2021 F1 cost cap to be adjusted

2019 F1 Season

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Racefans has leaned that, at the request of four F1 teams, the proposed cost cap has been excluded from the regulations pushed to October for ratification – with a ‘soft’ cap coming in 2020 and the ‘hard’ cap enforced from 2021.

Although all ten teams agreed unanimously to delay the ratification process of the 2021 Formula 1 regulations by the FIA World Motorsport Council to no later than 31 October to provide the governing body with additional time to refine the regulations, RaceFans understands that the Financial Regulations (cost cap) were excluded from the process at the insistence of McLaren, Racing Point, Renault and Williams.

According to sources familiar with the Implementation Agreement that was signed by the FIA, Formula One World Championship (Liberty) and the teams in Paris on Thursday ahead of Friday’s scheduled WMSC meeting, all parties waived their rights to challenge any provisions of the Financial Regulations as presented to the teams.

However, minor amendments were made ahead of signature: an increase/decrease of $1m per race should the sporting calendar go above/fall below the current 21 rounds per annum.

Thus, as outlined here, a ‘hard’ cost cap of $175m per annum ( any calendar adjustments) will operate from 1 January 2021, with specific exclusions as outlined here. However, a ‘soft’ cap will apply during 2020 to enable the governing body and teams to acclimatise to the procedures and fine-tune them. No penalties will be incurred for spend during this period.

RaceFans has also learned that the Cost Cap Adjudication Panel will comprise a total of six to twelve judges, elected by the FIA General Assembly and drawn from candidates proposed by either authorised FIA Sport members or a group of no less than five teams.

However, any decisions handed down by the CCAP may be appealed to the International Court of Appeal as per FIA procedures.

The Financial Regulations define a Minor Breach as one where the relevant costs reported by the team exceed the cost cap by less than five per cent, with a Major Breach being one where reported costs exceed the cost cap by more than five per cent.

Author information

Dieter Rencken
Dieter Rencken has held full FIA Formula 1 media accreditation since 2000, during which period he has reported from over 300 grands prix, plus...
Hazel Southwell
Hazel is a freelance journalist who roams the paddocks of Formula E, covering the technical and emotional elements of electric racing. Usually found at...

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55 comments on “2021 F1 cost cap to be adjusted”

  1. I am confused by the Article…
    Did they “exclude” Cost Cap from future Regulation? Or did they “exclude” it from being postponed to October and as such – consider it already “approved”?
    Or will it be included somewhere, but will be different?

    I’ve re-read the article 4 times and still didn’t get it…

    1. @dallein I believe they have excluded it from being postponed. The 4 teams in question wanted assurances that a delay of the decision on regulations would not allow the top teams more bargaining time to negotiate a cost cap in their favour. It seems the concession has been made. Still a lot to negotiate but a small victory in my opinion. Take note, Brexit!

      1. Yes, that makes sense.

  2. That headline…that picture…gold!

    1. @johnmilk Pre-order your limited edition 2020 Mercedes AMG Petronas Soft Cap today!!

    2. Took me way too long to get it…

  3. I honestly expect this cost cap to open up a big can of worms & end up causing some big controversy that does a lot of damage to the sport.

    It just seems like something that may seem like a good idea in principle but will be horrible (And unpolicable) in practice.

    I honestly think it’s a matter of if & not when the whole thing blows up in there face & they end up scrapping it.

    1. Any argument to support your opinion?

      1. I am not Roger, but here’s the argument

        Imagine “[Insert Your Team Name]” commercial entity has $175m annual budget. All is good and nice.
        Comes “[Insert Your Team Name – Performance Limited Inc.]”… some subsidiary of the shared Parent company. It “sells” their parts (whatever they are… can be physical goods or IP in the form of aerodynamic models… testing… wind tunnel…) for… $1 a piece.
        “[Insert Your Team Name]” happily buys loads of goods from “[Insert Your Team Name – Performance Limited Inc.]”, because “Financial regulations” didn’t restrict some kind of business deals\partnerships. It maybe an oversight or one or multiple loopholes (which will not be surprising, considering complex documents always miss something)…

        Do you think “[Insert Your Team Name]” will have an advantage?
        While staying inside $175m annual budget?

    2. Biskit Boy (@sean-p-newmanlive-co-uk)
      14th June 2019, 12:47

      +1

      Its official. F1 is no longer a sport in any sense. Just as winning in F1 has become about getting the brightest engineers who can perform the best technical exercise, costing the most amount of money, another level has been added… accounting

      Its so sad. F1 has come to this. Now whichever teams can get the best and most creative accountants will massively improve their chances of winning. It sickens me.

      1. Ridiculous. They haven’t had these types of caps or controls before, and you were fine, and now that they are finally trying something that is completely necessary you are worried that it might not work and it might go back to the point where you were fine?

