A deal has been agreed to relax Formula 1’s budget cap due to soaring inflation levels, though not all teams were in favour of the move.
The budget cap was introduced last year and set at a level of $145 million (£120.9m), with several exceptions including the salaries of top team staff and drivers. It fell to $140m this year as planned, however a sharp rise in inflation since the beginning of the season left several teams concerned they would be unable to avoid exceeding the spending limit.But with other, lower-spending teams confident of meeting the limit, reaching a agreement on easing the limit has proved difficult.
An F1 Commission meeting took place today, ahead of the start of practice for the Austrian Grand Prix, involving the FIA, Formula One Management and representatives of the 10 teams. The FIA and FOM issued a joint announcement afterwards stating a deal had finally been reached.
“Rapidly increasing inflation rates since the end of 2021 have affected Formula 1 teams, and it is the opinion of the FIA and Formula 1 that this creates a risk of noncompliance with the Financial Regulations if actions are not taken,” said the statement.
While the regulations already allow for a spending increase by up to 3% in line with inflation, a further rise of 3.1% has been agreed. However one team opposed the change.
“Following consultation with the Financial Advisory Committee over recent weeks, the FIA brought a proposal to the Commission that was approved by the required majority with support from the FIA, Formula 1 and nine of the teams,” said the statement.
“The proposal recognises the unexpected increase of costs incurred by teams in 2022 thereby permitting indexation at a limited rate of 3.1% (which takes into account the original 3% inflation threshold already set out in the regulations) and permitting compounding of this rate as from 2023. This will preserve the long-term integrity of the Financial Regulations.”
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Carbonized
8th July 2022, 14:06
Hope every worker in the teams gets there “inflation beater” pay raise….. Probably not!
Carbonguy
8th July 2022, 20:35
@Carbonized Trust me, they didn’t!
knightameer (@knightameer)
8th July 2022, 14:18
What’s the point of a cap then? It’s not as if companies raise salaries when inflation figures rise during the year. They wait for the year to end and then review.
S
8th July 2022, 14:20
Exactly.
Everyone is dealing with inflation. Only F1 creates a grey area so that it doesn’t lose face.
Too bad (again) for those teams who did manage their resources well.
Robbie (@robbie)
8th July 2022, 14:32
S ‘Everyone’ is not subject to penalties and fines if they breach the cap through continuing escalating costs to do business. F1 obviously decided it wouldn’t be fair to hold teams to the budgets when the goal posts changed right on the cusp of the season starting, and doesn’t want to see most of the teams penalized, when they can obviously take a simple measure to ensure F1 has a normal season for it’s teams in spite of the drastic global situation.
S
8th July 2022, 14:41
Indeed, @robbie.
Instead, they downsize or declare bankruptcy and shut their business down.
Not F1 though. No penalties here. Just give everyone some more money to spend, because half of them have it anyway.
Sticking to the agreed rules? Nah. That’s never been F1’s thing. Even less so now.
Robbie (@robbie)
8th July 2022, 14:59
S Yes there is plenty of money in F1 so they have it well within their means to take measures in these times so they can keep their entity called F1 healthy. If there weren’t budget caps now, and this crazy inflation, this wouldn’t even be a topic. Even if there weren’t budget caps but with the crazy inflation this wouldn’t be a topic.
S
8th July 2022, 15:18
There is only plenty of money (relatively speaking) in half of F1.
I know you love Red Bull, but there are a bunch of other teams in F1 for whom this change makes no difference.
Actually, that’s not true.
This change further increases the gap between the haves and the have-nots.
The fact that there is a budget cap means it is a topic. A topic of fairness.
MichaelN
8th July 2022, 15:29
The fact that only one team was against this is quite telling; it’s either Alpine or a meaningless vote from one of the client teams that their engine-suppliers allowed them to do to please their backers (probably Haas or Williams).
Never mind that it’s absurd to spend 200+ million a year on F1, but the fact that all but one team among the likes of McLaren, Alpine, Haas, Aston Martin, Williams, Alfa Romeo thought “well, it’s totally fine if Red Bull, Ferrari and Mercedes get to spend more” just shows how necessary it is to separate the engine manufacturers from the teams.
