This could be one of Formula 1’s most dramatic weeks in years.
The Singapore Grand Prix paddock was febrile at the weekend, but it had nothing to do with tropical climate. Long-held suspicions that some teams were operating at the outer limits of the cost cap had finally erupted, and the sport is roiling with the implications.
Two teams are at the centre of the storm, but championship leader Red Bull Racing is copping considerably more of the blowtorch than Aston Martin, and for good reason. Not only did it power Max Verstappen to an already contentious maiden championship last season, but it’s set to win a comfortable title double this year, setting it up for a chance to dominate in 2023.
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But the spectre of a breach of the cost cap casts a pall over all of that, and considering the stakes involved and the already significant needle between the top three teams — and between RBR and Mercedes in particular — this has all the makings of a potential meltdown.
Most importantly it will seriously test the FIA and its new financial regulations that are at the centre of its mission to equalise the sport.
The governing body is set to get the ball rolling on Wednesday when it finalises the accounts for the 2021 season. What happens then will have enormous bearing on the fabric of the sport.
WHAT IS THE COST CAP AND WHY IS IT IMPORTANT?
The cost cap limits spending as an equalisation measure given the historically strong correlation between money and performance in Formula 1.
The cap was set at US$145 million for its first season in 2021, with that number reducing in US$5 million intervals this and next season, though in reality the cap is slightly higher than this, due to allowances for seasons featuring more than 21 races, for sprint races and to account for inflation.
The biggest teams were spending as much as three times the cap prior to the pandemic.
The cap covers only performance-oriented spending is throttled. The financial regulations contains a long list of excluded costs, among which are driver salaries, all the three highest paid members of staff, travel costs and non-F1 activities a team might undertake, along with several other items.
But the importance of the cap cannot be overstated. Prior to its introduction it wasn’t enough to divide the teams into rich and poor; there were those with long-term futures and those living hand to mouth or worse.
Williams boss Jost Capito, who was appointed to the role after the Williams family was forced to sell the team to US investment firm Dorilton Capital or risk shuttering the company, laid it out plainly.
“For us it‘s very simple: Dorilton wouldn’t have entered the sport if the cost cap wouldn’t have been in place,” he said. “That shows how much that means for the team.”
Even McLaren, not often thought to have been an at-risk team, is adamant of the cap’s importance.
“It‘s the only way for us to be in Formula 1 in a financially sustainable way and in a way also that we can be competitive,” McLaren principal Andreas Seidl said. “Therefore it’s obviously very, very important that, especially now at the beginning of this new era of Formula 1, with the financial regulations as well, that it doesn’t collapse right away again.”
WHAT’S THE PROCESS?
The cost cap is based on calendar years, and teams must lodge their accounts by the following March, when the FIA starts its certification process to verify compliance.
But it’s not a one-and-done process, particularly given 2021 was the first year of the rules being in force.
Team financial officers are constantly clarifying with the FIA about what is excluded from and included in the cap, like technical directors do with the technical rules.
“There is a dialogue that happens — how an interpretation was and why it was and why it wasn‘t,” Mercedes boss Toto Wolff said. “This is not just a moment in time where suddenly you discover breach or not.
“The audits have been going on for a long time.
“Every team has collaborated with the FIA. There have been discussions forward and backwards about how the interpretations go.
“So it‘s over many months that you come to certain conclusions.”
COST CAP ROW
‘HUGELY DEFAMATORY’: Red Bull boss hits back at ‘fictitious claims’ over cost cap
‘HEAVYWEIGHT’: Wolff blasts Horner over cheating allegation denial
RED BULL ALLEGATIONS: Verstappen’s team allegedly in breach of cost cap rules
FIA answers to questions are made available to all teams.
This Wednesday the FIA will finalise the last of the teams’ compliance statements and announce whether any of them is in breach. Red Bull Racing and Aston Martin are heavily rumoured to be set to receive breach notices, though both have denied this will be the case.
If they’re served with notices, they can either cop the punishment or take the matter to adjudication, where guilt will be decided by a panel of independent judges. It can also appeal to the FIA International Court of Appeal and then the Court of Arbitration for Sport.
WHAT ARE THE ALLEGATIONS?
There have long been murmured suspicions about Red Bull Racing’s spending based on its free-flowing development pipeline, and Wolff said in Singapore the allegations against Red Bull Racing were an “open secret”.
“We obviously monitor closely which parts are being brought to the track from the top teams every single race — 2021 season, 2022 season,” he said.
“We can see there are two top teams that are just about the same and there is another team that spends more.”
There are two types of breaches: a minor breach is an overspend of less than 5 per cent, a material breach is 5 per cent or over. Last year 5 per cent was worth US$7.25 million.
