F1 Cost Cap: A Helping Hand

F1 Budget Cap Will be a helping hand, but even playing should not be expected suddenly.

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It has been brought to light that Formula 1 teams have operated under a new $145 million budget cap in the past year 2021. However, that budget cap included fewer than 20 different lines on a team's budget excluded from the $145 million figure. The items not included in the cap include marketing costs, driver salaries, and the salaries of the three highest-paid employees. As of 2022, Formula 1 teams had a budget cap for the first time.

This meant that the big teams would have to spend less money. However, Mercedes, Ferrari, and Red Bull fans did not have to worry because although limited to the budget cap, the teams would still have more finances to use than the rest of the teams on the F1 grid. At closer analysis, the budget cap was not that important to the rest of the teams, since only a few of the teams had budgets that would have been affected by the new rules which are the CostCap. Although F1 budget Cap is not the answer to a more competitive Formula 1 it was surely a great starting point.

It has been a complicated procedure or process in achieving the F1 budget Cap goal. This is because the document containing the policies of the new regulations, which were first published in October 2019, contains 41 pages meaning there are many policies to be followed and enforced, whilst change does not come easily. At first, the CostCap was set to be at $175 million and this was to last for a season of 21 seasons. This budget was later reduced to $145 million after the COVID-19 pandemic began.

The terms and conditions of these regulations stated that the limit of the budget cap would increase by 1 million per race if ever the races were to exceed 21 races. However, the main area of cost cap is not about what it covers but about what it permisses.

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There are more than twenty different needs on a team's budget excluded from the $145 million figure. These include marketing costs, salaries of drivers, and the three highest-paid employee's salaries. There is also an inheritance of activities, taxes, finance costs, etc. This is all covered in items A to T in the rules and regulations.

After the rules and regulations, there follow pages explaining the methods by which rules can be interpreted. There is also an explanation of how the   Adjudication Panel and the Cost Cap Administration operate and the team's demonstration of ongoing compliance with the CostCap by submitting reports. Investigations, breaches, adjudications, appeals, and penalties are included and how they will work. When the goals have reached their finality, the epitome aim is to limit specific costs while simultaneously leaving teams free to decide how to allocate their resources or funds, and this has been achieved. From this progress, it shows that there will be a slightly better competitive balance between the teams while ensuring financial stability and sustainability of the teams in long term. Costcap rules also seek to preserve the unique technological advancement in engineering challenge that Formula 1 brings to the table.

As of this year(2023), the Cost-cap is scheduled to descend to $135 million, there is also hope that the revenues will ascend to a point at which the respectively smaller teams will have their basic or rather usual costs catered for by the prize money made available by the F1 Constructors' Championship. Pertaining to the terms of the previous agreement, the smaller teams received approximately $50 million annually. However, the new deal will be a step up the ladder as they will probably receive $60-$70 million US dollars. However, sources that come up with actual definite figures at the moment should not be relied on because the numbers are based on percentages, and until the total has been brought to our knowledge, it is practically impossible to calculate the splits. The Knowledge that is available to the public as of now is that all the numbers or statistics so far are based on the past declared revenues for Formula One sports, which were $2 billion in the year 2019.

In the year 2020, it was rumored that there would be a $1 billion revenue figure, let's take a look at how they would break it down. The Concorde agreement is a commercial contract and because of that, it is very secretive and signatories are not allowed to reveal information on specifics. Referring to the terms of the previous deal, half of the overall revenues were allocated to the Commercial Rights Holder now known as Liberty Media, and the other half to the teams. 

Both sides sacrificed a loss of 2.5% percent of the overall revenues so that the Ferrari team would be given a 'special payment' for being the longest-standing team. Word through the grapevine states that it was reduced to an annual payment of $40 million, which competitor teams accepted because they understood that Ferrari has a reputation in the sport and should be rewarded for that longevity. If the agreements are rumored in the grapevine, the figures were to be $50 million because each engine manufacturer which runs a team would be given $10 million to help them out.

Other than the Ferrari team, there are several other teams that at some point received special payments because of their historical value or special performance. These teams namely are Mercedes, Red Bull, McLaren, Renault, and Williams. Liberty Media original's intention was to get rid of these payments. However, it appears that special payments still exist in the new, although these are monitored closely by restrictions and are based on a percentage of the money that the Commercial Rights Holder makes above a specific magnitude. Knowledge of the total is still oblivious to the public but what we can say confidently is that there will be nothing in this fund if the overall revenues are only around $1 billion.


Amidst all this, there is no doubt that the new agreements are fairer, if not perfect, and that the F1 budget cap will assist to close gaps a little, but the big teams are still going to be outspending the small ones. For the first time, there is a sense that the sport is now working together more than ever before.

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