        If anything ‘sickens’ me (too strong a word really) it is the scepticism when Liberty and the teams haven’t even had a chance to see their changes through and it’s already shot down by those who seem to know better from their armchairs.

        1. @Robbie but it was so much more of a sport when one or two competitors could trample their opponents into non existence with a massive chequebook. Or that that cheque book is bolstered by hospitality, wining and dining the right people to strike up advertising. Or if you were one of the trampled teams, taking on young drivers and helping out politically on exchange for cheaper engines.

          Sarcasm.

        2. @robbie – true, or we could just let teams vote on the rules mate- same thing really :)

          @sean-p-newmanlive-co-uk – I am an accountant Sean, no where near the big time of an F1 team but I have 1000 ways in my head teams will get around a cost cap, it pretty easy. That said something needs to be done to get more teams in and make more compete for a win or podium. Personally I think reduce the cost of the PU (I don’t think F1 needs to provide for road cars technology, if it happens it happens, but also reduce areo a bit and get these guys following closer.

          1. @garns – Good point about the accounting that many are missing. Especially when you have so many entities that are multinational, multilevel and have extremely complex relationships within and without their actual racing organizations. Particularly the wealthy manufacturers who have multitudes of places to shuffle and hide costs.

            Also, who will have the better forensic accountants? Formula 1, or the wealthy teams?

            And, how much will all this forensic accounting cost? Money, by the way that could be spent on the track rather than with forensic accounting police.

        3. Biskit Boy (@sean-p-newmanlive-co-uk)
          14th June 2019, 16:16

          @robbie

          They haven’t had these types of caps or controls before, and you were fine,

          Er no I wasn’t. The cars can’t run closely and are not closely matched enough for good racing.

          Whist I agree Liberty are doing a good job generally, I can’t see how cost caps will work. There are just too many grey areas.

          shot down by those who seem to know better from their armchairs.

          Hmm.. I raced karts in the 70’s, tintops in the 80s and various other stuff up until recently, none of it in my armchair!

          I’d like to see the aero rules changed to allow cars to run closely, plus lots of other things like standard parts, customer cars and rules which mean spending lots doesn’t buy championships.

          1. @sean-p-newmanlive-co-uk It doesn’t matter if you can’t see cost caps working. F1 knows they need to implement them and so they are going ahead with that. That you raced go-karts and tin-tops in the past is irrelevant to the concept of Liberty’s plans being shot down by posters before they have even seen their plans play out.

            Your last paragraph I generally agree with.

        4. @robbie +1 Coudln’t have said it better

          1. Biskit Boy (@sean-p-newmanlive-co-uk)
            15th June 2019, 19:44

            Rain and Safety Cars. Nothing to do with how close the cars were matched. Plus I can find 10 boring races for every one of these!

      2. Just as winning in F1 has become about getting the brightest engineers who can perform the best technical exercise, costing the most amount of money, another level has been added… accounting

        Yeah sure. Long gone are the days when driver skill was all that mattered. Fangio won his championships all because of his skills. The lotuses of 60s and 70s were designed by total nobodies like colin chapman but at least they had good drivers. The mclarens of the 90s. Some dumpsterfires of a car designer like adrian newey or murray gordon scribbling some weird pentagrams on paper. At least they had good drivers too. Not those (ewgh) engineers costing the teams money for nothing. We should definitely get rid of engineers and go back to racing horses carriages.

        1. Biskit Boy (@sean-p-newmanlive-co-uk)
          14th June 2019, 16:24

          F1 should be about the best drivers in the world, driving the fastest cars, wheel to wheel providing truly exciting racing. All to too often it is not. I happy that the best engineers are involved in F1 developing great technology and money to a degree, but not at the cost of good racing.

          Do you think the quality of the creative accounting in an F1 team should affect what happens on the track?

          1. Do you think the quality of the creative accounting in an F1 team should affect what happens on the track?

            Do you think it doesn’t now? Most such endeavours are only viable by creative accounting strategies, and the bigger teams have larger companies behind them to help those (e.g. writing off the significant losses of the team against the profits of the parent company for tax purposes)

          2. Biskit Boy (@sean-p-newmanlive-co-uk)
            15th June 2019, 19:49

            You do realise by ‘creative accounting’ I mean cheating?
            Legislating technical and sporting rules to create closer races would be preferable, easier, fairer and cheaper.

        2. @socksolid Brilliantly written, and I agree with every word! Let’s burn all those evil engineers and make the drivers run the race carrying the cars (which should be made of wood and stone) on their backs!

      3. Just as winning in F1 has become about getting the brightest engineers

        Seeing as F1 is, and always has been, as much a technical/engineering competition as a driving/racing one, why is this a bad thing? It’s no different to a team getting the best driver: it’s a big part of the competition, and getting the best talent is required to get the best results, whether that talent is driver, engineer, team principal, or pit crew.

