Red Bull’s F1 cost cap breach presents penalty dilemma

Red Bull’s breaching of Formula 1’s cost cap in 2021 – as recently confirmed by the FIA – puts everyone in a tricky position. Although the breach is classified as a ‘minor’ one (meaning it is over by less than 5% of the cap) that could still be an overspend of up to £6.5m. Other teams have been quick to point out just how much lap time they could find if they had that much extra to spend. It’s an extra 70 aerodynamicists, or an extra two or three in-season aero upgrades.

They point out too how an overspend in one season can bring an advantage also into the following season, as more resource could have been allocated to the design and conception of the new car which even can be argued as beneficial into the following season (2023) too, as you would be starting from a higher level as a result of the ’21 overspend.

For its part, Red Bull is saying that it’s all been a matter of fully understanding the complexities of what is a new regulation, what is permitted to offset, what isn’t, etc. “It’s a brand new set of regulations,” says Christian Horner, “and a set of very complicated regulations so how rules are interpreted and applied inevitably is going to be subjective between the teams. I’m sure as the years go by things will get tidied up.”

That ‘subjectivity’ is where the problem lies. Given the competitive nature of F1, any technical regulation has always been subject to teams finding a way around the wording if there is a competitive advantage to be found. That is just accepted as an intrinsic part of the game; the competition extends to who best reads and creatively interprets the regulations.

The financial regulations however are an attempt at having that same competitive striving within a cost-contained environment. So that creative ingenuity can still find you an advantage and isn’t simply overpowered by someone having three or four times your financial resource. What the financial regulations are not supposed to be are another dimension where F1 creativity can be deployed. But teams may not necessarily see it that way.

How daring you choose to be in your interpretation of the financial regulations – and at the current level at which they are set, they are only really a limitation to Red Bull, Ferrari and Mercedes – might be a reflection of your image and responsibility. Because just as every team is structured differently internally, every team has a different level of acceptable risk according to their shareholders and the marketplace the shareholders are in.

The potential commercial impact for Daimler-Benz to be associated with ‘cheating’ a regulation is almost by definition far greater than that of soft drinks manufacturer Red Bull. Ferrari is probably somewhere in between in this regard but is veering more towards Daimler-Benz, with corporate governance regulations and potential marketplace damage. As such, there is probably a lesser resistance to viewing the financial regulations competitively, just as you would a technical regulation, in a soft drinks-funded team than in an automotive one. Especially when the whole marketing image of that soft drinks company is one of rebellion.

“The whole marketing image of Red Bull is one of rebellion”

This is a difference between teams every bit as fundamental as those of their internal structures and departments, and one which was likely not considered when the regulations were formulated. Ross Brawn has in the past emphasised that these regulations will have real teeth and that compliance to them would be partly derived from the fear of the penalties. But the level of fear induced by the penalties will not be the same from one team to the next. Furthermore, with new regulations by definition being so ambiguous and ‘subjective’ in how they should be interpreted, any penalty could be legally challenged. The threat of that – whether explicit or implicit – could make the FIA pause for thought. Just as happened in 2019 after the FIA believed Ferrari to have been breaking the technical regulations regarding fuel flow but had no concrete evidence.

So, what does F1 do now? The penalty for the transgression has yet to be announced, but the FIA is in an invidious position in deciding what that might be. If it is a harsh penalty for what is termed a ‘minor’ transgression how might Red Bull react? If it is deemed a soft penalty, how do the other teams react? Mercedes’ Toto Wolff has already given some indication: “If it’s the so-called minor breach that can be below 5% and you can spend $7m more than everybody else, it means, if there is a light penalty, we will be all pushing those 5% more going forward.” It will be treated just like a technical regulation, in other words, and the cost cap loses effectiveness.

Ferrari’s Mattia Binotto is on the same page, predictably. “The important thing is that anything granted to them is transparent, so that everyone can understand the regulations well but also because it was a direct advantage. There is no need to change the regulations, even if it was the first year. They were clear from the beginning and were always discussed with constant exchanges with the FIA.

“Clarity and transparency will be important but it could all melt like snow in the sun.”

Since he began covering grand prix racing in 2000, Mark Hughes has forged a reputation as the finest Formula 1 analyst of his generation
Follow Mark on Twitter @SportmphMark