More than 10 days of fervent speculation finally came to an end this week when the FIA published the findings of its audit of the spending of 10 Formula 1 teams for the past season.
Only eight teams operated within the cost cap.
Red Bull Racing and Aston Martin have both been found to be in breach.
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Aston Martin’s breach was procedural – that is, it misunderstood some of the budget cap processes but, more importantly, it was kept within the US$145 million cap (232 million Australian dollars; the sport operates in US dollars). Accounting and reporting protocols would be at the heart of the offence.
Red Bull Racing, however – despite protests that it was under the limit and despite implicit threats from Christian Horner that it would consider suing Toto Wolff for libel over it – proved to have exceeded the cost cap while still propelling Max Verstappen to last year’s championship. It also turned out to be a procedural flaw.
With one flurry of speculation finally over, another will now begin, with what the FIA’s next action will be firmly in the spotlight.
WHAT HAS RED BULL RACING DONE?
The FIA has found Red Bull Racing to have committed a “minor” cost cap breach of less than 5%, or up to US$7.25 million (A$11.6 million).
He did not reveal how much the team overspent despite proclamations that they would be as transparent as possible in enforcing these rules for the first time.
In the interest of rule integrity, we have to assume that the governing body will eventually release the amount Red Bull Racing spent above the cost cap, whether it was $20 million or $7.249 million.
Additionally, it is unclear whether the FIA would be able to identify a specific area where the extra money was spent given that there is no base spend amount for any given item. .
This is a crucial point, as Red Bull Racing appears to have informed last week that its overspending was on ancillary staff costs, such as catering, and not performance-related expenses, such as car development.
There may have been disputes over certain categories of expenses, but it is not possible to separate, for example, canteen expenses from expenses for new aerodynamic components, because everything comes from the same pot.
For example, if the cost of staff food was $X, the team could have saved that money by not developing new auto parts. Conversely, the team was able to spend extra money on the car because it didn’t take into account the cost of buying the sandwiches.
Red Bull Racing may have made a legitimate mistake in the way they accounted for their expenses, but the ceiling is the ceiling, whatever the excuse for breaking it.
IS A MINOR INFRINGEMENT SO SERIOUS?
A “minor violation” of up to 5% doesn’t sound like a lot, but $7.25 million is a lot of money at the end of development.
“I think the word (‘minor’) is probably not correct because if you spend $5 million more and you’re still in a minor violation, it still impacts the championship,” said the Mercedes boss Toto Wolff when the allegations were first made public in Singapore.
“We know exactly that we spend $3.5 million a year on parts that we bring to the car. Then you can tell what a difference it makes to spend an extra $500,000. It would be a big difference.
“Every extra expense has a performance benefit.”
Speaking in Japan, Lewis Hamilton said even $1m would bring a significant amount of performance.
“I remember at Silverstone [last year] we have received our latest update. I remember it was almost 0.3 seconds…and I’m pretty sure it was less than a million dollars,” he said.
“It’s so essential to the development race. If we had had another half a million to spend, we would have been in a different position for some of the following races.
Both Wolff and Hamilton seem to be referring to manufacturing costs rather than parts research and development, but this illustrates how significant a “minor” violation could be.
In other words, Ferrari equated a 5% overrun to the equivalent of the payroll of 70 additional engineers.
“Seventy engineers will give you a serious lap time,” said Ferrari race director Laurent Mekies.
“That’s why we look forward to a transparent and tough approach.”
Verstappen’s anticlimatic championship! | 00:35
WHAT HAPPENS NEXT?
Red Bull Racing maintains its protests that it had no idea it would be found in breach despite widespread rumors and numerous delays in the FIA releasing certification data after regular consultations with finance officials from all teams.
“We note with surprise and disappointment the findings of the FIA regarding ‘minor breaches of financial regulations’,” she said in a statement. “Our bid for 2021 was below the cost cap limit, so we need to carefully consider the FIA’s findings as we still believe the relevant costs are below the cost cap amount for 2021.
“Despite the speculation and positioning of others, there is of course a process under the regulations with the FIA which we will respectfully follow as we consider all options available to us.
This process includes several different pathways.
The first is that Red Bull Racing blames the overrun and accepts a penalty from the FIA. It’s been suggested that if the team were so inclined, this week’s announcement of the violation would have come with a penalty and an admission of foul.
If Red Bull Racing intends to stand by that its accounting was correct and it fell below the cost cap last year, it can take the matter to a specially constituted tribunal, which will then decide.
If he disagrees with the court’s findings, he can take the case to the FIA’s International Court of Appeal, motorsport’s highest appeal body. She could then take the case to the Court of Arbitration for Sport.
The same goes for Aston Martin, although breaches of procedure are punishable by fines, so the team is unlikely to go further.
As Red Bull Racing only committed a ‘minor’ infringement rather than a ‘material’ infringement, it cannot be expelled from the Championship or banned from racing and will not be subject to any mandatory penalties.
But the FIA can still anchor constructors’ or drivers’ championship points from last season. Given that Max Verstappen beat Lewis Hamilton to the title by just eight points, a reversal of the title result is still a live option, even if it seems unlikely.
The team may also be stung with a reduced cost cap and a development allowance for future seasons to try and redress the advantage they gained from last year’s overspending, which will have contributed to the development of the car this year.
It could also be imposed with a fine or a simple reprimand, but neither option would satisfy the sport given that both would be ridiculously lenient on a team backed by the financial might of energy drink company Red Bull.
It would also set a precedent that teams would count a fine simply as the cost of doing business, giving the green light to wealthier teams in particular to regularly breach the cap.
Such a small penalty would immediately trigger the collapse of the cost cap consensus and return the sport to its bad days of financial instability and arms races.
But deciding on a penalty that could date back to one of the most contested championships in generations – and just after Verstappen won his second title – won’t be easy.
The most important thing the FIA needs to do is be transparent about the process. Confidence in the cost cap and its administration is absolutely crucial to its success. Being perceived as less than fully open could be fatal.
It’s a test not just for the rules but for the governing body itself, and Formula 1 needs both to succeed.