Under the FIA’s financial regulations, winning or losing the World Cup is a possible consequence if a team breaks the cost cap, as some of them predict.
However, no one knows which penalty from the list of possible sanctions contained in the regulation could be applied, since there is no precedent.
Those rules contain a long list of violations, mostly related to teams that do not report their expenses accurately or on time, or that try to deceive the Expenditure Limit Administration [CCA], the body responsible for monitoring their compliance.
A few weeks ago the first infraction of this type, although minor, was made public, when Williams was fined $25,000 (just under €24,000) for not submitting his 2021 documentation before the March 31 deadline.
However, the most important sections of the financial regulation concern the simple cases of overspending.
Such infringements will be referred to the Expenditure Limit Adjudication Panel [CCAP], which is a group of between six and twelve judges nominated by the FIA and by the teams. Any decision they make can later be appealed by the affected group, or by other parties, to the International Court of Appeal .
Excess expenses, both those voluntarily declared by a team and those discovered later through an investigation, fall into two categories.
There’s a simple split at the 5% limit : a violation below that figure is considered a “minor spend,” while anything over 5% is a “major spend.” The latter case is taken much more seriously.
That 5% figure is not insignificant. The teams are currently aiming for €130m, plus an extra €1.1m for the 22nd race, for a total of €131.1m for the 2022 season.
This means that a 5% default represents an extra spend of around 6.5 million, which translates into a large amount that would go into R&D, and could potentially be enough to make the difference between winning the title or losing it. .
The regulations indicate that, in case of exceeding the spending limit by less than 5%, the CCAP “may impose a financial penalty and/or any minor sporting penalty.”
The economic sanction is simply defined as “a fine for an amount to be determined in each case”. A fine might be considered a slap on the wrist for an organization that literally has more money than it can spend, but what’s more worrying for teams is the menu of minor sporting sanctions, from which they can choose “one or many.”
The least painful penalty is a public reprimand , though it could embarrass a manufacturer-backed team like Mercedes.
The most severe alternatives are the deduction of points from the constructors’ or drivers’ championship for the season in question.
Then there is what is clumsily defined as “the suspension of one or more stages of a competition or competitions, excluding for the avoidance of doubt the race itself”, which means being forced to miss training .
There are also two penalties that affect future performance and not the results of the season in question: a reduction in the team’s own cost cap for the following year and “limitations on the ability to carry out aerodynamic or other tests”.
And what happens if a team exceeds the limit by more than 5% and enters the “major sporting penalty” zone?
In that case, one element of the sanction is clear: the CCAP will “impose a points deduction in the constructors’ championship.” In addition, “it may impose an economic sanction and/or any other important sporting sanction.”
All sanctions listed for a minor infraction remain options, with the exception of public reprimand.
However, two other harsher sanctions are added, such as “the suspension of an entire competition or competitions, including, for the avoidance of doubt, the race itself”, and the most dramatic, “exclusion from the championship…”.
It remains to be seen how the CCAP chooses the penalty from the range offered for minor and major infractions, but the rules make it clear that circumstances will play a role. In essence, if you cooperate with the CCA and the FIA auditors, and are open and honest, you are potentially in a better situation.
Aggravating factors include “any element of bad faith, dishonesty, intentional concealment or fraud”, “lack of cooperation”, a history of “multiple defaults” in the year or defaults in a prior year, and the “volume of default” .
On the other hand, “voluntary disclosure”, a “record of compliance”, “full and unimpeded cooperation” and, perhaps most importantly, “unforeseen force majeure events” are considered mitigating factors .
Will teams be able to use global inflation, citing the role of the conflict in Ukraine as a key factor, as a case of force majeure?
Those hoping to breach the limit are no doubt aware of the importance of the 5% limit, and the minor penalties that come with it. However, they don’t know exactly how those penalties will be doled out, so even the goal of staying within that 5% is a bit of a gamble.
“In the regulations there is a threshold, which is 5%,” says Ferrari boss Mattia Binotto . “If you don’t go 5% above what the budget cap threshold is, it will be considered a minor infraction.”
“And what is a minor non-compliance in case of force majeure? What will the stewards and the FIA decide on it, in terms of penalties? No idea.”
“But I don’t think there’s any way for us — and a lot of teams — to just stay within [the cap].”
“And even laying people off, I don’t think that’s a good and correct option. We’re already in summer. By the time you organize it, and you do, the benefit it can have is not enough to deal with the excess prices and costs that we have. “.
Binotto insists that if there is no upward adjustment to balance inflation, the regulations will be breached by several teams.
“What will be the consequences?” said the Italian. “For me, the most important thing is that a lot of teams will break it. And that, I think, will just be bad for the financial regulations.”
“And we will start to analyze if a financial regulation is worth it, if it works. And to debate everything again. And I think that, to avoid that, it is important to have a ceiling in some way, I think that the only way is to give yourself a break, take a little more time, and try to do a better job for the next year and the year after.”
Red Bull chief executive Christian Horner makes an interesting observation about how close some might try to get to the 5% threshold, in F1’s usual fashion of going to the limit.
“I think certainly all the top teams are going to top that 130 [million euro] tally this year,” he says. “As Mattia [Binotto] has pointed out, there is a 5% threshold for [receiving] a minor breach. What is the penalty for a minor breach?”
“And what we don’t want is to end up playing the game of chicken [two competitors run head-on to collide with each other and the one who retires first is called the chicken]. I mean, [another team] goes to 4.9%? above? Did [we] go to 4.7%? And that [would be worth] an improvement that could be the differentiating factor of this world championship.”
Major team bosses are being very clear to the media about the possibility of overstepping the limit, and have been just as outspoken at F1 Commission meetings and the like.
In short, they do not hide anything and are preparing the ground for several teams to exceed the limit of 131.1 million euros, which will leave the CCAP with the difficult task of doling out the penalties when the final numbers are made after the season. .
Will CCAP members be more forgiving of those who don’t go overboard? And how will they deal with the fact that teams have known all year that they were going to overspend and have planned for it when one of the basic rules is that “they must not have relevant costs that exceed the spending limit”?
The biggest question is whether CCAP will dare to make a decision after the season on a points deduction affecting the outcome of the drivers’ or constructors’ championships. It must be remembered that these are judges who act independently of the FIA and who do not have any burden with respect to the category.
Removing the title from a driver would be a huge decision, but it could be argued that Olympians have lost gold medals months or years after their events, once the results of doping controls made their way into the system. It is never too late to penalize cheaters in sports.
However, such a result in F1, coming long after the final race of the season, the Abu Dhabi GP , could make the hoopla that followed the end of last year seem bland by comparison. This would inevitably be followed by a further lengthy appeal to the ICA, while the CCAP can review its decisions if new evidence emerges within three months.
It should also be noted that the financial regulations have a statute of limitations of five years , which creates some wiggle room for a whistleblower who has left the team to report dubious behaviour. In other words, CCAP could reinvestigate the 2022 season in 2027.
Are the top teams simply betting on the fact that if they all break the limit but stay within the 5% threshold for a “minor” infraction, they won’t face the harsher penalties, the ones that affect the outcome of the championship? ? Certainly that’s what it looks like.
