How the FIA faces a massive call on F1 cost cap breaches

Formula 1 has been rocked over the past couple of days as word of potential breaches of the 2021 FIA financial regulations began to spread.

How the FIA faces a massive call on F1 cost cap breaches
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It's believed by rivals that two teams, Red Bull Racing and Aston Martin, spent more than last year's permitted $145million cost cap limit. The former is allegedly a more serious case, given the higher numbers said to be involved, not to mention the fact that Max Verstappen won the world championship for Red Bull.

There has been no confirmation of any breaches from the FIA, and indeed on Friday evening there was a terse statement from the governing body in response to the growing debate on the subject.

"The FIA is currently finalising the assessment of the 2021 financial data submitted by all F1 teams," it read. "Alleged breaches of the financial regulations, if any, will be dealt with according to the formal process set out in the regulations.

"The FIA notes significant and unsubstantiated speculation and conjecture in relation to this matter, and reiterates that the assessment is ongoing and due process will be followed without consideration to any external discussion."

In effect, that was FIA president Mohammed Ben Sulayem laying down a marker to teams calling for stiff penalties – we know what we're doing, leave us to get on with it.

We should know more in the coming days. Teams that spent below the limit will receive a certificate of compliance, while those that didn't will face the consequences, starting with a formal hearing.

Make no mistake, this is a huge story, and is seen by some as a major test of Ben Sulayem's leadership.

Toto Wolff, Team Principal and CEO, Mercedes AMG, with Mohammed bin Sulayem, President, FIA

Toto Wolff, Team Principal and CEO, Mercedes AMG, with Mohammed bin Sulayem, President, FIA

Photo by: Mark Sutton / Motorsport Images

Rivals are adamant that anyone who spent more than the limit would have gained a clear advantage not only in 2021 but also as they prepared for the new 2022 regulations, and that the benefits will extend into 2023.

And one could speculate that a team that overspent in 2021 is set to do the same in 2022 if it has been pursuing a particular philosophy or interpretation of the regulations.

"You need to imagine that you have a pool of call it $140million," Wolff noted on Friday. "If you're spending five to 10% more than everybody else, that's many, many tenths of a second.

"We couldn't reduce our overweight, which is double digit this year, because we simply didn't have the money to produce the new parts and put them on the car. It wasn't there. So you're fighting a totally different league if you have been pushing the limit upwards."

It was not by chance Wolff met with Ferrari opposite number Mattia Binotto to discuss the matter just before FP1 in Singapore. Indeed, they had known for some weeks about question marks over Red Bull's 2021 spending, and have been quietly observing the situation unfold ever since. Both men want the FIA to come down hard.

"The cost cap is probably the most important evolution of regulations in order to keep a level playing field," said Wolff. "And to allow teams that haven't got the full budget to catch up and to put the ceiling onto the spending of the top teams. So, it is of huge importance for a demonstration that these regulations are policed.

"And I have no reason to believe otherwise. The FIA, particularly Mohammed, have shown a pretty robust stance on enforcing all kinds of regulations.

"So I think if we're talking now about something big, he will show the same integrity and leadership that he's done before."

Red Bull boss Christian Horner continues to insist that there is no issue and the team is confident in what it submitted to the FIA back in March. Since then, there has been an ongoing discussion about the numbers and exactly what is and isn't counted within the cap.

Horner insists Red Bull has done nothing wrong

Horner insists Red Bull has done nothing wrong

Photo by: Red Bull Content Pool

Key areas of debate include how to allocate the salaries of those who have been seconded to non-F1 technology projects, but who are sometimes called back to work in the main business.

If either of the teams concerned are found to be in breach, no one knows which penalties from a shopping list of possible sanctions outlined in the rules are likely to be applied, given that there is no precedent.

Those rules contain a long list of breaches, mostly related to teams not reporting their spending accurately or on time, or attempting to pull the wool over the eyes of the Cost Cap Administration [CCA], the body responsible for monitoring adherence to them.

In June, we heard about the first such offence, albeit a minor one in the scheme of things, when Williams was fined $25,000 for not getting its 2021 paperwork filed by the deadline of 31 March.

However, the most important sections of the financial regs relate to simple cases of spending more than the limit.

Such breaches will be referred to the Cost Cap Adjudication Panel [CCAP], which is a group of six to 12 judges proposed by the FIA and by the teams. Any decision they make can subsequently be challenged by the team concerned, or other parties, in the International Court of Appeal.

Overspending, whether in the numbers voluntarily declared by a team up front, or those discovered later via an investigation, falls into two categories.

There's a simple split at 5% of the cap – a breach below that is regarded as a "minor overspend", while anything above 5% is a "material overspend". The latter case is taken far more seriously.

That 5% number is not insignificant, and equates to around an extra $7million for 2021. And the suggestion is that Red Bull's extra spend exceeded that figure, putting it into the "material" category.

Intriguingly, a few months ago, Horner suggested that some risk minor penalties by trying to get close to the 5% threshold, in the typical F1 fashion of pushing the limits.

