2021 Cost Cap Rumours and Speculation

[chrisc90]

Rather than clogging up the 2022 team threads, maybe a better place to discuss it? Hopefully people will be able to make sense of the regs as to what teams can/cannot do and if there is any leeway or grey areas in the regs.

Here is a link to the regs for the 2021 season:
https://www.fia.com/sites/default/files ... -04-30.pdf

I will start by copying my earlier post from the RB thread where a member mentioned inflation.

Someone mentioned inflation previously and I thought id have a quick look in the regs for what is said about the topic.

The FIA call this as inflation, which they get from the IMF.org. The regs are interesting as it does make reference to the cost cap being tweaked to allow for inflation.

The Cost Cap
2.3 The amount of the "Cost Cap" shall be as follows, in each case adjusted (if applicable) for
Indexation:
(a) in the Full Year Reporting Period ending on 31 December 2021:
(i) in the event that 21 Competitions take place in that Full Year Reporting Period,
US Dollars 145,000,000

The budgets are:

2.4 Where an F1 Team has a Presentation Currency other than US Dollars, the Cost Cap for that
F1 Team shall be converted from US Dollars into that F1 Team’s Presentation Currency at the
Initial Applicable Rate. For illustrative purposes, the amount of the Cost Cap in selected
Presentation Currencies for the Full Year Reporting Period ending on 31 December 2021, as
referred to in Article 2.3(a) (assuming 21 Competitions and Indexation of zero) is as follows:
Presentation Currency
US Dollars 145,000,000
Pounds Sterling 114,254,000
Euros 132,034,000
Swiss Francs 144,422,000

Note the phrase (assuming 21 Competitions and Indexation of zero)

That rule specifically says the cost cap can be adjusted for indexation.

Now the same document classes indexation as:

"Indexation" means:
(a) in respect of the Full Year Reporting Period ending on 31 December 2021, the higher of zero
and the amount by which the September 2020 average annual inflation rate as published on
the International Monetary Fund website for the G7 countries exceeds 3.0%; and
(b) in respect of the Full Year Reporting Periods ending on 31 December 2022 and 31 December
2023, the higher of zero and the amount by which the average annual inflation rate as
published on the International Monetary Fund website for the G7 countries for September of
the preceding Full Year Reporting Period exceeds 3.0%; and
(c) in respect of the Full Year Reporting Period ending on 31 December 2024 and each subsequent
Full Year Reporting Period, the rate to be applied in respect of the applicable Full Year
Reporting Period, as determined and communicated by the Cost Cap Administration via a
Determination no later than 31 October of the preceding Full Year Reporting Period.
The average annual inflation rate for the G7 countriesis published on the International Monetary Fund
website at https://www.imf.org/external/datamapper/PCPIPCH@WEO/MAE. If such rate ceases to exist, the Cost Cap Administration will use an alternative rate which it deems to be reasonably
comparable.

So the rate can be adjusted if it goes above 3% (i believe). That rate was 5.4% in 2021 (not sure what date the IMF take that as) and 7.4% in 2022. So maybe teams can adjust their cost cap to allow for that increase in inflation/indexation.

I mean I could be completely barking up the wrong tree, and it probably needs someone with more accounting/costing background to look at that to make a proper conclusion to it, but that regulation document doesn't say WHO is responsible for adjusting the cost cap based on indexation/inflation. So there is a chance that teams can do this themselves, based on the figures on the suggested website, to adjust their budget to suit.

[RZS10]

If i understood previous talk about this correctly then past a certain threshold the budget could be exceeded by a few percent above the actual cap, but this is not up to the teams to decide but will be communicated to them - at the top of my head i believe this was part of the discussion about extending the cap in July as some argued that it would be higher anyways come September or something like that? They then agreed on a few more percent on top of the automatic increase? I'd have to look for articles about this.

The current cap would be
140 + sprint race stuff + more than a certain number of races + the agreed upon increase (which iirc will be taken into the next year, meaning 2023 will not be the intended amount but that+the added sum in 2022?) + the indexed addition (which does _not_ carry over to next year) ...
it should be similar for 2021
base 145 + sprint + extra races + indexed, but without any extra.

It would be great to see some hard numbers.

Either way, it's almost safe to say that the FIA will have accounted for any indexed increase.

[Just_a_fan]

McLaren now adding fuel to the fire - they were having to lay people off and Red Bull were offering huge salary packages to try to tempt people across to them. Those packages come within the budget cap, don't forget. So how were they able to do that, develop the car and fix big damage within the cap? Some interesting questions being raised by more than the usual Mercedes and Ferrari bosses.

