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F1 Budget Cap: What Is It & What Does It Include?

One of the biggest changes implemented in Formula 1 in recent years is the budget cap. In the past, teams were allowed to spend as much as they wanted on car development, but teams are now limited on how much they are allowed to spend throughout the season due to the budget cap.

The F1 budget cap is a limit on how much each team is allowed to spend during the season. The budget cap was set at $140 million for 2022, with a reduction to $135 million in 2023. The teams are limited in spending on performance-related aspects in an attempt to level the playing field in Formula 1.

The budget cap is a point of debate among teams, with many of them being unhappy with its implementation and the rules that have come with it. However, it’s designed as a method of bringing the field closer together. Below, we’ll discuss everything you need to know about the F1 budget cap.

What Is The Budget Cap In F1?

The budget cap in Formula 1 limits the amount of money each team can spend on performance-related aspects of its operation throughout the course of the season. This is like the budget cap you see in sports like the NFL, but instead of a limit on player salaries, the teams are limited in other ways.

Teams are prevented from spending more than a set amount on during a season and there are several reasons this has been brought into play, but it’s mainly designed to level the playing field. The cost cap, as it’s also known, is an important part of the future of the sport.

If a team exceeds the cost cap, they will be punished, but the exact punishments are unclear. It depends on the violation and by how much they have exceeded the cost cap, and which elements pushed them over the cost cap, such as crash damage for example, versus performance-related upgrades that give them an additional advantage over competitors.

Why Is There A Budget Cap In F1?

Formula 1 decided to implement a budget cap because, for much of its history, the sport has been dominated by the wealthiest teams. By implementing a budget cap, teams cannot simply buy their way to victory but must compete under the same conditions as every other team.

Formula 1 has been a playground for the rich and famous for many years. The oldest and most successful team in the sport’s history, Ferrari, has been there since the start. But all the teams have faced their fair share of turbulence in the sport.

Even Mercedes has been in and out of the sport, and over the decades that Formula 1 has existed, we’ve seen dozens of teams come and go. This is mainly due to the excessive amounts of money teams need to spend in order to be competitive in Formula 1.

While the sport has by no means lost its elitist title, a budget cap will certainly help to keep things under control, and it comes with a wide array of benefits that the FIA has considered before implementing this rule into the sport.

Level The Playing Field

The main goal of the budget cap is to level the playing field for all teams in the sport. For decades the richest teams have been the most competitive. It was all about who had the best facilities and the latest technology, not necessarily who had the better drivers and crew.

Having more money would allow the team to gather more resources to build a faster car and win the championship, and spend as much as they needed on engines and other crucial parts to account for reliability issues. This is ultimately why many of the smaller teams have failed in the sport and have disappeared.

However, with a budget cap in place, the bigger teams such as Mercedes and Ferrari can no longer throw money at their car. They have the same amount of money to spend as the smaller teams, which makes for a more level playing field across the entire grid.

Attract New Teams

Formula 1 is the pinnacle of motorsport, and any racing team in the world would jump at the opportunity to participate in this prestigious series if they could afford it. However, without a budget cap it has simply been too expensive for new teams to take a chance in the sport.

Technically, there is space for three more teams in Formula 1, but finding those teams has proven to be incredibly difficult. With a budget cap in place, these teams know exactly what to expect when it comes to spending throughout the course of the season (to an extent – we’ll cover what the budget cap does not include shortly).

It not only helps them plan their finances and attract more sponsors, but it also helps them become more competitive right away, rather than taking years to develop their car and build up the finances to compete with the bigger teams that have more money to spend.

Reduce Overall Expenditure

The obvious reason for the budget cap being introduced is to reduce the overall expenditure of the teams. Formula 1 has gone through phases where it attempts to bring down the amount of money teams spend through rules, such as having only three engines per season for example.

However, every time they begin to reduce the expenditure in Formula 1, it eventually gets out of control again. This time though, there is a strict rule that has been put in place, and teams have no choice but to stick to it for fear of penalties. Reducing the amount of money teams spend is important because it directly influences the level of competition and the sustainability of the teams.

Sustainability

Formula 1 teams do not have a primary source of income directly tied to their racing, aside from the prize fund at the end of the season. Most of their funds are generated through sponsorship. If a team is unable to secure sponsorship, they won’t be able to race, and they likely will have to sell their team. That’s because racing in F1 is so expensive and they can’t make up the costs.

Some teams are lucky to be backed by their partners that are massive businesses, such as Mercedes, Ferrari, and Red Bull for example. However, smaller teams, such as Haas, rely heavily on funds injected into the team through sponsorship.

Limiting the amount of money teams can spend creates a more sustainable environment for them because it prevents bigger teams from majorly outspending them. The smaller teams do not have access to the kinds of budgets bigger teams have, so if they want to be competitive, it’s likely that they will run out of funding quickly without a budget cap.

Is The Budget Cap Effective?

The Formula 1 budget cap will be effective in reducing the amount of money spent by the bigger teams. This will allow the smaller teams to catch up, as the budget cap has been set up in such a way that they are able to spend the same amount. It won’t be about who has the most money anymore.

This removes the unfair monetary advantage that the bigger teams have over the smaller teams and, ultimately, this will level the playing field in Formula 1. One of the biggest issues smaller teams have faced is that they do not have the financial backing to develop their car as much as bigger teams do.

