Thanks to NordVPN for sponsoring this video. For me, NordVPN has been really useful to
be able to access various sporting events and shows around the world that are otherwise
region locked from my computer in the UK. As the VPN provides a gateway to the internet
via its many high speed servers around the globe you don’t have to worry about region
locking anymore. This has also worked frequently for me in
reverse - when travelling I’m able to access content and services i’m used to back in
the UK using NordVPN’s servers And of course you get that extra security
with no data logging, data protection while on the move and double data encryption for
added anonymity. It’ll work across your devices and operating
systems and supports six connections at once. Chain Bear subscribers can get 70% off a three
year plan plus an extra month free on top of that by going to nordvpn.org /chainbear
or using coupon code ‘chainbear’ That’s nordvpn.org/chainbear to get your
big discount.
From 2021 a cost and development cap will be brought into Formula 1, limiting the amount
of cash and time Formula 1 teams will be allowed to spend on developing their cars.
If you saw my video on positive and negative feedback loops (which I’d recommend doing
if you’d like a more complete idea of the complicated concerns at play) you’ll know
some of the problems baked into the current F1 model that these new measures are trying
to resolve. So where are we currently and what’s ‘wrong’?
We’ve got ourselves into a bit of a situation where the gap between the top teams and ‘the
rest’ has grown almost insurmountably large, where F1 is a world of have and have-not.
This has been a problem in existence and slowly growing in the sport for decades, but whereas
we saw giants rise and fall, with other teams forcing their way through to the top every
few years, nowadays we seem to be more ‘stuck’ in a two-tier structure.
And the wealthy teams now spend so much in their campaigns that the middling and lower
teams are finding it more and more difficult to even survive.
And while the big teams like Mercedes keep winning, this winning brings in even more
money, which allows them to build even faster cars (by hiring the best staff and using the
best equipment), which allows them to win even more. A cycle that feeds itself.
Similarly at the lower end of the grid, more losing feeds continued losing.
This is a real problem and it can spiral out of control very quickly. Williams have gone
from runner up constructor two years in a row to miles behind any other team in just
three years and now in a very precarious position financially, at the very edge of survival.
As the second-most championship winning constructor in history, this feels inherently wrong.
And right now the winners and losers just move ever further apart. It’s becoming much
harder for less successful teams to catch up without some killer development, like finding
a loophole that allows rocket boosters. What we want is to push the spread of the
teams back together, but not in a way that directly ruins the competition.
Like, we could just throw lead weights into the more successful cars every time they do
well to try and slow them down - some sports do this. But this doesn’t sit well to a
majority of people as it devalues the competition. Do any teams want to fight Mercedes if they’ve
got one hand tied behind their back? Would they really consider themselves winners if
that were the case? And so it is with a lot of potential competition
flattening ideas. But one way of bringing everyone closer together
is via a cost cap. And this is actually much fairer than crazy schemes like ballast.
F1 teams have an income consisting of Prize Money and arranged funds from Formula One
Management, plus money from sponsors and partnerships, from parent manufacturers and sometimes other
financial arrangements on top. From this income (or from an expected income
for the year) they work out a budget for the season to spend on the costs of running the
team (details of which we’ll get to). Seems fairly simply - money comes in, money
goes out. Like how the guvnor gives you a grubby shilling for your work at the mill
and you spend that money on a tasty crust. Money comes in, money goes out.
Now, unfortunately for every team, the money coming in isn’t equal. Not even slightly.
Last year Williams set themselves a budget of around 150 million dollars but their money
from Formula 1 on top of their sponsor and partner income left them around 25 million
dollars short. These numbers are from a comprehensive breakdown
on RaceFans, by the way, which I’ll link to in the description.
On the other hand, Ferrari’s income from Formula 1 alone is 205 million dollars, with
another 220 million on top from corporate revenue, giving them a working budget of about
435 million dollars. As you can easily see, the two teams (that
for decades battled side by side in the championship) now live a world apart.
You can really see just how unevenly resourced Formula One teams are before they even get
to the track. Now there’s a big argument that the prize
money be made more equitable but that’s not currently on the table and besides - there’s
still a huge chunk of income coming from other sources that’s completely out of Formula
1’s hands. So right now, let’s focus on budgets.
An F1 team budgets how much to spend to run itself in a competitive way across the year.
This includes absolutely everything you spend your team’s money including a bunch of normal
boring gumpf that every company has to think about - like printer ink or licences for Microsoft
Office. In 2019, Williams’ budget was around 150
dollars, Renault’s around 210 and Ferrari’s 435, just for some context.
Now, the plan originally was for a certain chunk of an F1 team’s spending to be restricted
to 175 million dollars a year in 2021. But, following the financial impact of the COVID19
pandemic, F1 have brought this down to 145 million dollars.
So, from next year, F1 teams will have to limit spending in certain areas to no more
than a total of 145 million dollars. Now I said ‘certain areas’. So what bits
of the budget are restricted? Well, the aim here is to limit teams gaining
massive performance gains by throwing money at the problem. What’s bad is the matter
of who’s quick and who’s not being determined by who has the most cash. That’s not very
fun. We want excellence to pivot back to being related to skill and strategy and ingenuity
[SCHU, TODT, BRAWN]. That’s what we’re supposed to value in Formula 1.
So in this limited part of the budget goes all your spending on performance related activities.
So that’s most of your staff (with notable exceptions), the parts you research, develop
and make, research and development, that kind of thing.
Unlimited by the restriction are all the boring things like standard championship costs - travel,
board, entry fees, superlicence fees and all that. Also standard things like buying property
or offering employee bonuses will remain unrestricted. Driver salaries also fall outside of this
cap, as do your top three highest paid employees - likely to be people like your chief designer,
and top bosses. These ‘star personnel’ are part of a highly competitive market, so
pricing Renault out of that competition, for example, would hinder rather than help them.