[SmallSoldier]

Rather than clogging up the 2022 team threads, maybe a better place to discuss it? Hopefully people will be able to make sense of the regs as to what teams can/cannot do and if there is any leeway or grey areas in the regs.

Here is a link to the regs for the 2021 season:
https://www.fia.com/sites/default/files ... -04-30.pdf

I will start by copying my earlier post from the RB thread where a member mentioned inflation.

Someone mentioned inflation previously and I thought id have a quick look in the regs for what is said about the topic.

The FIA call this as inflation, which they get from the IMF.org. The regs are interesting as it does make reference to the cost cap being tweaked to allow for inflation.

The Cost Cap
2.3 The amount of the "Cost Cap" shall be as follows, in each case adjusted (if applicable) for
Indexation:
(a) in the Full Year Reporting Period ending on 31 December 2021:
(i) in the event that 21 Competitions take place in that Full Year Reporting Period,
US Dollars 145,000,000

The budgets are:

2.4 Where an F1 Team has a Presentation Currency other than US Dollars, the Cost Cap for that
F1 Team shall be converted from US Dollars into that F1 Team’s Presentation Currency at the
Initial Applicable Rate. For illustrative purposes, the amount of the Cost Cap in selected
Presentation Currencies for the Full Year Reporting Period ending on 31 December 2021, as
referred to in Article 2.3(a) (assuming 21 Competitions and Indexation of zero) is as follows:
Presentation Currency
US Dollars 145,000,000
Pounds Sterling 114,254,000
Euros 132,034,000
Swiss Francs 144,422,000

Note the phrase (assuming 21 Competitions and Indexation of zero)

That rule specifically says the cost cap can be adjusted for indexation.

Now the same document classes indexation as:

"Indexation" means:
(a) in respect of the Full Year Reporting Period ending on 31 December 2021, the higher of zero
and the amount by which the September 2020 average annual inflation rate as published on
the International Monetary Fund website for the G7 countries exceeds 3.0%; and
(b) in respect of the Full Year Reporting Periods ending on 31 December 2022 and 31 December
2023, the higher of zero and the amount by which the average annual inflation rate as
published on the International Monetary Fund website for the G7 countries for September of
the preceding Full Year Reporting Period exceeds 3.0%; and
(c) in respect of the Full Year Reporting Period ending on 31 December 2024 and each subsequent
Full Year Reporting Period, the rate to be applied in respect of the applicable Full Year
Reporting Period, as determined and communicated by the Cost Cap Administration via a
Determination no later than 31 October of the preceding Full Year Reporting Period.
The average annual inflation rate for the G7 countriesis published on the International Monetary Fund
website at https://www.imf.org/external/datamapper/PCPIPCH@WEO/MAE. If such rate ceases to exist, the Cost Cap Administration will use an alternative rate which it deems to be reasonably
comparable.

So the rate can be adjusted if it goes above 3% (i believe). That rate was 5.4% in 2021 (not sure what date the IMF take that as) and 7.4% in 2022. So maybe teams can adjust their cost cap to allow for that increase in inflation/indexation.

I mean I could be completely barking up the wrong tree, and it probably needs someone with more accounting/costing background to look at that to make a proper conclusion to it, but that regulation document doesn't say WHO is responsible for adjusting the cost cap based on indexation/inflation. So there is a chance that teams can do this themselves, based on the figures on the suggested website, to adjust their budget to suit.

The rules do make rule for adjustments based on inflation… But unless a new cap is approved, the Teams have to adhere to it… A Team can’t simply exceed the cap and then argue that their cost went up… The costs went up for every single Team and the rest had to make adjustments as required (whether it was suspending work on the cars, delaying or simply eliminating updates from their pipeline or in the worst cases, having to terminate employees) to save money an comply with the Budget Cap.

Regardless of what the inflation in 2021 was, there was a cap agreed to and if a Team breached it, they should punish with very strong consequences… If they don’t, not only will FIA be creating a very bad present with now adding a factor of risk / reward for those Teams that can afford to spend beyond the cap, it could actually bring down the whole system.

[ispano6]

There absolutely needs to be accountability of other teams who cause damage to other team's cars. It simply is not fair to have your cars taken out and incur the cost of the damages counting toward the budget.

[chrisc90]

Who sets the new limit though. A BIG IF, if that’s the only document related to the cost cap it doesn’t say who is/isn’t responsible for adjusting the budget to suit.
I mean I can’t see it being that easy to give teams free reign over how much inflation they can stick on the budget, but you never know.

