Red Bull team principal Christian Horner and Ferrari boss Mattia Binotto insist it is not possible for their teams to stay within the spending caps thanks to high inflation rates and skyrocketing costs. amid ongoing lobbying for allowable spending to be increased.
Binotto indicated “there’s no way we’re going to fall short”, while Horner says his team would have to save the equivalent of missing “numerous races to get close to costs below the limit”.
While they, along with Mercedes, which is also backing a cost-cap increase, are historically among F1’s biggest spenders, they aren’t the only teams struggling. McLaren team principal Andreas Seidl says it will be “impossible” to reach the cost cap, while Aston Martin and Red Bull-owned AlphaTauri also support an increase.
The cost cap is set at a baseline figure of $140 million this year, but teams are poised to exceed that by a significant margin thanks to a combination of inflation and rising freight and material costs that, in some cases, dramatically exceed inflation.
Inflation rates are already high, particularly in the UK, where the Bank of England recently warned that it could hit 10% in the last quarter of 2022. With the Russian invasion of Ukraine also driving up costs, the situation could become significantly more difficult as the year goes on
Financial regulations offer a wide range of potential penalties for exceeding the cost limit, depending on the scale and nature of any breach. However, there is a threshold of 5%, below which an infringement is defined as ‘minor’.
Binotto believes that many teams will miss the cost cap as a result of what he sees as “force majeure” circumstances.
“There will be no way for us to stay down [the cost cap]so I’m pretty sure at some point we’ll get over it,” Binotto said when asked by The Race what the consequences would be if the cost cap wasn’t raised.
“In the regulations there is a threshold that is 5%. If you don’t go 5% over the budget limit, it’s considered a minor violation. And what is a minor infringement in case of force majeure, what will the stewards and the FIA decide in terms of sanctions? No idea.
“But I don’t think there is a way for us, and a lot of teams, to stay inside. [the cost cap].
“And even firing people in the first place, I don’t think that’s the right choice.
“It’s already summer, when you organize it and do it, the benefit it can have is not enough to face the excess prices and costs that we have.”
Horner suggested last week that the spiraling cost situation could force teams to miss up to four races to stay under the limit.
He clarified his position as an indicator of how difficult it is to go under the cap and warned of the dangers of the championship potentially being decided by who is willing to “play chicken” with how far they push a minor violation of the financial . regulations
“What I was trying to point out last weekend when I was asked the question was that it would be the equivalent of [having] missing numerous races to get close to under-the-cap costs,” Horner said.
“All the major teams are going to break that $140 cap this year. What we don’t want to end up doing is having a 5% threshold for a minor infraction. What is the penalty for a minor violation?
“What we don’t want to do is end up playing a game of chicken. That is, the [Ferrari] we go to $4.9 million, we go to $4.7 million and that will be an improvement that could be the differentiating factor of this world championship?
“What we do need is clarity, and clarity quickly, because it’s not right for us to be bailed out by a couple of teams that might not be affected, because that was never the design of the budget cap.
“The budget cap was there to limit the top teams from a spending spree. None of us could have predicted when we got the budget cap figures, which if you remember were down $30 million from where they were originally set during the pandemic, no one could have contemplated the world events that are driving inflation.
“We don’t even know what that inflation will be in the second half of the year. We are all seeing the cost of living rising, we are seeing utility bills skyrocketing. Where will that go in the next six months?
“So we need the FIA to take early action on this because we are reaching the halfway point of the year and there is not much you can do.
“And we also have a responsibility to our employees. We’ve reorganized, we’ve reformed, we had to lay off a lot of long-time employees through layoffs last year to get to a point that was commensurate with the cap before inflation hit. I don’t think it’s right that pressure should be put on mass layoffs within the sport.
Hopefully common sense prevails. It’s a force majeure situation, it’s a situation that none of us could have foreseen that has increased these costs, and pragmatically we just need to come to a common sense solution.”
Alfa Romeo is one of the teams that is against any changes to the cost cap.