It may sound small in the context of the overall budget, but its significant in terms of development spending.
“We know exactly that we are spending US$3.5 million a year in parts that we bring to the car,” Wolff explained. “Then you can say what difference it would make to spent another US$500,000.
“Every spend more has a performance advantage.”
It’s seriously unlikely any team has flagrantly broken the cap. Instead it’s almost certainly a case of a team looking for wriggle room around the margins for savings to be redirected into development.
Though Christian Horner was on the offensive all weekend defending his team, he did hint that any disagreement existed in these grey areas.
“The cost control that has gone on has been absolutely stringent throughout the organisation, but of course there are so many different constructions of companies and businesses, subsidiaries,” he said. “That it is an elephant for the FIA to get their arms around.
“Inevitably there are going to be learnings. We are seeing clarifications that are coming out, even subsequent to when the submission has been made, that could have a material impact on the actual submissions that were made back in March.
“Of course there was always going to be a process, a learning curve, both for the regulators and for the participants.”
WHAT ARE THE POTENTIAL CONSEQUENCES?
For ‘minor’ breaches of less than 5 per cent a team can cop a fine or a sporting penalty, including a reprimand, a loss of drivers or constructors championship points, suspension from sessions, or a reduced cost cap or development allowance in future sessions
For ‘material’ breaches of 5 per cent of more the FIA is required to dock constructors championship points and can also levy any of the above penalties in addition. It can also suspend a team from races or throw a team out of the championship entirely.
If you’re deemed to have aggravated the process by acting in bad faith or attempting to defraud the process, you’ll have your penalty increased, but full co-operation will lead to leniency.
The penalties have been left deliberately vague as a deterrent — if a team doesn’t know how much it might be punishment for overspending, it’s less likely to do it.
Max Verstappen won the drivers championship by eight points last year, while Red Bull Racing beat Ferrari to second by 262 points. If a points deduction is the chosen penalty, it must be applied to the year the breach occurred.
It’s thought unlikely that the FIA would consider retrospectively changing last year’s title result, but it’s impossible to know without knowing how significant the breach is.
WHAT TO THE OTHER TEAMS THINK?
It’s clear rival teams want harsh penalties levied almost no matter the crime, and while there’s clearly politicking and even some personal spite afoot in the matter, they have good reason to take a hard line: a stiff penalty today will mean fewer breaches tomorrow.
“We are very much looking forward to having clear and transparent evaluations of what has happened and severe measures being taken if there is a breach,” Ferrari racing director Laurent Mekies.
“Seven million dollars will be like 70 engineers. Seventy engineers will give you a serious amount of lap time.
“So if you think about the power that these financial regulations have, it‘s probably overpowering both the technical and sporting regulations at the same time if you think about the amount of lap time that is lying into those sort of numbers.
“This is why we are very much looking forward to a transparent and severe approach.”
There’s also the spectre of any gains made in 2021 knocking on to 2022 and even 2023.
Overspending in last year’s campaign will have meant more money to prepare for this year’s regulation changes — a massive advantage. And if that overspend came about via some novel financial philosophy, there’s every chance the team in question will still be applying that approach this year, which in turn benefits it for next season.
“We haven‘t produced lightweight parts for the car in order to bring us down from a double-digit overweight because we simply haven’t got the money, so we need to do it for next year’s car,” Wolff said. “So you can see every spend more has a performance advantage.
“The FIA, Formula 1 need to make sure that these regulations have teeth because of the aforementioned reasons — you can gain a real competitive advantage.”
WHAT NEXT?
Assuming breaches are found on Wednesday, this is an issue that will serious exercise the FIA.
The most important outcome is that punishments for breaking the cap aren’t seen as the cost of doing business.
It’s for this reason a fine would fracture the paddock. To issue a financial penalty to a team that was previously spending more than three times the current cap would be laughable and bring the sport into disrepute in its own right.
But it’s an extremely difficult call to make, and you wouldn’t envy those at Place de la Concorde in deliberating over it.
Some have likened overspending to doping given its correlation with performance that can’t be accessed within the rules.
Does that mean reaching back and changing the outcome of last year’s title? It would be an enormous call that would have to be justified by a significant breach of the rules. It would also shake the sport to its core and surely set off a wave of legal action from Red Bull Racing — though its recourse is limited by the regulations it signed up to when entering the championship.
Probably more likely is that cost caps and development allowances for future years are severely curtailed to peg an offending team back.
Penalties must materially affect any team found guilty. Anything less would cause the most important equalisation measure in Formula 1 and the source of the sport’s sustainably competitive future to crumble.
“It is a very vital test for the cost cap,” Mekies said. “If we don‘t pass that test, it’s probably game over, because the implications are huge.”