With a cost cap in place, the performance gap will be bridged between the front and back of the grid, and we may see a more mixed-up grid as a result, when compared to recent years. It will take a few years for this to materialize, and we’re yet to see the cost cap in full effect.

How Much Is The Budget Cap In F1?

The F1 budget cap is $140 million for 2022. This is a relatively tight budget for most teams, as they need to consider the costs that they will incur throughout the season. For example, an entire car being written off can cost more than $1 million, a portion of the budget that has been wasted.

Teams will have to carefully develop their cars. If a new part has been built and it does not work as expected, the teams need to carefully consider whether they will build a new part or try to adapt and focus on a different area of their car to save money in the long run, at the expense of a drop in performance.

F1 Budget Cap Over The Years

The budget cap is a huge rule to implement, so the FIA decided to slowly introduce it over several years to help teams adjust. This was done mainly to ensure that the bigger teams are prepared for when the stricter budget cap comes into play.

The first phase of the budget cap was brought in during the 2021 season and it was set at $145 million.

In 2022 the budget cap was brought down by $5 million to $140 million. The teams will slowly start to feel the pressure as there are now stricter rules in place, and exceeding the cost cap will result in fines and penalties. This is the final preparation for the proposed budget cap of $135 million to be introduced from 2023 onwards.

What Is Included In The F1 Budget Cap?

The budget cap imposed on Formula 1 teams includes all performance aspects that the team must pay for throughout the course of the season, such as research and development and race operations. It does not include F1 driver salaries and those of the top senior staff in the team.

Car design and development is the main area included in the cost cap. This is where the teams with bigger budgets would run away from the rest of the pack. Having more money to spend allowed them to bring more upgrades and bigger upgrade packages to each race, making them even faster, which the smaller teams simply could not keep up with.

The second area that the budget cap includes is component manufacturing. Teams not only design their cars, but they build them, too. The parts each team builds will count towards the budget cap, so they can’t bring an unlimited number of spare parts to each race throughout the season.

Finally, the budget cap also includes testing and race operations. This means teams need to account for the money they spend traveling to each race, the fuel and tires they use, as well as the amount of money they spend just to participate in the race weekend or in testing.

Is Crash Damage Included In The Budget Cap?

Some teams have not been happy with all the elements of the cost cap, and there have been some complaints about certain aspects of it. Ferrari has been the most vocal about the budget cap in the past few seasons. The main issue was they were experiencing a lot of crash damage not caused by either of their drivers. The damaged parts had to be replaced, taking a chunk out of their budget.

This means that if another car crashes into yours, the repair costs will still come out of your budget. While it can be frustrating, there is no way around it as it can sometimes be difficult to place the blame solely on one car or another for an incident on track.

Are Engines Included In The F1 Cost Cap?

Engines are included in the F1 cost cap, as they are performance-related items. However, as there is currently an engine freeze in place, teams will have minimal engine development-related costs, and will simply need to pay for their construction and maintenance over the course of a season.

Teams can develop their engines (unless under an engine freeze) throughout the season, and many teams would historically bring major upgrades to their engines during the season that gave them a major performance boost.

Teams that do not have the backing of a major manufacturer are known as customer teams. These teams rely on buying engines from an engine supplier (Haas buying engines from Ferrari for example), and spending money on these engines is also included in the budget cap for customer teams.

Are Driver Salaries Included In The F1 Budget Cap?

Driver salaries are not included in the F1 budget cap. Some of the drivers are paid huge amounts of money, which would take up too much of the team’s budget cap. It was debated by the FIA, but they ultimately decided not to include the salaries as it would restrict the teams too much.

Considering Max Verstappen earns a reported $55 million per year and Lewis Hamilton earns around $40 million per year, it would be difficult to keep the season’s expenses within the budget cap and hire world-class drivers. Teams would spend so much on drivers that they couldn’t afford to put together a winning car.

There is of course an argument for including the drivers’ salaries in the budget cap. Teams would need to manage their expenses and it would mean that drivers aren’t “overpaid.” Drivers could still earn money from their sponsorships and endorsements to cover their costs, but this is unlikely to change things in the near future.

Is The F1 Budget Cap Working?

It’s difficult to say whether the budget cap is working or not. It will take some time before it achieves the desired result. Currently, the smaller teams are still slightly behind in the development of their cars, but the 2022 aerodynamic regulation changes have brought the field closer together.

It also depends on how well the smaller teams perform. If they build a car with a poor design philosophy, no number of updates will bring it to the front of the grid. They would simply need to shift their focus to developing a car for the following season.

At the front of the grid though, competition has become much tighter than before. The 2021 season was one of the closest that we have seen so far, and part of the reason why it was is that teams were limited in their spending and could not sprint ahead in the development race.

How Will The Budget Cap Change In The Future?

Currently, the plan is to set the standard budget cap at $135 million from 2023 onwards. From there it’s unclear whether the FIA wants to decrease the limit in the future or keep it set at $135 million. Those plans will only be revealed once the $135 million limit comes into place.

The FIA will likely monitor how the budget cap affects the teams and will decide from there. Considering the FIA is always looking to reduce costs, it would not be a surprise if the budget cap is reduced even further to tighten competition and add excitement to the sport.

Final Thoughts

The Formula 1 budget cap was introduced to prevent the bigger teams from overspending, and teams currently need to stay within a $140 million limit. Exceeding this cap will result in fines and penalties. The budget cap includes any performance-related elements the team spends its money on.