        1. Biskit Boy (@sean-p-newmanlive-co-uk)
          15th June 2019, 20:02

          You need to reread my original post. I never said engineers have spoilt F1.
          Money has, because it’s become the focus. The addition of financial regulation emphasises this! You can’t deny Mercedes and Ferrari spend the most. A cost cap will not work. The best way is to legislate so spending has less effect and smaller teams can develop or buy competitive cars at less cost.
          The biggest performance differentiators tyres, engines and aero should be regulated to perform at similar levels whatever the scenario or cost.

          1. The biggest performance differentiators tyres, engines and aero should be regulated to perform at similar levels whatever the scenario or cost.

            On the first 2, they already are after a fashion, and the regulations try to keep a similarity in the 3rd.

            Tyres are standard parts. They are the same for everyone. The things which change that are how they are driven (including how the engine is set up) and how the chassis affects them.

            The power unit has restrictions on it to try to keep performance similar. By restricting maximum revs and fuel flow, there is a limit to the power input to the engine. The only way to get more performance is to make it more efficient, extracting more of that input power into the wheels, but there is a physical limit to the amount of power available.

            On top of this, all teams use one of 4 engines. Each of these engines is, and must be, supplied equally to the teams using it. Therefore, all teams using the Mercedes engine get the same performance (given constraints from their chassis).

            When it comes to the chassis, this is where money talks and large amounts of work can be put into finding a few hundredths here or there. However, even here there are strict regulations which limit what is available. The reason the top teams spend so much more is that every hundredth takes now and note work and money to find.

            The cost cap is a reasonable attempt to restrict this further, as even the top teams will no longer have unlimited resources to find that extra hundredth.

          2. Biskit Boy (@sean-p-newmanlive-co-uk)
            16th June 2019, 14:21

            @drmouse
            Agree with everything you say except I don’t think a cost cap is reasonable. My original post on the subject may have been a tad dramatic. I wanted to promote debate.
            Whilst financial restrictions may bring in new teams, this will only happen if teams can be truly competitive on a moderate budget. I don’t think they will even if it can be seen that the top teams are not bending the finance rules with ‘creative accounting’.
            We will see won’t we?

  4. Really happy to see some actual implementation details about cost cap. I’m relieved that it was not ditched like other measures were. Whether cost cap will be effective or not is yet to be seen but it’s nice to at least try making the competition more fair.
    I personally don’t buy the claims that it will be a mess and think it will have a positive effect on the sport – let’s see if it works.

    1. Absolutely. Thank you for an optimistic comment.

  5. “Soft” cap with no penalties for overspend.

    No no cap, then.

    Honestly, this whole thing is becoming more and more of a farce every day.

    1. Lenny (@leonardodicappucino)
      14th June 2019, 12:14

      Not really @joeypropane because essentially what theyre doing is trialling the system one year before the proper implementation, basically giving everyone a year to figure out how they need to adjust the accounting etc.

      1. And you think the likes of Ferrari, Mercedes and RBR are going to trial anything other than making the best attempt they can, whatever it costs, at winning another Championship?

        If they wanted to make it a “soft” or “test” year, don’t award any points or championships and pay everyone the same amount for turning up at the end of the season.

        1. @Luke you appear to miss the point completely. The soft trial is to trial the mechanics of the reporting and monitoring. Its not suppose to be about anyone meeting the cap.

        2. And you think the likes of Ferrari, Mercedes and RBR are going to trial anything other than making the best attempt they can, whatever it costs, at winning another Championship?

          As they should. F1 is all about interpreting the rules to your benefit. This how f1 got ground effect cars, skirts on the cars, cars that fulfilled ride height rules on pits and then on track did not anymore, double diffusers, f-duct, mass damper etc… It is not the teams’ job to build a car that fits inside the most strictest definitions of the rules but the rule makers to write rules that work even when the teams take the most inventive interpretation on them. Budget gap rules are game such as any other rules (renault hiring ex-fia personnel, mercedes oil burning or force india/racing point new team/old team entry fee/no fee or ferrari’s vetos). And I don’t mean it in cynical way when I say that. Rules define what you get and what you don’t. It is everybody’s job to get the most out of them in f1.

    2. Biskit Boy (@sean-p-newmanlive-co-uk)
      14th June 2019, 17:11

      +1

      I can just about live with the fact that if a technical guy makes a mistake a driver can get a grid penalty but if it happens because an accountant misplaced a receipt I’ll cry.

      I’m half joking of course. I don’t know what the penalties will be but its just getting ridiculous.

