2021 Cost Cap Rumours and Speculation

[Hoffman900]

The crash fund / funding crashes is ridiculous. It’s a risk built into the sport.

In cost cap American sports, if a player gets injured by another opponent, the other team isn’t responsible. Racing should be no different.

These type of thought experiments is what makes F1 needlessly complicated.

It's ridiculous to compare American contact sports with F1. When you're driving down the street and crash into another car, your insurance company which you pay for covers the damage and hospital costs. You can also be sued, separately. Concussions in contact sports have led to lawsuits as well as payments for damages. To say that a team or another driver is not responsible for career ending or possibly life-ending injuries is gross negligence. Consider the team the insurance company of the driver.

It’s not ridiculous, this whole cost cap model is built on the success of it in American sports.

Insurance in racing is ridiculous, and most are against it because if takes away a risk knowing you’re going to get bailed out. It exists for track day participants, but even amateur wheel to wheel racers don’t carry it because it’s nearly impossible to get for a competition. Track days are untimed events, usually people with street cars, so it’s less of a risk.

The drivers are basically contract workers and typically carry their own insurance, and a pro driver, it’s expensive and you do (smart to) cover the risk of a career ending injury. Contact sports are like that too. But to insure equipment for on track incidents against the cost cap is silly.

[Just_a_fan]

The crash fund / funding crashes is ridiculous. It’s a risk built into the sport.

In cost cap American sports, if a player gets injured by another opponent, the other team isn’t responsible. Racing should be no different.

These type of thought experiments is what makes F1 needlessly complicated.

It's ridiculous to compare American contact sports with F1. When you're driving down the street and crash into another car, your insurance company which you pay for covers the damage and hospital costs. You can also be sued, separately. Concussions in contact sports have led to lawsuits as well as payments for damages. To say that a team or another driver is not responsible for career ending or possibly life-ending injuries is gross negligence. Consider the team the insurance company of the driver.

No one forces the drivers to drive on a race track. Everyone knows that crashes happen - for lots of reasons - and that the nature of the sport is that the energies involved are very high and thus potentially fatal outcomes are possible.

So the drivers are there voluntarily and they voluntarily accept the risks associated with the undertaking of the sport.

There is a legal principle of volenti non fit injuria which means that if someone voluntarily places themselves in a position where injury might occur, they can't hold someone else responsible for that injury. Of course, the injury has to be relevant to the situation.

So a driver that is injured as a result of a coming together on track when fighting for position would likely be unable to take action against the other driver (or the race organiser, unless the injury was a result of the race organiser messing up e.g. not putting a suitable barrier at the location if it was obvious that a crash would be nasty). This is also why sports people in lots of sports don't sue each other when an injury occurs - because in those sports there is risk of certain injuries and the participants accept those risks.

But that same driver could take action if, for example, the other driver threw his helmet at him and broke his arm in the process (because that is not an injury caused in the normal running of a motor race). It could possibly also result in criminal charges of assault but that's a separate issue.

Driving on the public highway is not covered by this as no one voluntarily puts themselves at risk of a crash by the actions of someone else on the road. However, if you tried to help the police by blocking a fleeing criminal and they crashed in to your car and caused you injury, you'd probably be unable to sue because of the volenti principle - you willingly put yourself at risk of being involved in an accident. It would certainly be an interesting court case.

[dren]

Is anyone really shocked that teams would look to find a way around the cost cap? It's what these teams constantly do, look for inventive ways to interpret the regulations to get ahead of the competition. What is really unnerving is that other teams would somehow know the books of competitors.

[maxxer]

Is anyone really shocked that teams would look to find a way around the cost cap? It's what these teams constantly do, look for inventive ways to interpret the regulations to get ahead of the competition. What is really unnerving is that other teams would somehow know the books of competitors.

Well when they started about introducing this cost cap i was wondering , how will they control when something is outsourced for free , look at the sponsors lots of data centers and innovative companies.
Just ask them can you run this design for us or such. Also the brains of designers don't come with a cost cap , newey just keeps on sketching and analyzing anyway , no way to stop him with his experience.

[Hoffman900]

Is anyone really shocked that teams would look to find a way around the cost cap? It's what these teams constantly do, look for inventive ways to interpret the regulations to get ahead of the competition. What is really unnerving is that other teams would somehow know the books of competitors.

The teams should have a rough idea. Being mostly a UK sport, labor is similar across the board as are suppliers. If I am in the construction business, I have a rough idea what a competitor bid their project on within single percentage points because we’re in the same market and material costs and labor costs are the same. Now that the cost cap is in place, teams have accountants analyzing the competition much the same way they have engineers studying the competition as well.

What will be interesting now is if there is any offshoring of work to drive down the labor costs. F1 is an international sport, so the idea of that is more realistic and palpable vs a domestic series. For example, does it make sense to manufacturer parts in Asia for the Asia rounds at a reduced cost? Maybe in time, teams relocate.

