A statement released by the FIA on Monday said that Red Bull had exceeded costs within Formula 1’s cost cap regulations, but did not issue a penalty (of any kind) – the element that was most anticipated and feared when it was known that budget exceeded.
While the wording of the FIA’s update offered plenty of room for interpretation and gave us some answers, there are still so many unknowns in a story that has already dragged on longer than it should have.
How serious was it?
The nomenclature of ‘minor injury’ might make it sound like overspending is trivial. But given that it could be anything under the 5% cap of the 2021 budget, it could still be a $7 million figure.
It is not known how much the excess is and only when it is known, it will be possible to say how serious it is. But even a ‘minor’ breach can be significant and it would be wrong to use the text of the financial regulations (which prescribes “procedural”, “minor” and “material” breaches) to ignore it as nothing.
There’s a big difference between a $100,000 overspend and a figure that could be 70 times that or more. So, until the number is released, one cannot be sure.The only thing that is known is that there are plenty in the F1 paddock who are willing to suggest that the overspending is in the seven-figure range. But that doesn’t mean anything, all that matters is what the cost cap administration determines, so we’ll have to wait for the details.
Why does Red Bull think it is compliant?
Red Bull’s argument is simple. All teams submit their financial statements and however complex they may be, there will be a bottom line for their spending (excluding areas that count as excluded expenses).
So in the most basic terms, Red Bull’s bottom line number is below the cost cap based on how it presented the numbers.
That, combined with their confidence in the way you conducted the audit, means that, as far as Red Bull is concerned, it has acted accordingly.
Why does the FIA think it isn’t?
One can only speculate about this, but there are several clear indications.
First, Red Bull’s statement eliminates any possibility that this is a so-called ‘admitted infringement agreement’. Then the team and the cost containment committee agree on some procedural violation or overspending and agree on a penalty. That’s what Williams did for his procedural violation, with a $25,000 fine.
This means that the FIA does not believe that the final number submitted by Red Bull is correct. But as the voluminous paperwork will contain endless details of how this was calculated, it will likely be based on how the regulations were interpreted to create that number, rather than on the belief that Red Bull is engaging in some covert or fraudulent activity.
In the FIA’s announcement, it is stated that “all the competitors acted in a spirit of good faith and cooperation during the entire process.”
What are Red Bull’s options to combat this?
Red Bull’s firm but cooperative statement indicated that it would cooperate with the FIA in following the correct procedure.
The cost cap administration is “currently determining the appropriate course of action to be taken,” and undoubtedly the first choice would be to reach an accepted overage agreement with Red Bull. For that to happen, Red Bull would probably have to accept that the way it interpreted certain aspects of the financial regulations was incorrect.
However, it is important to note that the accepted agreement on exceeding the limit would carry with it not only a lighter sentence, but also that no one can protest against it.
As Red Bull has moved to combat this, accepting an overreach seems unlikely for now. This means they will defend their interpretation and report, claiming that the way they calculated the consumption number is correct.
If they are unable to do so and are unwilling to enter into any accepted breach agreement, then the cost containment authority can issue a judgment and penalty. Red Bull could appeal this and as always there is the possibility of a ‘nuclear option’ to take it to court in the real world.
What happens if Red Bull successfully overturns the ruling? What will the other teams do?
If Red Bull’s cost cap submission is later accepted as correct, it will by definition set a precedent for how certain aspects of their spending are taken into account. This means that other teams working to contain costs will be able to do the same and certainly will if it brings benefits.
How long will this process take?
Red Bull was likely aware of the question marks over aspects of its reports given the constant back-and-forth between cost containment management and the teams. But now that they have been officially found to have committed a minor breach of the cost cap, this moves to the next stage .
With the stakes raised, it’s likely the cost-containment administration will want a quick fix. But if it comes down to long technical arguments about the text of regulations and accounting, it could take some time.
So the key factors in how quickly this will be resolved is how much Red Bull is willing to fight back from their corner.
What are the potential implications for the budget cap?
Potentially, far-reaching – both for better and for worse.
Arguably, this first major test case shows that financial regulations are robust and stand up to scrutiny. Even if Red Bull manages to defend its position, it could allow for tighter regulations in the future.
But if there is proven overspending, and the penalty is not, or cannot be, as severe as the spending cap administration wants it to be—and it should be remembered that this dispute is part of a much broader political battleground—that could threaten the integrity and future of the cap. budget.
This is also a stern test for the FIA and President Mohammed Ben Sulayem in terms of transparency and their regulatory capabilities.