More than 10 days of fervent speculation was finally put to rest this week when the FIA published the conclusions of its audit into the spending of the 10 Formula 1 teams for last year’s season.
Only eight teams were found to have operated within the cost cap.
Red Bull Racing and Aston Martin were both found to be in breach.
Aston Martin’s offence was procedural — that is, it got some of the budget cap processes wrong but, crucially, kept within the cap of US$145 million (A$232 million; the sport operates in US dollars) cap. Accounting and reporting protocols are reportedly at the heart of the offence.
Red Bull Racing, however — despite protestations that it was under the limit and despite implied threats from Christian Horner that he would consider suing Toto Wolff for defamation over the matter — was found to have overspent the cost cap while powering Max Verstappen to last year’s championship. It was also found to be in a procedural breach.
With one wave of speculation finally ended, another will now begin, with what the FIA’s next action will be firmly in the spotlight.
WHAT DID RED BULL RACING DO?
The FIA has found that Red Bull Racing committed a ‘minor’ breach the cost cap of less than 5 per cent — that is, up to US$7.25 million (A$11.6 million).
It has not disclosed how much the team has overspent despite proclamations that it would exercise maximum transparency in enforcing these rules for the first time.
For the sake of the integrity of the rules, we must assume that the governing body will eventually publish how much Red Bull Racing spent beyond the cost cap — whether it was $20 or $7.249 million.
Further, it’s unclear whether the FIA would be able to identify a specific area in which the extra money has been spent given there is no baseline amount of spending on any given item.
This is a crucial point, because Red Bull Racing appears to have been briefing in the last week that its overspend regards ancillary staff costs, like catering, and not performance-related expenditure, like car development.
It may well be that there has been some dispute over certain spending categories, but it’s not possible to separate, say, spending on the canteen from spending on new aerodynamic components, because it all comes from the same pot.
For example, if the cost of feeding the staff amounted to X dollars, then the team could have saved that money by not developing new car parts. Reversed, the team was able to spend extra money on the car because it didn’t account for how expensive it was to buy sandwiches.
Red Bull Racing may well have made a legitimate error in how it accounted for its expenses, but the cap is the cap regardless of the excuse for breaking it.
IS A MINOR BREACH THAT SERIOUS?
A ‘minor breach’ of up to 5 per cent doesn’t sound like much, but $7.25 million is a lot of money at the pointy end of development.
“I think the word (‘minor’) is probably not correct, because if you’re spending $5 million more and you’re still in minor breach, it still has an impact on the championship,” Mercedes boss Toto Wolff said when the allegations were first made public in Singapore.
“We know exactly that we are spending $3.5 million a year in parts that we bring to the car. Then you can say what difference it makes to spend another $500,000. It would be a big difference.
“Every spend more has a performance advantage.”
Speaking in Japan, Lewis Hamilton said even $1 million would bring a significant amount of performance.
“I remember in Silverstone [last year] we got our last update. I remember that was almost 0.3 seconds … and I’m pretty certain it cost less than $1 million,” he said.
“It’s so integral to the development race. If we’d had another half a million to spend, we would have been in a different position as some of the following races.”
Both Wolff and Hamilton appear to be referring to manufacturing costs rather than accounting for the research and development into the parts, but it does illustrate how significant a ‘minor’ breach could be.
In other terms, Ferrari equated a 5 per cent overspend to the equivalent of the wage bill for an extra 70 engineers.
“Seventy engineers will give you a serious amount of lap time,” said Ferrari racing director Laurent Mekies.
“This is why we are very much looking forward to a transparent and severe approach.”
WHAT HAPPENS NEXT?
Red Bull Racing is standing by its protestations that it had no inkling it would be found in breach despite the widespread rumours and the numerous delays to the FIA publishing the certification data after regular consultations with the financial officers of all the teams.
“We note the findings by the FIA of ‘minor overspending breaches of the financial regulations’ with surprise and disappointment,” it said in a statement. “Our 2021 submission was below the cost cap limit, so we need to carefully review the FIA’s finding as our belief remains that the relevant costs are under the 2021 cost cap amount.
“Despite conjecture and positioning of others, there is of course a process under the regulations with the FIA which we will respectfully follow while we consider all the options available to us.”
That process comprises a couple of different routes forward.
One is that Red Bull Racing cops that it overspent and accepts a penalty from the FIA. It’s been suggested that if the team were so inclined, this week’s announcement of the breach would have been accompanied by the penalty and an admission of fault.
If the Red Bull Racing intends to stick by its guns that its accounting was correct and it came in under the cost cap last year, it can take the matter to a specially constituted tribunal, which will then adjudicate.
If it disagrees with the findings of the tribunal, it can take the matter to the FIA International Court of Appeal, the highest motorsport appeal body. It could then push the matter up to the Court of Arbitration for Sport.
The same applies to Aston Martin, though procedural breaches are punished with fines, so the team is unlikely to take that matter further.
Because Red Bull Racing has committed only a ‘minor’ breach rather than a ‘material’ breach, it cannot be thrown out of the championship or banned from races and will not be subject to any mandatory penalty.
But the FIA can still dock it constructors or drivers championship points from last season. Given Max Verstappen beat Lewis Hamilton to the title by only eight points, a reversal of the title outcome is still a live option, even if it’s thought unlikely.
The team can also be stung with a reduced cost cap and development allowance for future seasons to try to redress the advantage it got from overspending last year, which will have knocked on into development for this year’s car.
It could also be levied with a fine or simple reprimand, but neither option would satisfy the sport given both would be laughably lenient for a team backed by the financial might of the Red Bull energy drinks company.
It would also set a precedent that whereby teams account for a fine as simply the cost of doing business, giving the green light to the wealthiest teams in particular to regularly breach the cap
Such a weak penalty would immediately trigger the collapse of the consensus for the cost cap and hurl the sport back into its bad old days of financial instability and spending arms races.
But deciding on a penalty that potentially reaches back into one of the most closely fought championships in generations — and just after Verstappen claimed his second title — won’t be easy.
The most important thing the FIA must do is be transparent about the process. Confidence in the cost cap and its administration is absolutely crucial to its success. Being seen to be anything less than completely forthcoming could be fatal.
This is a test not only for the rules but for the governing body itself, and Formula 1 needs both to pass.