[dren]

Maybe they found a way of some serious arbitrage action.

[Hoffman900]

Maybe they found a way of some serious arbitrage action.

I’m sure there are all sorts of games they can play now, especially with the US Dollar and the Euro and British Pound exchange rates, especially when it comes to material supplies. I wonder how deep the accounting goes.

Or an example, does it make sense for a team to set up a shell company in the US to buy material in USD and then sell it at a loss to the actual team at a more favorable exchange in British Pounds? Gunther owns a composite supply company, I bet he’s selling material to the team he manages.

[chrisc90]

Maybe they found a way of some serious arbitrage action.

I’m sure there are all sorts of games they can play now, especially with the US Dollar and the Euro and British Pound exchange rates, especially when it comes to material supplies. I wonder how deep the accounting goes.

Or an example, does it make sense for a team to set up a shell company in the US to buy material in USD and then sell it at a loss to the actual team at a more favorable exchange in British Pounds? Gunther owns a composite supply company, I bet he’s selling material to the team he manages.

Oh I imagine its entirely possible and relatively easy to do such a thing. Set a company up with some salary that isnt part of the cost cap (so use a drivers salary given to some way extended family member/friend) then buy the materials, and resell them on at dirt cheap prices. That way you can get the money out the team by paying your driver/team boss or whoever is outside that cost cap on salaries in order to get the materials back in cheap. I mean if you were caught/found out I imagine it wouldnt go down too well, but its certainly a route to get materials in at much cheaper rates.

[tpe]

Maybe they found a way of some serious arbitrage action.

I’m sure there are all sorts of games they can play now, especially with the US Dollar and the Euro and British Pound exchange rates, especially when it comes to material supplies. I wonder how deep the accounting goes.

Or an example, does it make sense for a team to set up a shell company in the US to buy material in USD and then sell it at a loss to the actual team at a more favorable exchange in British Pounds? Gunther owns a composite supply company, I bet he’s selling material to the team he manages.

But it would be difficult to hide it.
Also, it would be difficult to keep the shell company at loss all the time. So, the route is different.
What probably is in place, is the computational related costs.
Having free thousands GPU cores, because you got an advertisement agreement with a cloud provider for example, results to millions in savings.
It can't be a coincidence that too many tech companies get ads in F1 this year.

However, I doubt third is illegal, or bypass of the cost cap etc...

[Hoffman900]

Maybe they found a way of some serious arbitrage action.

I’m sure there are all sorts of games they can play now, especially with the US Dollar and the Euro and British Pound exchange rates, especially when it comes to material supplies. I wonder how deep the accounting goes.

Or an example, does it make sense for a team to set up a shell company in the US to buy material in USD and then sell it at a loss to the actual team at a more favorable exchange in British Pounds? Gunther owns a composite supply company, I bet he’s selling material to the team he manages.

Oh I imagine its entirely possible and relatively easy to do such a thing. Set a company up with some salary that isnt part of the cost cap (so use a drivers salary given to some way extended family member/friend) then buy the materials, and resell them on at dirt cheap prices. That way you can get the money out the team by paying your driver/team boss or whoever is outside that cost cap on salaries in order to get the materials back in cheap. I mean if you were caught/found out I imagine it wouldnt go down too well, but its certainly a route to get materials in at much cheaper rates.

Yep, so at some point, there has to be a consensus on unit price costs, so everyone is paying / spending the same, and at that point you might have to spec a sole supplier to control that, and at that point, you’re on the slippery slope of making it a psuedo-spec series.

[Hoffman900]

Maybe they found a way of some serious arbitrage action.

I’m sure there are all sorts of games they can play now, especially with the US Dollar and the Euro and British Pound exchange rates, especially when it comes to material supplies. I wonder how deep the accounting goes.

Or an example, does it make sense for a team to set up a shell company in the US to buy material in USD and then sell it at a loss to the actual team at a more favorable exchange in British Pounds? Gunther owns a composite supply company, I bet he’s selling material to the team he manages.

But it would be difficult to hide it.
Also, it would be difficult to keep the shell company at loss all the time. So, the route is different.
What probably is in place, is the computational related costs.
Having free thousands GPU cores, because you got an advertisement agreement with a cloud provider for example, results to millions in savings.
It can't be a coincidence that too many tech companies get ads in F1 this year.

However, I doubt third is illegal, or bypass of the cost cap etc...

There is nothing saying that the teams have be UK based or suppliers. Being an international sport, teams can get creative here. It would be way more obvious in something like NASCAR or DTM, however

[organic]

This is second-hand from someone I know who watches Austrian broadcast & don't know if it's been mentioned here but during the weekend Marko spoke to the Austrian broadcast, and he said somewhat plainly that there is a potential issue of a dispute about employees that were transferred to a different division within RB (eg RBPT, RB Advanced Tech.) and whether or not their salaries were to be included within the budget cap; he also claimed RB are not worried (but doubt he would admit even if they are?)

