, victorious in Bahrain and Melbourne, waited for Barcelona to launch their first developments, Red Bull wasted no time fitting new parts into their RB18, something Mattia Binotto did to a certain extent Perplexity led , director of the Scuderia.
“It is true that Red Bull have improved their car compared to the start of the season, they have made improvements”underlined Binotto. “Looking at the last two races they’re probably a few tenths ahead of us on a lap. Now I have no doubt that we need to keep developing and introducing improvements to keep the pace I hope because it’s the There is a budget ceiling.” Red Bull will stop development at some point, otherwise I don’t understand how they do it.”
“If there’s a concern, it’s the scale of their development around the budget cap. We are certainly concerned about this. But more than a worry it is perhaps a hope because at some point they have to stop…”
Mattia Binotto (Team Principal), Charles Leclerc and Laurent Mekies (Sports Director) at Ferrari
On Ferrari’s plans in this area: “We don’t have the resources to develop upgrades for every race. It’s that simple. Not because we can’t, but because of the budget ceiling. We have to focus on development to some degree if we think it’s the right time and the right expense.”
In other words, Ferrari is questioning what’s going on at Red Bull and arguably wouldn’t complain if the FIA - more specifically the Budget Cap Administration – took a closer look. Capped budgets have long been considered unfeasible in Formula 1; However, under the leadership of Max Mosley, the association had proposed a budget of £40m from 2010 which never materialised, much to the chagrin of new teams Lotus/Caterham, Virgin/Marussia and HRT.
In 2017 we raised the issue with Otmar Szafnauer, then Team Principal of Force India, and he was quick to express his skepticism: “If we have a limit, will people bypass it? There should be methods and mechanisms. Governments have them, for example, to know if people are paying their taxes well. They keep more money. But governments have controls. I’m sure there are a lot of people who get away with it without us knowing it, but every now and then someone gets caught and gets a hefty fine. So there are methods.”
“In the United States, where I’m from, at the varsity competition level – just below professional sports – it’s huge. It is a lot of money. Even more than in Formula 1. And the athletes don’t get paid. Top athletes can choose which university they go to and have a big impact on that university’s revenue, but they don’t get paid. You know what? The universities want to attract them all, but they can’t pay them, so they buy their parents a new car or they suddenly live in a mansion but don’t get a salary, the NFL has capped budgets [Ligue nationale de football américain, ndlr]. People go to a TV station and say, ‘If you want to do an interview with so-and-so, you have to pay him for the interview, but pay him ten times more than normal and I’ll refund you the difference.’ So this guy, despite the capped budgets, has a higher salary thanks to the other things he does.”
Otmar Szafnauer, Director of the Alpine F1 Team, spoke on this topic in 2017
“But something like that comes out eventually. If you get fined enough if you get caught – 100 million if you take that Ferrari file to McLaren for example! [en 2007, un dossier de 780 pages confidentiel de la Scuderia Ferrari, contenant des informations techniques, avait été transmis en secret à McLaren, qui avait été disqualifié du championnat constructeurs et avait reçu une amende record de 100 M$]. If the fine is big enough and we get screwed up, then I think we can keep order. To me, the best deterrent in our sport is people leaving one team, knowing one thing, and joining another. They say, “You know what they’re doing? In doing so, they bypass the upper limit of 150 million. Denunciation is the best deterrent.”
The financial regulations have therefore been carefully drafted by Federico Lodi and Nigel Kerr, both of whom are leading this project at the FIA, with the support of the Federation’s and Formula 1’s Technical Directors, Nikolas Tombazis and Pat Symonds. This made it possible to determine how much money the teams spend on the development and operation of their single-seaters. Deloitte UK, which developed financial fair play in football for UEFA, also provided expertise.
The regulations are detailed enough to take into account factors such as maternity or sick leave, as well as the assignment of certain mechanics to a historical program – for example at Williams – in the knowledge that they could lend a hand.
Above all, the possible penalties are a significant deterrent: fine, deprivation of points in the constructors’ or even drivers’ championship, exclusion from one or more Grand Prix, reduction of track or wind tunnel tests or even upper budget limit … but are all these factors enough?
“I have full confidence in the FIA”said Binotto to Imola when we asked him if there were any gray areas. “But there is no doubt that this is brand new regulation and as with all regulation there is always a competitive edge in trying to read it properly.” That doesn’t mean there are gray areas, it’s rather the way in that the teams themselves could understand, read or interpret.
“So I think it takes a lot of effort on the part of the FIA to ensure that the rules are respected. To do that I think they need to strengthen the staff internally and increase the number of people who audition and oversee because it’s a key element, I think it’s just as important as the technical and sporting regulations because they are real regulations. To date CFOs [des écuries] are perhaps as important as the technical directors.”
Max Verstappen (Red Bull RB18)
Admittedly, the situation is complicated by the fact that some teams design and build their own drive units and/or transmissions while others do not, while certain close collaborations between teams can raise questions. The case of Red Bull Racing and Scuderia AlphaTauri, both sourcing from Red Bull Technology, is particularly complex, but Federico Lodi assures there is nothing to worry about.
“I think we sorted that out in the financial regulations because basically Red Bull Technology will fall under the Red Bull Racing statement.”reveals Lodi. “We say F1 costs are incurred by a team, but the reality is that they are incurred by the legal entities of the team group incurring costs related to F1 activities on behalf of the team.”
Overall, team managers rely on dialogue to avoid controversy. “There is a lot of discussion going on between the teams’ finance staff and the FIA to continue to improve this”says Jost Capito, CEO of Williams Racing. “When a team identifies a gray area, I think the issue will be addressed in that group [de travail]. This system is so complex that it needs to be further developed. And I find that there is good collaboration between all the finance directors of the teams to do this. But there is also a lot of work with the FIA, which monitors it very well.”
Günther Steiner, Haas F1 Team Director, assures: “You can find gray areas to exploit but I don’t think there’s a lot of loopholes to do something that wouldn’t result in a big penalty.”
The future will tell if real controversy will erupt by the end of the season – or even later! – with regard to compliance with the budget ceiling by all those involved. One thing’s for sure: Its execution is particularly heartening for investors like Gene Haas, who weren’t exactly thrilled with the idea of continuing to spend heavily on results that didn’t always meet their ambitions.
“There have been times when we have tried to implement financial regulations but it has been impossible. This time everyone was very, very determined and motivated because we wanted a viable business model for the teams going forward.”, concludes Federico Lodi. Business model that also makes Formula 1 more attractive for new teams, with Andretti possibly joining by 2024.
With Adam Cooper
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