If you’re a customer team, the costs of buying a customer engine is also outside of
your budget cap BUT the engine supply itself is capped at 15 million dollar a season so
Ferrari can’t try and charge absurd amounts to a cash strapped Haas.
However if you buy other items off another team - like a gearbox, MGU or suspension - then
this will come out of your capped budget, though these items will be given a ‘nominal
value’ so, again, Mercedes can’t try and sell Williams a spring for 40 million dollars.
Even if it’s a really good spring signed by Valtteri Bottas.
OK so in theory this is good, right? We cut this part of the self-feeding model down to
size, so no matter how much success you feed into the system, you can’t translate that
success into absurd growth through your wealth. With a limited budget on developing your car
it’s going to come back to being smart and strategic with your resources rather than
just out-spending the competition. Now obviously it won’t be completely level.
If we compare Ferrari and Williams again - if we assume Williams only have 150 million to
spend, they’re going to have to spend more than just 5 million on non-performance related
costs next year. So their performance budget will be much lower than Ferrari, who will
be able to use all 145 million chasing performance and spending the other 300 million on… fancier
hotel rooms or something? 2021 is of course just the start. The 145
million dollar cap exists only for the 2021 season. In 2022 it drops again to 140 million.
Then again to 135 million in 2023 where it will hold for three years to be reviewed for
2026. F1 mean business with this, they really do.
Now you may ask, how on earth is this going to be policed? And that’s a good question.
And the answer is - independent auditors with access to teams’ accounts. Teams will submit
an interim report before April of the current season and then a final expense report by
March of the following year. There are three potential levels of breaches.
The first is procedural - this is just if you were late handing your report in or you
filled it in inaccurately or used comic sans in green ink or something. Just a mistake
in the process kind of thing. The second is a minor overspend - if you go
over the cap by less than 5%. The worst is a material overspend - if you
go over your budget cap by more than 5% of the allowed amount.
There are also three levels of punishment. You can be given a financial penalty - which
seems… interesting seeing as you already spent more money for gains. What’s a little
more? You can be given a minor sporting penalty
which can be any number of things from a reprimand, a points deduction, a race ban, limiting your
testing or reducing your cost cap even further. Or any mixture of these.
And lastly you can be given a material sporting penalty which is any mixture of the minor
penalties up to an exclusion from the championship. Which… fine. That all seems to make sense,
except for the fact that the audit takes place after March of the following year, basically
when the next season has already begun. So the championship ends, the trophies are awarded,
the championship winners are carved in stone and then… what? They take it away next year,
months down the line? And that’s how finances work. You can’t
really get them audited any faster than that; it takes a while to write up your year’s
accounts. That’s definitely not a situation F1 wants
to be in, and the FIA are very reticent to undo results once they’ve been ratified.
They didn’t take away Alonso’s win in Singapore 2008 after Renault were found to
have grossly cheated to orchestrate it because the results were already in the book.
So, surely penalties will have to bleed into the next season to be effective. If McLaren
overspend in 2022 then they’ll have to have penalties applied to their 2023 campaign also,
surely. And that gets… a little messy. Not horrible, but not ideal.
I’m hoping it doesn’t come to that. I’m hoping teams play by the rules, cause the
consequences aren’t fun for anyone otherwise. Luckily, 2020 is a trial year. The teams are
invited to go through the cost cap process voluntarily, including submitting their accounts
so they can test the procedure without penalty. Unfortunately, 2020 is a bit of a shitshow,
so it won’t be the smoothest trial of the system ever.
OK so that’s the financial side out of the way. There’s also the development cap coming
into play. In order to improve their car’s aerodynamics
teams use both physical windtunnels to blow air over scale models and measure the airflow
and CFD to … basically do exactly the same thing but in a computer simulation. It’s
all aerodynamic R&D. There will be a set ‘benchmark’ time of
how many hours you’re allowed to spend doing aerodynamic R&D and then different teams will
be allowed to do a different percentage of that benchmark depending on their previous
year’s championship position. In 2021, the first placed team from 2020 will
only be allowed to spend 90% of the benchmark time in their windtunnels and CFD simulators.
Each team lower down will gain an extra 2.5 percent of the benchmark time up to the tenth
placed team who can spend a whopping 112.5% of the benchmark.
Then, from 2022 the increments shift more dramatically, with the reigning champion team
only allowed 70% of the benchmark time with gains of 5% down to the last placed team being
allowed 115% of the benchmark - almost two thirds more time than the champion team is
allowed. I know what you’re thinking and no - I don’t
know why they didn’t just put 100% at one end of the championship table and stagger
it from there, but here we are. [100 at 1 - 163% in 7% jumps OR 100 at 10 - 59.5% in
4.5% jumps] Now the aim is to allow teams left behind
to spend more time developing new ways to catch up, while slowing development of the
higher teams to stop them running away too far. And this is a nice subtle way of straightening
out the playing field between seasons without messing with the racing on track. Once the
season begins, everyone just goes for it. What we’re trying to do here is make sure
F1 is competitive. Any team should be able to win if they have the right combination
of skill, determination, cleverness and insight. Those are the values we want to encourage
and those are values we want linked to the overall success of any given team.
When a title is won it’ll be great to say - excellent - they won because they were the
best team that figured out how to win races with their excellent drivers. Not ‘well
they won cause they have a massive budget and have had a massive run on everyone else
for years’. This is just the beginning. F1 will learn
from the next few years and work out how to make adjustments as needed and I am optimistic
that we’ll bend F1 back to being a real competitive sport without resorting to spec
cars.