Why F1’s cost limit now faces a major test despite the FIA’s clarity
The longer the FIA delays announcing its findings from its 2022 spending reviews, the more likely it is that one or more teams will find infringement.
And after the controversy sparked by Red Bull’s overspending for 2021, and concern about the nature of the penalty imposed, further rule-breaking this time around could have been explosive.
The constant wait for the FIA’s decision meant it was hard to get a consensus in the paddock about what was to come.
Some teams have been leaning towards the FIA to give everyone the go-ahead. Others were expecting a scenario where everyone would be alerted because of the hack, while some thought it would again be about one or two teams breaking the rules.
Such was the increased level of investigation this year by the FIA into submissions, which included so many follow-up questions and extensive factory inspections, that none of the major teams operating properly at the cost limit took anything for granted. .
Team bosses were left nervously checking their phones for calls from their CFO to try to get a clearer picture of when they would receive their FIA compliance certificates so they could relax a bit.
The FIA’s assurance afterwards that all teams adhered to the regulations would make everyone happy because their teams were all good, but it certainly wouldn’t put an end to suspicions that some teams might still be finding ways around the rules.
This lingering uncertainty, no matter how small, remains the biggest challenge for future cost caps.
There is an acceptance in the paddock that a cost cap can only work if teams have complete confidence that it is being policed in the right way. If this belief is not there, the whole thing falls apart as a useful tool for curbing spending.
As F1 CEO Stefano Domenicali said at Monza last weekend: “We are in the second year of the financial regulation, and I want to be positive because I see positive elements.
“Financial stability has greatly increased the valuation of teams, but as always happens when a new and complex variable is introduced, the system must be equipped to manage it, and all parties involved must be able to do so.
Mohammed bin Sulayem, President of the International Automobile Federation, and Stefano Domenicali, CEO of Formula 1, on the net
Photo: Mark Sutton/Motorsports Pictures
“Credibility goes through ensuring that everything is monitored down to the last detail. In the event of a violation, there should be an exemplary sporting sanction, a sanction that definitively discourages (teams) from breaking the rules.”
Save the faith
The element of confidence about a clear cost cap is important on two fronts: first, because teams do not have access to all accounts of their competitors, nor the reasons for the FIA ruling on others’ cost cap requests.
Just as it would be unfair for a board to publish technical information about what individual teams are doing to comply with this set of regulations, it would be unfair for a board to publish confidential information about competitor spending.
On top of that, teams also have to have faith in the system because we are now past the point of no return in case of complaints. The FIA’s decision to issue cost-cap compliance certificates is irreversible.
While with the technical regulations, if the FIA is happy with the design of a car part, the team still has the option to protest this at the next race, the financial rules are different.
There is a process for teams to report to the FIA if they believe a competitor has committed a breach of the cost limit. However, the time frame for this is from January 1st to April 30th (inclusive) immediately after the reporting year, which means that the window of opportunity has long since expired for 2022.
Furthermore, as Article 6.11 of the Formula 1 Financial Regulations states: “There will be no right of appeal against any decision by the Cost Cap Administration to issue a Certificate of Compliance to the Formula 1 Team.”
The only possible change after this moment is for the whistleblower to come forward and disclose the violations, which means the FIA has good reason to open its own investigation.
The regulations read: “The Cost Cap Administration may grant partial or total immunity to any natural person who discloses potentially infringing facts… and/or presents evidence allowing such facts to be prosecuted and punished.”
This has to come within a five year period – which is a huge deterrent in itself because few teams can guarantee any employee retention for that long. It would be a dangerous game to flaunt the rules on purpose and risk your own bad behaviour.
But while doubts may remain about what some are up to, teams should at least take heart from the fact that the FIA’s achievement of the cost cap this year has been more comprehensive than it was 12 months ago.
Carlos Sainz, Ferrari SF-23, Max Verstappen, Red Bull Racing RB19, Charles Leclerc, Ferrari SF-23, George Russell, Mercedes F1 W14, rest of the field at the start
Photo: Simon Galloway/Motorsports Pictures
In addition to the FIA increasing the number of full-time staff in the Financial Regulations department from four to 10 this year, the level of scrutiny each team has been subjected to has been enormous.
Team bosses revealed that their CFOs received multi-page questionnaires asking for more than 100 points of interest to clear up gray areas in their own applications.
On top of that, the factory visits included employee interviews, parts checks, FIA access to IT systems, WhatsApp messages and all the data they wanted to check that nothing untoward had happened.
This level of detail has been welcomed by many team leaders, even if the effort to complete all the orders can be quite intense at times.
It is also fair to say that the FIA process is also constantly evolving, as the governing body learns from the many requests for clarification it receives from financial directors and responds to areas of concern.
And although this year has given the green light to all teams, one interesting area in 2024 could be the impact of non-Formula 1 activities – especially since the FIA’s directives have been issued for several months on the matter.
The infamous TD45 Act effectively banned the passing of IP from non-Formula 1 teams’ activities to their Grand Prix operations outside of the cost cap, but it came into effect from January 1 this year.
So, while the FIA claimed on Tuesday that the current applications include a “thorough examination” in this area of the 2022 applications, the investigation on this front is likely to be more intense in the future.
The highly competitive nature of Formula 1 means paranoia about what competitors are doing is constant – whether it’s smart car components, gimmick systems or sneaky spending – and suspicions of exploitation never abate.
But in the end, the fact that the FIA’s investigations left so few teams completely confident that they were safe says a lot about the accuracy of the compliance checks – which should at least provide some assurance that no nefarious activity could have been detected.
Toto Wolff, Team Principal and CEO of Mercedes-AMG is interviewed
Photo: Simon Galloway/Motorsports Pictures
As Mercedes boss Toto Wolff said earlier this year: “If someone is being arrogant or cheating, they will find out.”
Such confidence in detecting any rule-breakers is critical to the success of cost capping.
Perhaps the most important rule change F1 has made to ensure the long-term survival of teams, everything must be done to ensure they stay in place and up and running.
Which is why the teams’ response over the next few weeks – in welcoming or questioning the FIA’s cost cap ruling – will be remarkable and could shape the political landscape of Formula 1 for months to come.