Salary cap, Shmalary Cap

[crmalcolm]

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https://twitter.com/originalwoowoo/s...LXl371Qcg&s=19

[Adam43]

Budgetio, “Trying to be accurate”

[Aysedasi]

Originally Posted by crmalcolm

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https://twitter.com/originalwoowoo/s...LXl371Qcg&s=19

That's a cracker!

[Teretonga]

Originally Posted by Adam43

Driver B’s team think that it was well worth it.

Some people think, well that’s not right. Fair enough. Others think, a little overspend shouldn’t make a different. Fair enough too.

Other people may think a little overspend is fair enough but if others have deferred to meeting the regulation, then it is to their loss if they meet the regulation. Then what is the point of the regulation (in a sporting sense).

There has to be a disqualification or a meaningful consequence or it is longer a meaningful regulation, or alternatively, no longer a meaningful competition.

[S griffin]

We’ll see how disadvantaged Red Bull are next year

[Teretonga]

Originally Posted by S griffin

We’ll see how disadvantaged Red Bull are next year

I wasnt meaning it in relation specifically to RBR but in general about regulations.
However, you are right.
How things play out in 2023 will determine the validity of how the FIA have handled the 2021 cap results.

[Mike Harte]

Originally Posted by Teretonga

I wasnt meaning it in relation specifically to RBR but in general about regulations.
However, you are right.
How things play out in 2023 will determine the validity of how the FIA have handled the 2021 cap results.

My understanding is that RBR's 2022 spending and wind tunnel and computer time will not have been curtailed, but that the penalty will apply to their 2023 season. Therefore, if that is correct, it will be 2024 before it may be seen.

[E.B]

Originally Posted by Mike Harte

My understanding is that RBR's 2022 spending and wind tunnel and computer time will not have been curtailed, but that the penalty will apply to their 2023 season. Therefore, if that is correct, it will be 2024 before it may be seen.

Certainly it would impact on the 2024 car design, but I would think it would also impact the development / updates of the 2023 car, so a double hit in terms of years.

[Mike Harte]

Originally Posted by E.B

Certainly it would impact on the 2024 car design, but I would think it would also impact the development / updates of the 2023 car, so a double hit in terms of years.

There is that, Chris, which I must admit I hadn't considered especially so if the 2023 cars aren't how they thought they would be during pre-season testing.

[Teretonga]

Originally Posted by Mike Harte

My understanding is that RBR's 2022 spending and wind tunnel and computer time will not have been curtailed, but that the penalty will apply to their 2023 season. Therefore, if that is correct, it will be 2024 before it may be seen.

2024 may be where the report on the 2023 cost cap breaches maybe revealed but being able to progress during a season is important.

RBR will not be able to exceed the 2022 cap without suffering a dire penalty or reputation if any becomes revealed in 2023 valuation. No excuses now.

But the reductions in 2023 as a result of the 2021 penalty will put a squeeze on development of the 2023 car in season, not just in development.
If 2022 or 2023 is over then the flow on in terms of penalties and various restrictions will make a difference, in both design and development, to any team that overspends.
Design takes place in the season prior, but development takes place during the season that follows.

That is the whole point of the cap.
To stop rich teams from running away from the lower teams, and to lower the spending threshold to bring the teams closer together and hopefully stop processions, and provide a more balanced field in a competitive sense.

[Mike Harte]

Teretonga, I acknowledged that in my reply above to E.B.

[peebee2]

Originally Posted by Teretonga

RBR will not be able to exceed the 2022 cap without suffering a dire penalty or reputation if any becomes revealed in 2023 valuation. No excuses now.

You think the teams that were censured can affect their 2022 figures that much when they are only notifed about 2021 when they have already spent and committed around 97% of their 2022 budget?

[Anyopenroad]

Originally Posted by peebee2

You think the teams that were censured can affect their 2022 figures that much when they are only notifed about 2021 when they have already spent and committed around 97% of their 2022 budget?

Yes? No? A bit? Maybe?

I give up, what’s the correct answer?

[crmalcolm]

Originally Posted by peebee2

You think the teams that were censured can affect their 2022 figures that much when they are only notifed about 2021 when they have already spent and committed around 97% of their 2022 budget?