    3. @joeypropane You seem to have misunderstood. The cost cap was always going to come in 2021. What will happen in 2020 they chose to call “soft cap” which is a stupid term, hence the misunderstandings. A “test run cap” would be a far better term. So there would be zero penalties for breaching the cap in 2020 like it was always supposed to be. But instead of 2020 being the same as every year beforehand with accounts being hidden, the teams agreed to open them to FIA scrutineering to test their methods for 2021 when overstepping the cap will be prohibited. It’s a positive development. The teams didnt have to do this and the fact that they agreed shows positive intent.

  6. Considering how many corporations post little or no profit to flout tax rules I can only imagine an F1 cost cap being symbolic to the big teams like Ferrari, Mercedes, and Red Bull.

    How do the rules cope with subcontracting resources within organisations? If Haas can buy its chassis in from Dallara, can Mercedes/Ferrari/Renault/McLaren buy theirs from their parent company and hide the true cost?

    I like the idea in principle, I can just see it becoming incredibly complex and the big teams playing games to find ways around the cap.

    1. @philipgb – the chassis is an interesting one, isn’t it? As you ask, what’s to prevent a parent entity selling it for a nominal $1 – unlike the non-listed parts, the FIA cannot force the sale of the chassis to any other competitor who requests it. I’m sure something this apparent will be covered off in the financial regs, I’m only curious as to how.

      1. In your example that would stand out pretty obviously. And be clearly illegal Its the more subtle stuff thats harder.

        1. It’s obvious only because I used a ridiculous number. What if the chassis is sold for a third of its price? A tenth?

          That said, I agree that it will be subtle. And it wouldn’t even require lying like my example, just obtuse financial structures and creative accounting.

          1. This is presumably already an issue with the restrictions they have on testing. The teams are only allowed a certain amount of wind tunnel testing. What’s to stop someone else doing wind tunnel testing on their behalf and then sending them the results, or suggesting areas that the team might like to focus on when the team do their limited testing?

          2. I’m sure the FIA know what a typical component costs

          3. Ian Thomas – quite true. Both the testing limits and the budget cap require a willingness on the part of the participants to adhere to the rules. And within a reasonable set of rules, that’s the best that can be wished for.

    2. @philipgb At least they are trying something necessary that BE wouldn’t. Yes it is incredibly complex but Liberty and the teams had to do something, and since the teams have been unanimous in this I suspect the game playing will not be to the extreme many people seem to want to imagine.

      I’d prefer they at least try this rather than just continue in with an unsustainable model, and I applaud Liberty for taking on this incredibly complex task. And I applaud the teams for agreeing that something needs to be done.

      1. @robbie Bernie was in favor of the much lower cost cap proposal that Max Mosley put forward in 2009 which was rejected by teams as well as fans of the time.

  7. So, we have language now of minor breach, major breach of the financial cap.

    Do we have any language spelling out penalties for said breaches?

    Do penalties alter race results when breaches are detected?

    Do penalties penalize future races? As in grid penalties for future races?

    Or, are penalties financial? Of course, this option would penalize the least wealthy teams the most.

    1. @bullmello – all good questions, and yes, it’ll be interesting to see how these rules (and penalties) are structured. I would not be a fan of grid penalties (e.g. 5 places for a minor breach), I would think that disqualification from a race/multiple races/season would be a better form of penalty. That would give the erring team(s) the negative publicity of it being spoken/written about through the race weekend and – particularly the TV broadcasts. Not to mention every timing sheet containing the two cars with a “DSQ” next to them.

      1. @phylyp I’m not a fan of the cost cap overall as I think it will waste money and cause more strife than it would solve inequities.

        Having said that, if we are to have it thrust upon us I think the changing of race results after the fact would be the worst possible option for penalties. To go back and change race results long after the champagne has dried and not ever knowing what actual race results will be until after the accounting stewards have had their say would remove any desire to ever watch F1 again.

        I’m not saying the changing of race results would be the penalty option of choice by the powers that be of F1, but they haven’t really spelled out how they would penalize financial offenders. So, all we can do is wonder.

        1. To go back and change race results long after the champagne has dried and not ever knowing what actual race results will be until after the accounting stewards have had their say

          @bullmello – yep, that’s a good point.

  8. The Financial Regulations define a Minor Breach as one where the relevant costs reported by the team exceed the cost cap by less than five per cent, with a Major Breach being one where reported costs exceed the cost cap by more than five per cent.

    The software developer in me needs to know what type of breach it would be if they exceed the cost cap by exactly 5 percent.

    1. @madwinchester – no breach ;) “We’re sorry, but we didn’t write a test case for that.”

    2. I picked up on that, too. Another software engineer here. (P.S. don’t you just hate specs like this? Lol)

  9. Not entirely sure of the point of the soft cap – if there’s no penalty, why bother following it? I get that it’s for a period of acclimatisation, but no team will sacrifice competitiveness for a little bit of “practice” surely?

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