Historically, F1 has seen teams with colossal budgets outpace their financially modest counterparts, which has led to unequal performance on the track. In order to curb the disparity between the haves and have nots and in an attempt to create more parity between teams, in 2021, F1 introduced cost caps in its sport.
The originally planned $175 million cost cap for 2021 was reduced to $145 million in response to the widespread economic turmoil associated with the COVID-19 pandemic. For the 2022 season, the F1 cost cap was reduced to $140 million. It fell to $135 million for 2023 and will be adjusted for inflation in future years. (For reference, prior to the implementation of the cost cap, the wealthiest teams were spending in excess of $400 million per season.) Any race F1 adds outside of the 21-race calendar will increase the annual cap by $1.1 million.
Teams are required to submit detailed reports of their spending against the cost cap for the year by the following March.
The full F1 cost cap regulations are available for review on the FIA website.
What the Cost Cap Includes
Expenses tied to car performance, excluding engine-related costs, are subjected to the cost cap. This includes:
- All car components, from the steering wheel to the wheel nuts
- Necessary elements for operating the car
- Most team personnel salaries
- Garage equipment
- Spare parts
- Transportation costs
Several significant expenses are exempt from the cost cap, including:
- Driver salaries
- Compensation for the three highest-paid staff members
- Travel expenses
- Marketing expenditures
- Property and legal costs
- Entry and license fees
- Activities unrelated to F1 or road cars
- Parental and sick leave payments
- Employee bonuses and staff medical benefits
Engines must follow separate cost regulations given their complexity and the varying team approaches utilized to build or buy engines.
Penalties for F1 Cost Cap Violations
Penalties for breaching the cost cap are determined by the Cost Cap Adjudication Panel, a body of six judges selected by the FIA and the teams.
Cost cap breaches are classified as either minor or material overspends.
- Anything below 5% is considered a minor overspend.
- Exceeding the set amount by 5% constitutes a material overspend.
Penalties for both minor breaches and material overspends may include points deductions, race exclusions, financial fines, and wind tunnel testing limitations. However, surpassing the cap by more than 5% risks disqualification from the entire world championship.
All 10 F1 teams successfully adhered to the cost cap in 2022, signaling significant progress toward the financial stability and competitiveness envisioned by the cost cap regulations.