Yes - there will be financial mechanisms within which the teams that were censured (and only one team actually exceeded the cap, by a minor amount) that they can use to defer costs until 2023. However, the impact is that their 2023 expenditure will be impacted.


And given that Red Bull only exceeded the cap by 0.37%, then they still have 2.23% of flex if they have committed 'around 97%'.

(sorry - that last part may seem pedantic. But if we are going to claim that 'around 97%' has been committed, it would be interesting to know what (if any) evidence this claim is based on')

[peebee2]

Originally Posted by crmalcolm

(sorry - that last part may seem pedantic. But if we are going to claim that 'around 97%' has been committed, it would be interesting to know what (if any) evidence this claim is based on')

Experience, the calendar, common sense!

Actually the figure is likely higher than 97%, I just wanted to leave some flexibility for pedants...

[crmalcolm]

Originally Posted by peebee2

Experience, the calendar, common sense!

Actually the figure is likely higher than 97%, I just wanted to leave some flexibility for pedants...

Interesting.

Experience - I'm sure the teams employ individuals with vast experience of managing F1 budgets and expenditure. But still, Red Bull got it wrong by around 5%. I hope your experience is not with managing Red Bull's ABA returns!

Calendar - it was only 79% through the calendar year, and 81% through the F1 year when the teams were informed of their errors.

Common Sense - you state that you are 'inside the paddock' regularly. We all know that common sense and F1 are not good bedfellows.

In fact, it now all makes sense - perhaps you are responsible for Red Bull's ABA return.


Seriously - all of the above is not intended to cause offense. The reality is that there is no way anyone except for a very select few can know how much of the year's budget cap has been committed or spent, and even those who think they do know have already been proven to be wrong by some margin. I suspect that a more accurate query would have been:

'You think the team that was censured can affect their 2022 figures that much when they were only caught with a non-compliant 2021 submission when they have already spent and committed a significant part of their 2022 budget?'

And the answer would be - 'Yes, accountants are able to do exactly that for a single in-year financial return with 20% of the year still to complete.'

[peebee2]

Originally Posted by crmalcolm

Interesting.

Experience - I'm sure the teams employ individuals with vast experience of managing F1 budgets and expenditure. But still, Red Bull got it wrong by around 5%. I hope your experience is not with managing Red Bull's ABA returns!

Calendar - it was only 79% through the calendar year, and 81% through the F1 year when the teams were informed of their errors.

Common Sense - you state that you are 'inside the paddock' regularly. We all know that common sense and F1 are not good bedfellows.

In fact, it now all makes sense - perhaps you are responsible for Red Bull's ABA return.


Seriously - all of the above is not intended to cause offense. The reality is that there is no way anyone except for a very select few can know how much of the year's budget cap has been committed or spent, and even those who think they do know have already been proven to be wrong by some margin. I suspect that a more accurate query would have been:

'You think the team that was censured can affect their 2022 figures that much when they were only caught with a non-compliant 2021 submission when they have already spent and committed a significant part of their 2022 budget?'

And the answer would be - 'Yes, accountants are able to do exactly that for a single in-year financial return with 20% of the year still to complete.'

None taken.

The difference is between committed and physically spent. The majority of an annual budget is irrevocably committed even before the car turns a wheel for the first time.

They weren't over by anything like 5%.

Their submission was well inside, leaving a sensible contingency. The FIA disallowed certain points. It took them a tiny amount over.

Chatter suggests six teams are worried about being over in 2022.

Some of the allowances use up budget cap even though some things might cost you virtually nothing - like making spare wishbones that then aren't needed. Even if they are made by employees you are already paying, on tooling that you have already paid for long ago, and using materials that were bought quite some time ago, you still have to account for them at $X,xxx per item. We've seen teams this year running hastily repaired floors to avoid the 'cost' of putting a spare on, and then realising if they've already manufactured a spare it's going to count even if you never put it on the car, and even if you try some dodgy selling it to your 'Heritage Department' at parity.

[chillibowl]

To be fair this is not strictly an accounting issue.

By the latter half of any given season, I would suspect most of any team’s budget has already been committed to being spent. Travel has been booked, employees salaries already set, orders to suppliers already made etc.

Let’s say RB have gotten to this point and only now realize that spending needs to be cut, where would they cut it?

I doubt saying, supplier X we will have to pay you next year or employee y you are terminated has little to do with how the budget cap figure is calculated.