S
8th July 2022, 15:32
Absolutely, MichaelN.
This faux vote is all about the power structure within F1, as so many are.
jff
8th July 2022, 15:33
I think it is exactly the opposite, F1 (including nine) teams decided to ‘change the goal posts’ mid season. This is unfair to the team(s) which practiced and planned to score within the old ‘goal post’ parameters.
I assume that RBR is one of the nine teams, and this will make their likely WDC win a hollow one :/
Cobray (@)
8th July 2022, 14:39
@knightameer You ought to research the term inflation.
In complete layman’s terms, you can think that the budget that they agreed upon is decreased as per the inflation percentage. So 140 million, in reality, is 126 million with 10% inflation.
For some teams, it’s fine since they never meant to spend that much. (1 team probably Alpine)
For the others, it means their financial planning (materials, number of employees, cost of living) is out of bounds.
It is something so significant, that the team has to reconsider their structure as a whole, to the point even of whether they can viably participate in formula 1.
grat
8th July 2022, 15:06
No, no, no… Please stop being reasonable. The fact that this is an entirely artificial budget cap for most of the teams on the grid is totally irrelevant to the discussion.
People just can’t wait to be petty.
S
8th July 2022, 15:29
Obeying F1’s regulations is petty…?
And changing the rules mid-season is a good thing?
MichaelN
8th July 2022, 15:36
If they just stuck to the rules everyone agreed to, it might mean that Red Bull, Ferrari and Mercedes don’t get to spend as much in the remainder of the year. But aside from any arguments about changing rules halfway through the game… so what? That might just mean they can’t develop their new cars as much, and we – as the audience – might see McLaren and Alpine being closer to the front and even legitimately compete for a bunch of wins. That’s a good thing, and part of the reason the cap was brought in to begin with: to make F1 more competitive.
But in F1, Red Bull has two votes, Ferrari has three, and Mercedes has four. So it’s no surprise that everything that challenges their joint dominance over the sport will be dismissed or discredited.
jff
8th July 2022, 15:40
All businesses have inflation (I’ve worked in situations with more than 10% inflation) and inflation can never be an excuse to not make your budget.
Poor planning & cost management are the real (lame) excuses to overrun a budget.
In laymen’s terms: When you commit to something you don’t just commit to quantities, but also to prices. And if prices go up you reduce the quantity, or go for a cheaper alternative, to make sure you stick to your previous budget.
Jere (@jerejj)
8th July 2022, 14:21
In other news, the base limit remains unchanged, i.e., only the leeway percentage outside the cap got slightly increased rather than the cap itself, as per my understanding, most recently based on Seidl’s words yesterday.
S
8th July 2022, 14:42
It’s effectively the same thing, @jerejj.
AlexS
8th July 2022, 14:42
The Cap(which i continue to say will not work) should be indexed to inflation automatically. To what inflation from and what period should be the only question.
S
8th July 2022, 14:44
It certainly won’t work unless there is a hard limit, clearly defined before the season begins.
That’s what a budget is…..
GT Racer (@gt-racer)
8th July 2022, 15:03
The rise in inflation was one reason but there has also been a rise of costs in other areas such as fuel & transportation.
I gather that teams had made allowances for a potential rise in costs but that costs going up in several areas at once meant that even those allowances ended up not been enough & that even teams who had been firmly against a change to the cost cap regulations a few weeks ago ended up voting in favour of it because of that.
Dex
8th July 2022, 15:55
Fair thing would be that teams who breach the limit pay the rest of the teams compensation equal to the amount they overspent (to be shared equally amongst the competition). If they go over those 3% they pay the double amount etc. Something along those lines… Forming such a penalty fund wouldn’t be a bad idea, so those who actually stick to the agreement and are not looking for exploits at least get something back.
EffWunFan (@cairnsfella)
9th July 2022, 3:54
This just isn’t right. I get it that the rises in costs were not foreseen, however such is the nature of the world. It should just be considered one of the hurdles to overcome. Having the higher spending teams compromise more than they would like is surely good for the overall competition, and it’s not like they will have to deal with it every year.