Any cost cap breach from 2021 in turn has an impact on 2022

Any cost cap breach from 2021 in turn has an impact on 2022

Photo by: Lionel Ng / Motorsport Images

"What we don't want to do is end up playing a game of chicken," he noted. "As to say, does he go to 4.9% over? Do we go to 4.7% over? And that would be one upgrade that could be the differentiating factor of this world championship."

Wolff echoed that on Friday: "I think it would be important to have a certain degree of transparency, where the alleged breaches have happened or the alleged misinterpretations in order for us to assess.

"Because you can imagine, even if it's a so-called minor breach that can be below 5%, you can spend $7million more than everybody else. And that means, if this is a light penalty, we will be all pushing those 5% more going forward."

What then are the potential sanctions? The rules note that, in the event of an overspend below 5%, the CCAP "may impose a financial penalty and/or any minor sporting penalties".

The financial penalty is defined simply as "a fine in an amount to be determined on a case-by-case basis".

A fine could be seen as a slap on the wrist for an organisation that literally has more money than it can spend, but more concerning for the teams is the menu of minor sporting penalties, from which "one or more" can be selected.

The least painful sanction is a public reprimand, albeit one that any team would be a little embarrassed to receive.

More dramatic alternatives are the deduction of constructors' or drivers' championship points from the season concerned.

Then there is what is clumsily defined as "suspension from one or more stages of a competition or competitions, excluding for the avoidance of doubt the race itself".

There are also two penalties affecting future performance rather than the past season's results – a reduction in the team's own cost cap for the following year and "limitations on the ability to conduct aerodynamic or other testing".

Matters become more serious, and the consequences far greater, if the breach is in the "material sporting penalty" zone.

In such a case, one element of the sanction is clear – the CCAP "shall impose a constructors' championship points deduction". Additionally it "may impose a financial penalty and/or any other material sporting penalties".

All of the penalties outlined for a minor breach remain options, with the exception of the public reprimand.

Aston is another team rumoured to have exceeded the cap

Aston is another team rumoured to have exceeded the cap

Photo by: Glenn Dunbar / Motorsport Images

However, two further and heavier sanctions are added to the menu, namely "suspension from an entire competition or competitions, including for the avoidance of doubt the race itself" and, most dramatically, "exclusion from the championship".

How a penalty is chosen by the CCAP from the range on offer for minor and major breaches remains to be seen, but the rules make it clear that the circumstances will play a part. In essence, if you co-operate with the CCA and the FIA's auditors, and are open and honest, you are potentially better off.

Aggravating factors include "any element of bad faith, dishonesty, wilful concealment or fraud", "failure to co-operate", a record of "multiple breaches" within the year or breaches in a previous year, and the "quantum of breach".

On the other hand, mitigating factors are seen as "voluntary disclosure", a "track record of compliance", "full and unfettered co-operation" and, perhaps most significantly, "unforeseen force majeure events".

Since the regulations were formulated, the biggest question has always been will the CCAP be bold enough to make a post-season decision on a points deduction that impacts the outcome of the drivers' and/or constructors' championships? And that is the situation that F1 is potentially now facing.

These are judges who operate independently of the FIA, and carry no baggage, so in theory anything is possible.

Taking the 2021 title away from Max Verstappen would be a massive call to make – but one could argue that Olympians have lost gold medals months or years after their events when the results of drug tests worked their way through the system. It's never too late to penalise cheats.

However, such an outcome in F1, made so long after the Abu Dhabi Grand Prix, will potentially make the fuss that followed last year's tainted finale look positively tame by comparison, and would rock the category to its foundations. Realistically no one, not even Wolff, expects or wants that to happen.

Perhaps more likely would be a sanction impacting Red Bull's second place in last year's constructors' championship. While that would appear to be meaningless, it could have a financial impact if it means that Red Bull loses a substantial chunk of F1 income. The teams that finished third or back could in theory gain extra money.

Any penalty decision could of course be followed by a protest to the International Court of Appeal that would drag on even further, while the CCAP can itself review its own decisions if new evidence emerges within three months.

It's also worth noting too that the financial regs operate with a five-year statute of limitations, in effect creating some leeway for a whistleblower who has subsequently left a team to report suspect behaviour. In other words, the CCAP could still go back and investigate the 2021 season in 2026.

Meanwhile, in the short term, team bosses are awaiting the next development.

"I think there's no way around not staying in the cost cap," said Williams boss Jost Capito.

"And, if somebody doesn't stay in the cost cap, it has to have serious implications. Because not having stayed in the cost cap last year is most likely development for this year's car.

"For this year's cars, you have an impact for the whole season. So it has to have a sportive impact on this season. It doesn't make sense to have any financial penalty on top that you spent the money.

"That would be completely contradictory to work to the rules. And, for me, it's a more serious breach than cheating on the car on the track."

Read Also:
Cost cap saga has overshadowed the Singapore GP weekend

Cost cap saga has overshadowed the Singapore GP weekend

Photo by: Glenn Dunbar / Motorsport Images

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