What is Formula 1’s budget cap? How does it affect team strategies and performance? - Explained

The budget cap is the financial regulation every Formula 1 team should follow during their championship season. Before 2021, teams spent their money based on their financial capacity which could be very high for some big teams like Mercedes compared with small teams like Sauber.

Mercedes spent maximum money on their car, drivers and crew to achieve success. They won 8 constructors titles consecutively, along with drivers titles from 2014 to 2021. Many felt a high budget caused monopoly and small teams struggled to get race points.

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What is a Budget Cap?

To ensure a level playing ground, F1 introduced a budget cap under which Formula 1 teams are allowed to spend a limited amount on each department. It is the total budget a team can spend on a calendar. It will also reduce the overall cost of Formula 1, which has been growing rapidly over the past few years.

What is the Cost cap?

For the 2021 season, the cost cap was 175 million dollars, which is now reduced to 145 million dollars. The reason for reducing the cost cap is the pandemic, which caused a delay in the 2020 season and many small teams came under huge financial crisis. The teams came together and sat with the FIA officials and they found a way to reduce the team's operating cost and to ensure long-term stability. 

Bigger vs Smaller teams

In F1, the larger teams with big OEM global partners like Mercedes, Ferrari, and Red Bull have bigger financial backing so they spend tons of money on their teams. They buy the best drivers by spending huge amounts. Smaller teams will have fewer sponsors and can only afford to buy drivers who suit their budget. They also have less amount to spend on their car development.

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What is Included in the Budget cap?

Only car development and technology are under the budget cap. Many other expenditures don’t come under the Budget cap, which still shows Formula 1 is not a level playing field for every team. Marketing costs, race driver fees and team personnel don't come under the F1 Budget cap, which falls completely under the team's budget. So big teams can spend as they want on their drivers, technical crew, and Marketing.

How will FIA check teams?

The FIA and Formula One officials monitor the teams by visiting the F1 team's factory where they operate during the season to ensure whether the teams are following the regulations properly under the FIA Guidance. 

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What if teams cheat on budget caps?

If the teams spend too much budget than the regulations they will be penalised. There are three ways a Budget cap can be breached. First, the teams submit their accounts late or give false documents. Next is Minor overspending by less than 5%. Third is the teams exceeding their cost cap by more than 5%.

Penalty for Breach?

F1 Teams will be punished in three ways Penalties. The first one is the financial Penalty. The next one is the Minor sporting penalty which is a Reprimand, deduction of points and race bans, Reduction of their cost cap, and Limited testing on track. The last one is the Material Sporting Penalty which they will be excluded from the championship. 

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