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Sunday / 26 June 2022
HomeFeaturesWhat F1 teams spend their R2.2-billion budget on

What F1 teams spend their R2.2-billion budget on

The Formula 1 (F1) budget cap limits expenditure that relates to car performance, but there are a number of exemptions that allow participating teams to spend more than the cap allows.

The budget cap was first introduced in 2021 to level the playing field between small and large teams as not all of them have the resources to pile tens of billions of rands into research and development.

Ferrari, one of the sport’s most prominent participants, immediately noted that it will be challenging to comply with the new regulations as the cap is around half of what it usually spends per season, reported RacingNews365.

Alfa Romeo, on the other hand, was relieved at the cap as it is nearly equal to Alfa’s annual budget, and the company sees the new spending rules as an opportunity to get ahead.

Source: Formula1.com

How big is the budget cap

Along with the drastic car changes and rule shakeups that went into the interesting 2022 F1 season, there was also an adjustment to the budget caps.

Initially, the cap was set at $175 million (R2.7 billion) for 2021, but it was lowered to $145 million (R2.3 billion) just before the season started due to the financial strain put on the various teams by the Covid-19 pandemic.

Now in 2022, it’s been reduced to $140 million (R2.2 billion), and next year it’s planned to go down by another $5 million to $135 million (R2.1 billion).

However, a mechanism has been put in place which allows for an increase in the cap to take into account rising product prices if inflation is running at over 3%.

Currently, many teams are feeling the inflationary squeeze, writes Motorsport.com, and those such as McLaren are lobbying for the cap to be adjusted as soon as possible in light of the havoc that Covid has continued to create on financial systems.

Where the money goes

The F1 budget cap is an extensive rule that regulates the amount of money a team may spend on the advancement of their vehicle.

In 2022, the cap excludes money spent on power units, marketing and hospitality, team travel, car demonstrations, heritage operations, driver remuneration, medical costs for employees, salaries for staff on maternity and paternity leave, and the top three salaries paid to team personnel.

It might sound counterintuitive that powerplants are not added into the mix.

However, power units for competing teams are oftentimes built by the same manufacturers, such as in the case of Mercedes-AMG and McLaren.

As such, adding engine expenditure into the cap will give certain manufacturers an unfair edge as they set the prices for their engines which gives them semi-control over the budget of their customers, which are the smaller teams.

Therefore, what the cap does affect are the development of the vehicle body, refinements in chassis and wheel technologies, spare part availability, plants and machinery, and the overwhelming majority of employee paychecks.

Under these rules, the teams have $45 million (R704 million) to use on plants and machinery over a four-year window between 2021-2024. Initially, this was set at $36 million (R563 million) but raised once again to account for pandemic-related qualms.

For the period of 2022-2025 and all subsequent four-year periods, the cap will be back at $36 million.

There are a number of smaller additional factors that further affect the amount of money the organisations are allowed to spend per season.

This includes a rule that regulates which car components and technologies may be carried over from one year to the following to allow participants to capitalise on previous years’ innovations.

What happens if they spend too much

There are three forms of penalisation if an F1 team exceeds the budget cap.

These are:

  • Financial penalty – Lump sum paid to FIA, determined on a case-by-case basis
  • Minor sporting penalty – Combination of a reprimand, deduction of constructors/drivers points, ban for a certain number of races, limitations on testing, and/or a reduction of cost cap
  • Material sporting penalty – All of the above plus exclusion from the World Championship

A Cost Cap Administration is responsible for monitoring the compliance of the teams and handing out punishments.

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