Judgement day for F1 on whether teams have breached cost cap

It's an important day in the world of Formula 1, as the FIA is set to conclude its long process of checking the financial documents all teams from 2021.

Since last year there has been a budget cap active in F1 of $145 million USD, designed to keep the spending of teams under control, avoid spiralling costs, and increase the competitiveness of the field.

The auditing process is done by the FIA Cost Cap Administration (CCA) panel, and will see whether each team has complied with the spend cap by examining a teams financials to ensure no breach has taken place.

Speculation has been rife between the top teams over whether Red Bull has went over the cost cap limit during the 2021 season. This led to the FIA issuing two statements, the second doubling down on "unsubstantiated speculation and conjecture" relating to the story.

What is the fuss about?

The rumours originated from Italian and German media sources which claimed that Red Bull and Aston Martin had spent more than 5% of the budget cap amount.

Red Bull boss Christian Horner believes his squad have fully complied with the regulations and is 'confident and comfortable' that they are within the spend limit.

"I am confident that everything is in order with the documents we have submitted," he told media, including RacingNews365 after the Singapore GP.

"That's been through a process that went in March in terms of being signed off fully by our auditors who are obviously one of the big three [accounting firms], and we believe that we are comfortably within the within the cap."

Mercedes Team Principal Toto Wolff has said that any breach of the cost cap would be a 'heavyweight' offence, while Ferrari Team Principal Mattia Binotto added that even a 'minor' breach should have major consequences.

What happens if an F1 team breaches the budget cap?

Anything expenditure-related to the performance of the team such as the car, research and development, and parts production is covered in the cost cap apart from engines.

Driver salaries and the three highest-earning staff members are not included in this amount.

Entry fees, travel costs, marketing, property/legal costs, parental/sick leave payments, employee bonuses, staff medical benefits, and non-F1 or road car activities are also not included.

The penalties for exceeding the $145 million USD cost cap amount is split into three groups; minor, material, and procedural. Minor can be a breach of overspending anything less than 5%, while material would be classified as anything over 5%.

These penalties will be determined by the FIA Cost Cap Adjudication Panel made up of six to 12 judges, and can be contested through the International Court of Appeal.

Why was Williams fined $25,000?

Procedural breaches can happen if a team makes a mistake when submitting or maintaining financial records.

While this isn’t explicitly what happened to Williams earlier this year, it still resulted in a $25,000 fine.

Team Principal Jost Capito explained that even though the team did submit their financials on time, their third party auditor was late - owing to the complexity of the process.

”It's definitely not the case that we forgot to put our submission on time. We put our submission in absolutely in time.

“We had one of the third party auditor's inspecting one of the related companies - that is how complicated the whole system is. [They] told us two days before that they’ll be a couple of days late with their auditing.

“So we informed immediately the FIA and said ‘This [2021 submission] will be a bit late, a couple of days late.’ It was within the week this one page paper was sent and we got fined. It had nothing to do directly with the team.”

At the moment, a fine for a team committing a minor or material breach of the cost cap is being seen as a ‘slap on the wrist’ given the performance advantages it could yield.

Whatever the outcome of this years audit, it’s clear the teams want to see credible action taken in future if any breach has been made.