Recently, team principal Frederic Vasseur confirmed that the team is operating “a couple of million” below the cost cap with the expectation of being on it next year when it is expected to drop to a baseline of $ 135 million.
But he rejects the argument that high inflation rates constitute a case of force majeure.
“It is absolutely not a force majeure event because inflation is not a force majeure event,” Vasseur said.
“We knew perfectly well in November, October, when we made the budget, that we would have inflation. And now it’s up to the teams to decide if they want to develop the car all season and miss all four events, or if they want to slow down now and do the full season.
“Honestly, I think at some point we have to agree that we’re not going to try to change the rule after two events.”
Alpine is also against any changes, with team principal Otmar Szafnauer also arguing that inflationary pressures are factored into the cost cap.
He has also previously argued that there is scope within each team’s development budget to make reductions below the cap.
“We all sat for a long time trying to get the cap to the right level,” Szafnauer said. “We discussed inflationary pressures, there is a mechanism at the very top to deal with inflationary pressures.
“And I think [it is right] stick to the rules that we have, that we have discussed for a long time.
“The big teams had a different view of where the cap should be, the smaller teams wanted it at $100 million. We reached a compromise that includes inflation, what we do with inflation and [to call for change] the first time we face inflation that is a little above 2.5%, I think it is wrong.
“We should stick to the rules as written and go through with this. And I don’t think it’s opportunistic for teams to say they don’t change the rules in the middle of the season.”
Mercedes engineering director at the track, Andrew Shovlin, argued that the claim that development spending could be reduced was not logical.
He stressed that Mercedes structured its spending to be within the cap, but that dramatic cost increases mean the problem is now insurmountable.
“Initially, we had a plan to hit the budget cap and work within it, as I’m sure everyone did,” Shovlin said.
“Then as costs like freight started to be multiples of that, or energy and just the effect of inflation, that stopped being looking for ways to tie it together to stay within a point where the challenge becomes insurmountable.
“You have levers that you can push or pull your spending with, but the impact of those is not immediate and the effect of those is not all-powerful and that’s the situation we’re getting into now.
“Everyone is faced with a position where, even with the best will in the world, it is almost impossible to attract teams. [within the cap].
“People have talked about the development budget, but the development budget also goes into providing the parts that you’re racing. So it’s not about this huge pool of money that you’re just spending on wind tunnel parts or faster parts.
“We as a team and I am sure we are no different, we are racing parts that are more worn, we carry much less spare parts than before. Every weekend we find ourselves in situations where serious incidents could result in us not being able to field a car or actually cobbling together a car.
“And if we don’t constantly replace parts with faster ones, we’ll just be spending a considerable amount of money on the same parts.
“The challenge that our team faces, and we are not the only ones, we are probably the majority, is a very difficult challenge. And there’s one or two [teams]if you aimed to be below, things have fallen in your favor.
“But it is an area where everyone is working together and hopefully we will find a solution.”
Binotto argues that the teams opposing a change in financial regulations, which would not necessarily be a flat increase in the cap, but could hamper the way indexing processes work to account for inflation and other rising costs. They should have a sense of responsibility. towards F1.
He claims that Ferrari did this when it agreed to the cost cap reduction during the early months of the COVID-19 pandemic, and that teams opposed to a cost cap change should take a similar view now.
“Whatever the situation is with the small teams and the top teams, it’s a sense of responsibility, like we had in 2020 when we cut from $175 million to $145 million,” Binotto said.
“Certainly the top teams weren’t interested in reducing it to $145 million. It would have been easy for us to stop him and keep $175 million and [say] there will be no discussions at all. We made an effort because we understood the importance of that, we understood the importance of trying to balance a little more the limit and the financial situations between the teams.
“But now we are experiencing the regulations. We know where the limits are, what needs to be improved and all the teams should understand that and be responsible.
“If a team is just looking out for their own individual interests, we will never move forward. As Ferrari, we even accepted in 2020 to freeze a regulation when we knew that our car was going very badly and put all the criticism on our shoulders for an entire season.
“We did this out of a simple sense of responsibility.”