The full details have not been revealed, but the breach is said to have been “minor” which can be up to 5%, or $7.25m (£6.5m).
Rival teams have reacted furiously to Milton Keynes apparent budget bust, with McLaren‘s Zak Brown saying the situation “constitutes cheating” and should be punished with heavy fines. Lewis Hamilton said that even a small overspend could have a significant effect, claiming that he could have won the 2021 title if Mercedes had spent an additional $300,000 (£270,000).
The FIA’s ultimate sanction is to strip championship points from Red Bull, which could affect Max Verstappen’s 2021 title. However, a fine is thought more likely for a minor breach, particularly if the current attempt to negotiate a penalty between Red Bull and the FIA succeeds.
The cost cap was one of three key measures introduced to make F1 more equal and deliver closer, more unpredictable racing. Along with the spending limit came more stable funding, as a new commercial rights agreement shared F1 revenue more evenly between teams. The new 2022 technical regulations then introduced ground effect to allow cars to follow — and fight — more closely.
Scroll down for an in-depth look at the cost cap and how it works.
What is the cost cap?
The cost cap limits how much each F1 team can spend in a single season in a bid to level the playing field across the grid and make the sport more financially sustainable.
It applies to most salaries, car development costs and race weekends, including transport, but does not apply to the cost of buying in an engine, for customer teams, or developing a power unit for factory teams (this is subject to separate cost restrictions).
Engine costs are excluded from the budget cap
Mercedes
After years of different proposals, the $145m cost cap first came into force for the 2021 season, as teams were working on the following year’s new-generation car. The spending ceiling will reduce by $5m a year for the following two seasons. Development costs should be lower as technical rules remain almost unchanged, and the lowering cap is expected to push teams to greater efficiencies.
How much is the cost cap?
The 2021 cost cap, which the FIA now says Red Bull has breached, was $145m.
It reduced by $5m to $140m in 2022, but that was tweaked mid-season as inflation soared worldwide, giving teams an extra 3.1 per cent, or $4.3m (£3.6m).
The cost cap calculations were based on a 21-race calendar, so teams also get an extra $1.2m allowance for each additional race. This year’s 22-race schedule means that the total cost cap coms to $145.5m
Next year’s cost cap is set to drop by a further $5m to $135m (£122m), but that will rebound to $138.6m (£125.3m), as 24 races are planned.
What does the cost cap cover?
The cost cap covers all expenditure related to car performance, excluding the cost of purchasing or developing an engine.
It includes:
• All car components (including spares)
• All equipment needed to run the car
• All garage equipment
• All team personnel excluding drivers and selected others
• Transport costs
• All additional costs
The most crucial area of these cost cap rules is car development: teams must now make crunch decisions on which parts to develop, how much to spend on these parts and how many they need – all the while keeping it under the budget cap.
The cost of repairing accident damage or replacing failed parts all comes out of the budget cap, so a few unfortunate races can make a significant dent to upgrade plans.
Promotional activity, such as this zero-gravity pitstop, doesn’t count towards the cost cap
Red Bull
What does the cost cap not cover?
A number of standout costs are not included in the budget cap, which are:
• Driver salaries
• The three-highest paid team members
• Travel costs
• Marketing costs
• Entry and racing licence fees
• Non-F1 or road car activities (including heritage and promotional)
• Sick leave and parental payments
• Employee bonuses
Engines, due in part to their complexity and the fact that some teams produce their own and others buy in, are not included in the cost cap, but development costs are covered by a separate cost cap.
What is the penalty for breaking the cost cap?
Penalties have not been clearly set out, partly to avoid a situation where teams see the benefits of breaching the cost cap outweighing the penalty that they would face.
However, it has also fuelled controversy around Red Bull’s breach, with rivals keen to see ensure that the team doesn’t gain from the overspend.
Another factor is that points deduction penalties only apply to the season in which the breach occurred, resulting in a season where championships could be changed almost a year after they seemed to be decided.
If a team makes an overspend of under 5%, then that is classed as ‘minor’ breach and can be penalised with points deductions or development restrictions. Anything more and it is a ‘major’ breach, which is likely to attract more severe penalties and could result in a team being thrown out of the championship.
The potential penalties could be one or more of the following:
| Penalties for minor breaches | Penalties for major breaches |
| • A fine, calculated on a case-by-case basis • A public reprimand • Deduction of constructors’ championship points for the year of the breach • Deduction of drivers’ championship points for the year of the breach • Suspension from one or more stages of a race weekend (not including the race) • Restrictions on aerodynamic or other testing • Reduction of the cost cap |
• Deduction of constructors’ championship points for the year of the breach • Deduction of drivers’ championship points for the year of the breach • Suspension from one or more stages of a race weekend (not including the race) • Restrictions on aerodynamic or other testing • Reduction of the cost cap • Exclusion from the championship |
Who decides the cost cap penalties?
It was originally stated that any break of the cost cap would have penalties decided by the Cost Cap Adjudication Panel, where the full range of penalties could be applied.
However, with the recent Red Bull cost cap breach, the FIA has tried to prevent things reaching that stage by offering an ‘Accepted Breach Agreement’, essentially a negotiation process which exists in the financial regulations.
An ABA can include smaller financial penalties, limit participation in some sessions and aerodynamic testing.
Williams’ procedural breach earlier this year – essentially an issue with its financial reporting – was negotiated via an ABA and resulted in a $25,000 breach for the Grove team. Aston Martin has also made a procedural breach, with the punishment not yet announced.
Some of the more severe penalties for cost cap breaches, including a points deduction and a reduction in a future cost cap, are excluded with an ABA.
The agreement allows both parties to move on swiftly, as there is no appeal process – but it would need Red Bull to admit it had committed a breach of the cost cap.
Red Bull’s cost cap breach
Rumours first emerged in the build-up to this year’s Singapore GP that at least one team had made a significant breach of the cost cap, with Red Bull thought to be the main team in question.
Though principal Christian Horner fiercely denied the team had committed any wrongdoing, the FIA then confirmed that Red Bull had indeed gone over the stipulated budget.
A points deduction could see Max Verstappen lose the 2021 drivers’ championship
Kamran Jebreili/Getty Images
Defined as a ‘minor’ overspend, the breach could have been from as little as $75,000 or as much as $7.25m.
Red Bull said it noted the verdict of an alleged overspend with “surprise and disappointment”.
While saying it will comply with all the FIA’s investigative procedures, there has been widespread anger at Red Bull potentially playing in the grey areas of the rules, with all teams having had to make severe cutbacks and in some cases many staff redundant to comply with the regulations.
McLaren’s Zak Brown sent a letter to the FIA and teams which was quickly leaked, indicating in no uncertain terms what he thought of the situation.
“The overspend breach, and possibly the procedural breaches, constitute cheating by offering a significant advantage across technical, sporting, and financial regulations,” he said.
“The bottom line is any team who has overspent has gained an unfair advantage both in the current and following year’s car development.”
Brown also called for clearer penalties to be set out, suggesting teams in breach should automatically have their cost cap lowered by the amount of the overspend, plus an additional fine, as well as a reduction in wind tunnel and CFD testing.
How is the cost cap monitored?
Teams have until the end of March to submit their paperwork for the previous season, but in reality, they are in constant discussion with the FIA to clarify what accounting techniques are allowed and which aren’t. As well as specific guidance on areas such as maternity and sick pay, it would also include advice on how to account for spending and investment that covers multiple seasons.
“We have been discussing non-stop with the FIA for two years,” said Ferrari sporting director Laurent Mekies earlier this year. “It was a new regulation, we have pretty much the FIA living with us in our factories, going back and forth with questions, clarifications every week.