[Jolle]

I suspect its a little bit more then just a relative simple audit of the books. Every team works in a very different way, even on a manufacturing scale.
I assume that lots of parts, serviced and stuff has next to its value the team paid for it, or what it costed them, has a set value. For instance, something simple. Mercedes AMG get's it fuel and lubricants for free in a sponsor deal from Petronas. Williams pays for this same fuel. So, instead of it being zero costs for Mercedes, it's put on the balance for a fair price. This can be applied to everything. It shouldn't be for instance that teams could exist only to make cheap parts for other teams. Like, AM making and developing suspension parts that Mercedes buys for almost nothing. Or that your technologie department/company sells it's development under costs to it's associated teams.

So, it's a bit more then just adding some expenses.

[chrisc90]

This is second-hand from someone I know who watches Austrian broadcast & don't know if it's been mentioned here but during the weekend Marko spoke to the Austrian broadcast, and he said somewhat plainly that there is a potential issue of a dispute about employees that were transferred to a different division within RB (eg RBPT, RB Advanced Tech.) and whether or not their salaries were to be included within the budget cap; he also claimed RB are not worried (but doubt he would admit even if they are?)

Id imagine that the salary is based on a monthly basis pro-rata to when they left. That would be the easiest way and the same in any role for most in the UK. Unless on the off chance that could be paid yearly so could technically have a full wage from the other division outside the cap, but I imagine that would be complicated.

I doubt any team will be worried really, 1st year we've had a cap, so I imagine there will be learning from all teams and the FIA as to how the regulations are interpreted, and what costs are/arent included in the cap. I mean theres not even a list of some of the stuff that should be included in there apart from some basics, so im sure there will be expenditure that isnt defined in the ruleset (if we have access to all documentation).

Likely reprimands in the initial year for a team that goes over or miscalculates? Probably only a small financial penalty to pay for the FIA christmas dinner. As Brundle? said on the broadcast at weekend....there's definitely not going to be any teams/drivers deducted points, especially after the AD fiasco last year, and it would be ludicrous to re-open that topic again.

The other way is you apply the penalty from last year onto this years season... which seems a bit odd way of doing it, but given the drivers and constructors titles are finalised at the end of last year, it effectively means the only option is to add them to this year. But could teams just change their name they compete under? Happens all the time. Team then turns round and says, 'Hold on, Team XYZ isnt competing this year and we are now team ABC, how can team ABC be punished for something team XYZ had fallen foul of?'

Im also curious as to how this report is going to be announced. Is the FIA going to issue a report saying teams' got their certificate of compliance or are the teams going to announce it separately? Given the whole thing is meant to be private/confidential.

[Jolle]

This is second-hand from someone I know who watches Austrian broadcast & don't know if it's been mentioned here but during the weekend Marko spoke to the Austrian broadcast, and he said somewhat plainly that there is a potential issue of a dispute about employees that were transferred to a different division within RB (eg RBPT, RB Advanced Tech.) and whether or not their salaries were to be included within the budget cap; he also claimed RB are not worried (but doubt he would admit even if they are?)

Id imagine that the salary is based on a monthly basis pro-rata to when they left. That would be the easiest way and the same in any role for most in the UK. Unless on the off chance that could be paid yearly so could technically have a full wage from the other division outside the cap, but I imagine that would be complicated.

I doubt any team will be worried really, 1st year we've had a cap, so I imagine there will be learning from all teams and the FIA as to how the regulations are interpreted, and what costs are/arent included in the cap. I mean theres not even a list of some of the stuff that should be included in there apart from some basics, so im sure there will be expenditure that isnt defined in the ruleset (if we have access to all documentation).

Likely reprimands in the initial year for a team that goes over or miscalculates? Probably only a small financial penalty to pay for the FIA christmas dinner. As Brundle? said on the broadcast at weekend....there's definitely not going to be any teams/drivers deducted points, especially after the AD fiasco last year, and it would be ludicrous to re-open that topic again.

The other way is you apply the penalty from last year onto this years season... which seems a bit odd way of doing it, but given the drivers and constructors titles are finalised at the end of last year, it effectively means the only option is to add them to this year. But could teams just change their name they compete under? Happens all the time. Team then turns round and says, 'Hold on, Team XYZ isnt competing this year and we are now team ABC, how can team ABC be punished for something team XYZ had fallen foul of?'

Im also curious as to how this report is going to be announced. Is the FIA going to issue a report saying teams' got their certificate of compliance or are the teams going to announce it separately? Given the whole thing is meant to be private/confidential.

It all depends of course. if RedBull transferred people to RedBull Technology for and let them do the same R&D work but at a fraction of their actual cost in a way to get around the cap, that something different than a small dispute if the administration overhead of a department that also does work for the f1 team should be on the budget or not (for instance).