It was interesting to hear over the Monaco Grand Prix weekend the complaints from Formula 1’s top teams and driver managers about the FIA’s financial regulations and, in particular, the much publicized cost cap.
Before debating whether an adjustment to any determined cost cap figure is appropriate, it should be emphasized that a condition of entry into the FIA Formula 1 World Championship is an explicit agreement for each F1 participant to comply with the regulations established by the FIA. through a clear process established by our sport’s constitution.
This means full compliance with the technical regulations, the sporting regulations and, from 2022, the financial regulations. No exceptions, no ambiguity, and certainly no ability to select which regulations you want to follow – you sign up to run your business in accordance with all three interrelated sets of regulations.
So to hear comments from team managers threatening not to show up from at least seven teams in the last four races because the cost cap is too low is dishonest media lobbying and, in my view, is not absolutely unprofessional.
Yes, there are serious international inflation-related economic and supply chain issues that every F1 team faces, but then again, so do all other forms of business operating under financial regulations and competitive market conditions.
The FIA financial regulations came into effect, as in many other professional sports, due to the need to try to maintain sporting integrity and a semblance of equality.
They aim to prevent state-funded or billionaire-funded teams from destroying the sporting fabric that has evolved over decades with huge loyal fan bases and represents the pinnacle of athletic competition.
Financial regulations are there to protect our sport and, in the case of F1, to preserve its reputation as motorsport par excellence. Let’s take this as a positive development rather than something that should have no place in motorsport.
I speak with some knowledge of my work in Formula E, which is in a trial period to impose a cost cap and reasonable financial fair play rules in the first electric series. Much of the work and lessons learned from the implementation of F1 has been transferred to Formula E.
What I saw was a very thorough, well-thought-out and realistic set of rules, determined in full consultation with competitors and under the able guidance of Federico Lodi, the FIA’s head of financial regulations.
Leaving aside my personal thoughts regarding the exemption elements of the F1 cost cap (fortunately under Alejandro Agag’s leadership we have far, far fewer exemptions in Formula E, so the figures published on the cap costs are really a company’s total costs to get into a pair of racing cars and race), let’s look at how the cost cap figure was derived and the implications for inflation and the exchange rate.
The F1 teams, Liberty Media and the FIA have all agreed that the official currency of F1 is the US dollar (for Formula E it is the euro) based on F1 promoter payments in dollars and expensive traditional elements such as pilot salaries being dollar-based.
As widely advertised, for 2022, teams have a capped budget allocation of $140 million, from which teams must manage all of their expenses as defined by the agreed budget line item parameter. Everything is very clear and, as I said, in my experience, these regulations are well drafted and formulated according to sound accounting practices.
In addition, severe sanctions are provided for proven offenders, accompanied by sanctions with sporting and financial consequences. Senior team executives such as the team manager and chief financial officer are personally accountable, as well as the collective team.
By entering the Formula 1 World Championship, a team (and by implication its team manager) agrees to abide by these regulations and they are aware of the problems that arise if they break – just as they are aware of the range of sanctions that can be imposed for sporting or technical irregularities.
We have already referred to inflation and I am aware that items such as semiconductors and other automotive components that are part of the current global automotive supply chain challenge are subject to anti price increases. -inflationaries that would make any CFO cry. .
Likewise, there are similar challenges in terms of freight costs, travel costs, etc., but surely that is part of the management of an F1 operation or any other business for that matter.
Find alternative suppliers, reduce certain areas of the business, take fewer people to races; becoming more efficient is the art of good management, which becomes ever more focused in times of high inflation.
On the other hand, as F1’s cost cap is in US dollars, F1 teams have largely benefited from the strength of the dollar against currencies such as the euro (around 15% over the last 12 months) and the book (13%). So in real terms, F1 teams are significantly better off as their $140m will now go much further than when the cap was set.
Various comments were made by team principals at the Monegasque event, but one of the most vocal was Christian Horner, who might be wise to remember what he said in 2020: “I thinks you have to look at what suits the business and sometimes personal interest outweighs sports interests.
And this is the crucial point; cost caps are needed in F1 to ensure that through good times and bad times the sport not only survives but thrives and we can have a full roster of well-funded, profitable and attractive teams that represent real franchise opportunities.