[Jolle]

There absolutely needs to be accountability of other teams who cause damage to other team's cars. It simply is not fair to have your cars taken out and incur the cost of the damages counting toward the budget.

That is racing. From the most simple club day to F1.
Teams do act over dramatic about big shunts. HAAS for instance, who have operated under their own very low budget cap since their conception (as in, being flat broke), never acted like a baby when their drivers totalled another car.
Most, if not all of the variable cost comes from the vast amount of people they employ. Those few production workers laminating a front wing aren’t the cost. At best, the updated wing that has been developed by the 100+ CFD engineers and their super computer plus windtunnel has to wait for a couple of weeks.

[SmallSoldier]

Who sets the new limit though. A BIG IF, if that’s the only document related to the cost cap it doesn’t say who is/isn’t responsible for adjusting the budget to suit.
I mean I can’t see it being that easy to give teams free reign over how much inflation they can stick on the budget, but you never know.

As with other regulation changes, the FIA and the Team’s need to agree on a change… And we just went through one of those adjustments.

[Just_a_fan]

There absolutely needs to be accountability of other teams who cause damage to other team's cars. It simply is not fair to have your cars taken out and incur the cost of the damages counting toward the budget.

How do you make a million dollars in racing? Start with ten million.

Motorsport carries the risk of a crash and the associated costs. It's the same for every competitor. No one has been "taken out" as that implies deliberate actions by one driver/team to try to destroy another's car. And that simply is not what has happened in the last few years - the last time was probably Michael back in the mid-90s.

[johnny comelately]

Good and important topic

Exchange rates and timing, and volatile inflation pose a challenge in this respect to such a global sport

Seeing as they are not short of a bob, it would be prudent to engage someone like McKinseys and Deloitte to reciprocally instigate and dynamically audit the situation

[johnny comelately]

There absolutely needs to be accountability of other teams who cause damage to other team's cars. It simply is not fair to have your cars taken out and incur the cost of the damages counting toward the budget.

How do you make a million dollars in racing? Start with ten million.

Motorsport carries the risk of a crash and the associated costs. It's the same for every competitor. No one has been "taken out" as that implies deliberate actions by one driver/team to try to destroy another's car. And that simply is not what has happened in the last few years - the last time was probably Michael back in the mid-90s.

That is a 10% return, not bad

[Moving Chicane]

There absolutely needs to be accountability of other teams who cause damage to other team's cars. It simply is not fair to have your cars taken out and incur the cost of the damages counting toward the budget.

How do you make a million dollars in racing? Start with ten million.

Motorsport carries the risk of a crash and the associated costs. It's the same for every competitor. No one has been "taken out" as that implies deliberate actions by one driver/team to try to destroy another's car. And that simply is not what has happened in the last few years - the last time was probably Michael back in the mid-90s.

What if the FIA or Liberty would return some of the money for broken parts involved in crashes?

Example: lest say a front wing costs between 150k$ (Haas) and 200k$ (RB) but Liberty would return 100k$ to anyone involved in a crash regardless of who it is.

I see this as a win-win for both sides: Liberty get some drama (SCs can shuffle race order, ie. Singapore 2022) and Teams receive something back (although mistakes are still costly points wise). Of course, some limits would have to be imposed, like really being in a crash, parts affected in a crash (no new RWs in a head-on collision), etc.

[Big Tea]

There absolutely needs to be accountability of other teams who cause damage to other team's cars. It simply is not fair to have your cars taken out and incur the cost of the damages counting toward the budget.

How do you make a million dollars in racing? Start with ten million.

Motorsport carries the risk of a crash and the associated costs. It's the same for every competitor. No one has been "taken out" as that implies deliberate actions by one driver/team to try to destroy another's car. And that simply is not what has happened in the last few years - the last time was probably Michael back in the mid-90s.

That is a 10% return, not bad

No, its a loss of 9 million

[johnny comelately]

How do you make a million dollars in racing? Start with ten million.

Motorsport carries the risk of a crash and the associated costs. It's the same for every competitor. No one has been "taken out" as that implies deliberate actions by one driver/team to try to destroy another's car. And that simply is not what has happened in the last few years - the last time was probably Michael back in the mid-90s.

That is a 10% return, not bad

No, its a loss of 9 million

Hence my wink

[Jolle]

The rules already have a budget overrun provision of about 5% for unforeseen circumstances and can be applied dit by the teams.