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Action required for F1's controversial cost cap

Heavyweights Mercedes, Ferrari and Redbull are expected to breach the controversial F1 cost cap due to inflation rates running high and are pushing for F1 to increase the budget.

The cost cap, currently set at $140m and which will decrease to $135m in 2023, was created to limit how much an F1 team can spend during a calendar year in order to compete, with the aim to level the playing field and promote the competitive balance.

A number of the teams (AlphaTauri, Aston Martin, Ferrari, McLaren, Mercedes and Red Bull) are pressing the FIA to be lenient this year due to inflationary pressures, which have affected the teams in terms of significant increases on travel, energy and freight prices and plan on invoking “force majeure” arguments.

For the financial regulations to be amended during the season, the consensus of all teams would be required and this seems practically impossible as some have strongly pronounced their stance against any FIA intervention.

Alfa Romeo, Alpine, Haas and Williams voted against a proposal for an inflationary adjustment when it was proposed in April.

Alpine, whose spending currently remains inside the annual cap, argues that they anticipated on a bit of the inflation and that “if we can do it, for sure others can do it too”.

So what happens when a team breaches the cost cap?

In that case the Cost Cap Adjudication Panel will decide what penalties to impose on the team, depending on the type of breach and whether there are aggravating or mitigating circumstances.

There are three categories of potential breaches. The first is a procedural breach, such as a team submitting their accounts late or inaccurately.

The second is a minor overspend breach, when a team’s report shows they have exceeded the cost cap by less than 5 percent or the Cost Cap Administration finds they have exceeded that percentage.

The third is a material overspend breach, where a team’s submission of their accounts or an investigation by the panel shows they have exceeded the cost cap by more than 5 percent.

Once a breach has been identified, three forms of penalty are possible.

The first is a financial penalty. The value of the fine will be determined on a case-by-case basis.

The second is a minor sporting penalty which could be a combination of a reprimand, deduction of constructors and/or drivers points, a ban for a certain number of races, limitations on testing – both CFD and on-track – and/or a reduction of their cost cap.

The third is the material sporting penalty, which is the most serious as it can involve all of the above plus exclusion from the World Championship.

The same panel already demonstrated their tenaciousness when it imposed a 25.000 fine on Williams earlier last month for committing a procedural breach (failure to submit the complete Full Year Reporting Documentation by the Deadline of 31 March 2022, as required by Article 5.1 of the Financial Regulations).

There’s been reports of F1 being in the process of coming up with a compensation plan which would consist of all teams receiving a payment of up to $4.2M, which reportedly would be deducted from the overall prize money Formula One distributes to teams, which would hit the top teams harder than the smaller ones.

It remains to be confirmed by the FIA whether they will amend the budget cap or not in order to to ease the financial strain from rising inflation and the type of penalties that will be imposed in case of teams breaching the cost cap.

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