Since 2021, Formula One has introduced a third regulation to govern the category. In addition to the technical and sporting regulations, a financial regulation very articulated that defines the spending limits that the teams have to bear in a season. The items of expenditure that must be considered and excluded are described in detail up to expenditure ceiling which for this 2022 season is set at 140 million dollars. A value which, however, is subject to change if the number of races of the season varies more or less, and that already for 2023 it is set at 135 million. The regulation also sets a margin of 5% more or less compared to the maximum expense value. In fact, it is singular that there is also a minimum spending limit as well as a maximum limit, which is precisely 133 million dollars in this 2022. The teams must not only respect these limits but are also required to present clearly and regularly their budgets and their expense items to a third-party judicial body specifically appointed by the FIA. The penalties for any more or less serious infringement range from reprimand to then increase with the deduction of points, disqualification and the reduction of the budget cap to lower limits than the other competitors. Formula One has obviously not been exempt from the increase in costs linked to the soaring inflation in all countries of the world and the increase in energy and fuel costs. An absolutely unexpected economic scenario when the financial regulation was written about three years ago and which now risks creating a lot of problems for most of the teams. The risk, paradoxically, is not that of spending too much but of reaching the spending limit too soon and having to stop the development of the cars prematurely. On this issue in the Barcelona paddock we collected the opinion of Andreas Seidlteam principal McLaren.
“It is clear that respecting the budget cap is a necessity for us and for this sport. It is no secret that McLaren was among the teams that pushed to include the spending limits that we find in the regulation today. Likewise I think that if unforeseen circumstances arise, such as those that are occurring this year with the heavy increases in energy and transport costs, it should be possible to discuss between the teams and the FIA to find a solution. reasonable. The fact is that we are in the middle of a season that we have all prepared in terms of developments and some teams have planned to spend exactly the maximum amount, but with all these increases it will be impossible to do everything while staying within that level of spending. From our point of view, the cap budget limit should be re-discussed by indexing it to the increase in the cost of living and therefore to inflation. We still have a lot of developments on the car planned for this season and if the spending limit remains this we would not be able to do everything we have in mind. This is why it is important that we discuss between the teams to find a solution but it is clear that to find unanimity on a decision on the issue is quite unlikely. There are teams that have planned to spend the most and that right now have a performance advantage and others that have an interest in spending less. But it is also true that F1 teams have shown in the past that when a common sense decision had to be made, an agreement was found. “
The growing trend of the inflation rate it is not the only aspect that affects the cost ceiling. In this situation of turbulent financial markets too the currency in which wages are paid or raw materials are purchased can have a major effect on the final expenditure. These are variables that a year ago, in a situation of stagnant inflation and stable stock exchanges, had not been considered with particular attention.
“We are still at the beginning of the introduction of the budget cap and it is normal that there are things we learn with the theme on this subject. We need to discuss what is the best mechanism for adjusting the spending limit to inflation. A similar mechanism had already been defined a couple of years ago before the introduction of the F1 financial regulation and was supposed to come into effect from 2024 onwards. Given what is happening in the world, however, I believe it is a system that needs to be reviewed. “
However, if the mechanism for adjusting the spending ceiling were too “simple”, it could lead to a spiral of dizzying growth, with limits that would shoot upwards every year, dragged by galloping inflation. Returning to 2022, the cancellation of the Sochi Grand Prix as a consequence of Russia’s invasion of Ukraine and the decision not to replace it with another event does not appear to have an appreciable impact on the teams’ finances
“It is true that with the cancellation of the Russian GP, the maximum spending limit is reduced by 1.2 million dollars, but at the same time by virtue of the savings we will have from the cancellation of this trip there will not be a big difference. Nobody inside the team doesn’t mind having one race less, it’s something that gives relief given the already very busy schedule. “
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