What potential punishments lie in wait for a team found guilty of breaking the F1 budget cap, as defined in the regulations?
Formula 1’s budget cap rules are being put to the test for the very first time, as the FIA are looking back over the first season the financial regulations were put in place.
Alongside the technical regulations (which are the rules regarding a car design), and the sporting regulations (which are the rules for testing and grands prix), the FIA introduced a third rulebook for 2021 – the financial regulations.
These regulations were brought about to help with the administration and enforcement of F1’s budget cap, which was set at $145 million for the first season of the rules.
This budget cap applies to the areas pertinent to a team’s performance, ie. the car, research and development, parts production, etc. The team’s spending on areas like personnel, logistics, travel, HR, marketing, and legal departments, all fall outside the remit.
The FIA have a ‘Cost Cap Administration’ (CCA) panel in place to audit the team’s returns for a season, with the panel studiously examining the accounts to ensure no breach has taken place.
If a breach is found, the CCA may enter into an Accepted Breach Agreement (ABA) with the offending team. This applies in the case of a procedural breach, or a minor overspend (defined as an overspend of less than 5% over the budget cap). An ABA has already been imposed upon a team in 2022, with Williams falling foul of a procedural error during the returns period.
Williams merely committed a breach in relation to the submission of paperwork, signalling the delay in submitting their returns before the deadline – resulting in the lesser punishment choice meted out by the governing body. Williams were fined $25000 for the breach.
However, the process for examining actual overspends is far more serious.
F1’s budget cap penalty process explained
Should the CCA deem a team to have committed a breach of the regulations, the issue will go before the Cost Cap Adjudication Panel – decisions made by the CCAP can be appealed by the FIA’s International Court of Appeal (ICA).
The panel of judges, elected by the FIA’s General Assembly, will hold a hearing with the offending team, as well as any pertinent witnesses and/or officials, and can impose sanctions and burden of costs upon the offending team.
The first step in the process is to define the nature of the breach uncovered in the auditing process.
The CCAP has the power to define a breach made by a team, such as Williams’, which was defined as a ‘Procedural Breach’.
– Procedural breaches include late submissions, failure to submit interim documents, failure to cooperate with written requests from the CCA, failure to comply with an ABA, or submitting paperwork which is deemed inaccurate, incomplete, or misleading.
Minor overspend breaches:
An F1 team making a season return which shows an overspend of 5% or less over the budget cap will be said to have committed a ‘Minor Overspend Breach’.
– A Minor Overspend Breach, once determined by the CCAP, allows the panel to impose a financial penalty or a Minor Sporting Penalty upon the offending team.
Material overspend breaches:
An F1 team making a season return that shows an overspend of 5% or more over the budget cap will be said to have committed a ‘Material Overspend Breach’.
– A Material Overspend Breach, once determined by the CCAP, allows the panel to impose a Constructors’ Championship points deduction, and can also impose a financial penalty as well as a Material Sporting Penalty.
What are the penalties that can be imposed upon an offending team?
Once a team is found to have committed a breach, and the CCAP have defined the extent of the offence, the process of deciding upon an appropriate penalty can begin.
In Williams’ case, their procedural error resulted in a financial penalty – the accepted measure for this transgression.
For a Minor Overspend, the CCA can impose one or more of the following Minor Sporting Penalties:
-Deduction of Constructors’ Championship points awarded for the Championship that took place within the Reporting Period of the breach
-Deduction of Drivers’ Championship points awarded for the Championship that took place within the Reporting Period of the breach
-Suspension from one or more stages of a Competition or Competitions, excluding for the avoidance of doubt the race itself
-Limitations on ability to conduct aerodynamic or other testing; and/or reduction of the Cost Cap provided that the reduction specified shall only be applied with respect to the year following the punishment being handed out
For a Material Overspend, the CCAP have the option of imposing far more stringent punishments, defined as ‘Material Sporting Penalties’:
– Deduction of Constructors’ Championship points awarded for the Championship that took place within the Reporting Period of the breach
– Deduction of Drivers’ Championship points awarded for the Championship that took place within the Reporting Period of the breach
– Suspension from one or more stages of a Competition or Competitions, excluding for the avoidance of doubt the race itself
– Limitations on the ability to conduct aerodynamic or other testing
– Suspension from an entire Competition or Competitions, including for the avoidance of doubt the race itself
– Exclusion from the Championship
– Reduction of the Cost Cap provided that the reduction specified shall only be applied with respect to the year following the punishment being handed out
The CCAP also has the power to order enhanced monitoring upon an F1 team once found guilty of a breach.