Just an assumption but any saving is probably coming from their repair budget or discretionary spending accounts at this point?

Actually raises an interesting question…is the cap calculated on what is actually physically spent or based on a combination of that and what a team has committed to spending?

Rather, could Newey, for example, just say he doesn’t want his final payment for the year and thus save the team a few million?

[crmalcolm]

Originally Posted by chillibowl

Let’s say RB have gotten to this point and only now realize that spending needs to be cut, where would they cut it?

I doubt saying, supplier X we will have to pay you next year or employee y you are terminated has little to do with how the budget cap figure is calculated.

Just an assumption but any saving is probably coming from their repair budget or discretionary spending accounts at this point?

Actually raises an interesting question…is the cap calculated on what is actually physically spent or based on a combination of that and what a team has committed to spending?

Rather, could Newey, for example, just say he doesn’t want his final payment for the year and thus save the team a few million?

To a certain extent - the examples you present here are (very simplistic equivalents) of how they could do exactly that.

In large business - typically the majority of expenditure for any particular accounting period does not actually change hands until the following period. That is why cashflow issues are different to turnover issues - and it is never as simple as simply race 21 happens in November, so all of the costs for that race occurred in the same month. But - for accounting purposes, they may all 'appear' in that month.

For example, from the text of the regulations:

"a Cost Cap that limits certain costs that may be incurred by or on behalf of an F1 Team in each Full Year Reporting Period" - does not automatically mean the money changed hands that period, but when the cost was incurred. e.g., deferring some of the December work on the 2023 car to January 2023 might shift the period in which costs are deemed to be incurred, but the money can change hands in 2022.

[Anyopenroad]

Just going to repeat a point here: whatever the complexities, oddities or even absurdities of the cost cap, 9 teams got it right and 1 got it wrong. No amount of whataboutery or water-muddying changes that fact.

[crmalcolm]

Originally Posted by peebee2

if they've already manufactured a spare it's going to count even if you never put it on the car,

Does it?

In terms of unused inventory, the regulations state - "the cost of an item of Unused Inventories must not be recognised in the Reporting Period"

[morninggents]

Originally Posted by peebee2

Some of the allowances use up budget cap even though some things might cost you virtually nothing - like making spare wishbones that then aren't needed. Even if they are made by employees you are already paying, on tooling that you have already paid for long ago

Presumably they would be carried forward as 'stock' then written off in 2023 if used or written off as redundant (in 2023) if superceded by an improved design.

[crmalcolm]

Originally Posted by morninggents

Presumably they would be carried forward as 'stock' then written off in 2023 if used or written off as redundant (in 2023) if superceded by an improved design.

The regulations detail four types of inventories - Transitional Carry Over Inventories, Used Inventories, Unused Inventories and Redundant Inventories.

The application of these makes the suggestion that 'teams this year running hastily repaired floors to avoid the 'cost' of putting a spare on, and then realising if they've already manufactured a spare it's going to count even if you never put it on the car,' seem a bit dubious.

Maybe the person making that decision was involved with one of the teams that did not complete their return accurately?

[chillibowl]

Originally Posted by crmalcolm

The regulations detail four types of inventories - Transitional Carry Over Inventories, Used Inventories, Unused Inventories and Redundant Inventories.

interesting distinctions...

if a part ultimately becomes redundant or if they choose to use another part/configuration instead then surely some level of testing would have to go into making that determination.

even if it was just a quality assurance test or a front wing flexibility test done in the factory then on some level knowledge and experience is being gained.

perhaps an odd way of looking at it, but i would argue that for strictly budget cap purposes any part made with the intention of being on or for the benefit of the current season's car should be a cost allocated to that season because no part is really unused?

the notion that a rich team can make 20 extra front wings and not be penalized by the cap simply because they dont use those parts (possibly even never intended to use those parts) seem to me to be against the spirit of the rules?

[peebee2]

Originally Posted by morninggents

Presumably they would be carried forward as 'stock' then written off in 2023 if used or written off as redundant (in 2023) if superceded by an improved design.

No that isn't the case.

They have an impact on the cap whether used or not. I think teams are trying to write them out by "selling" them to their "Heritage" arms at varying value.

It just goes to show that the budget cap is far, far from the simple measure many people assume it is.