After weeks of whispering in the Formula 1 paddock about a looming cost cap decision, Tuesday’s announcement that all ten teams are off the hook brought relief to many.
Because the longer the FIA delayed announcing its results from the 2022 spending reviews, the greater the likelihood that one or more teams would break the rules.
And after the controversy sparked by Red Bull’s overspending for 2021 and unease over the nature of the penalty imposed, another breach of the rules this time would have been explosive.
While the FIA’s decision was a long time coming, it was difficult to find consensus in the paddock as to what would happen. Some teams assumed that the FIA would give the all-clear for everyone. Others predicted a scenario where everyone would be cautioned for breaking a rule. Some felt that the matter would revolve around one or two teams breaking the rules.
The FIA had scrutinized the entries so thoroughly this year and asked many follow-up questions and carried out thorough factory inspections that none of the major racing teams operating right at the cost ceiling were sure. The team bosses nervously awaited the calls from their chief financial officers to know when they would receive the FIA certificates of conformity, so they could relax a little.
The FIA’s confirmation that all teams complied with the regulations will have made everyone happy that their own teams were OK – but it certainly won’t remove suspicions that some teams are still finding ways around the rules. And it is this remaining doubt, however small, that poses the greatest challenge to cost capping in the future.
Monitoring of the teams is the be-all and end-all when the budget is limited
There is a consensus in the paddock that budget capping can only be successful if teams have full confidence that they are being monitored in the correct manner. If that trust isn’t there, the whole thing collapses as a useful tool for curbing spending.
Speaking at the Italian Grand Prix in Monza, F1 CEO Stefano Domenicali said: “We are in the second year of the financial regulation. I want to rate it positively because I see positive elements.
Financial stability has greatly increased the valuation of teams, but as always when a new and complex variable is introduced, the system must be able to handle it and everyone involved must be able to do so,” Domenicali said .
“Credibility comes from the guarantee that everything is controlled down to the last detail. And in the event of a breach, there must be an exemplary sporting punishment, a sanction that [Teams] definitely stops you from breaking the rules.”
This element of confidence in the all-clear on cost caps is important in two ways: first, because teams are not given access to their competitors’ accounts, nor to the reasons for the FIA’s judgment on other teams’ cost cap requests.
Because just as it would be unfair for the FIA to release technical information about what each team is doing to comply with the regulations, it would be silly for the governing body to provide confidential insight into competitors’ spending.
Control good, trust even better?
In addition, the teams have to trust the system because there is no going back if there are complaints. The FIA’s decision to issue certificates of compliance with the cost ceiling can no longer be reversed.
Unlike technical regulations, where if the FIA is happy with the design of a car part, a team can still protest at the next race, the rules for finance are different.
There is a process by which teams can submit reports to the FIA if they believe a competitor has breached budget limits. However, the time frame for this is 1 January to 30 April (inclusive) immediately after the reporting year, which means that the 2022 time window has long since passed.
In addition, Article 6.11 of the Formula One Financial Regulations states: “There shall be no right of appeal against a decision by the Cost Cap Administration to issue a Certificate of Compliance to an F1 team.”
The only potential change would be if a whistleblower uncovered violations, giving the FIA good reason to launch its own investigation.
The regulations state: “The Cost Cap Administration may order any individual who discloses facts which are likely to constitute a violation … and/or who provides evidence which enables such facts to be prosecuted and punished, in whole or in part immunity
This has to happen within a five-year time frame – which in itself is a major deterrent as few teams can guarantee they can retain an employee that long. It would be a dangerous game to intentionally break the rules and risk having your bad behavior exposed.
Even more employees are to be tasked with monitoring
But while suspicions remain that some teams are up to something, they should at least take comfort in the fact that the FIA has investigated the cost cap much more thoroughly this year than it did 12 months ago.
Not only has the FIA increased the number of full-time staff in its Financial Regulations department from four to ten for this year, but the level of scrutiny it imposed on each team was immense.
The team principals revealed that their chief financial officers were given multi-page questionnaires asking for more than 100 items to clarify ambiguities in their own submissions.
In addition, the factory visits included interviews with staff, inspection of parts, giving the FIA access to IT systems, WhatsApp messages and any data requested to ensure nothing undesirable was going on.
This level of detail was welcomed by many team leaders, even if the effort required to process all requests was sometimes quite high. It can be said that the FIA process is constantly evolving as the governing body learns from the many clarification requests it receives from CFOs and responds to problem areas.
Whilst all teams have been given the green light this year, the impact of non-F1 activity up to 2024 could be of interest – especially as an FIA directive on the subject was issued a few months ago. Nonetheless, investigation on this front is likely to be even more intense in the future.
Teams in Formula 1 are always looking for gaps in the rules
The extreme competitive nature of Formula 1 means that paranoia about what the rivals are up to is constant – whether it’s clever car components, trick systems or underhanded spending – and suspicions of cheating will never cease.
The fact that the FIA investigation left few teams reassured that they were clean says a lot about the thoroughness of the compliance checks, which should at least give reassurance that any nefarious activity would have been detected.
As Mercedes boss Toto Wolff said earlier this year: “If someone was careless or cheated, then you will find out.” This confidence that rule-breakers will be caught is critical to the success of cost capping.
Because as perhaps the most important rule change Formula 1 has made to ensure the long-term survival of teams, everything must be done to ensure it stays in place and works.
Therefore, the reaction of the teams over the next few weeks – whether they welcome or question the FIA’s cost cap decision – will be intriguing and could shape the political landscape of Formula 1 in the coming months.