The Relevance of Sports Law in Formula One in the 21st Century

Introduction

Formula One (“F1”) is the most valuable open-wheel racing sport in the world, with its 2023 revenue coming in at a staggering 3.2 billion USD. F1 is also a very expensive sport, with the cost of a single F1 car coming up to around 15 million USD. Hence, there exists financial regulations (“the Regulations”), introduced by F1’s governing body, the Fédération Internationale de l'Automobile (“the FIA”).

Sports Law governs many aspects of F1, such as intellectual property rights, driver contracts and regulations for all kinds of misconduct by teams and drivers. However, I will be focusing solely on F1’s financial regulations, more specifically: the cost cap. 

What is the F1 cost cap

The Regulations were introduced in 2021 by the FIA, governing all Formula One World Championship (“Championship”) Teams. It imposed a cost cap on the spending of all F1 teams throughout a calendar year. In 2021, Article 2.3 of the Regulations initially set the cap at 175 million USD to cover the planned 21 races that season, but reduced it to 145 million USD due to the reduced schedule caused by the COVID-19 pandemic. This figure has since fallen to 135 million USD for the 2025 season. Article 2.3(a)(iii), however, allows teams to spend an additional 1.8 million USD for any race above the 21-race threshold, meaning that the actual cost cap for the 24-race 2025 season would be 140.4 million USD.

Expenses tied to car-performance, excluding engine-related costs, are usually subject to the cost cap, as well as most team personnel salaries and transportation costs. Notable excluded expenses would be driver salaries and the salaries of the three highest-paid staff members.

Why the cost cap was introduced

Before introduction, it was becoming extremely difficult for ‘backmarker’ F1 teams (i.e. teams that often finish in the bottom ten of a twenty-car race) to compete in the Championship due to their lower budgets. In the 2019 season, the spending of the biggest teams, Mercedes, Ferrari and Red Bull, had increased to over 400 million USD each. This meant that they could not only produce faster cars, but also introduce better upgrades throughout the season. This allowed them to finish in higher positions in the Championship, garnering them a higher share of prize money. 

Therefore, the teams who received the largest allocation of prize money would have the highest budgets for the next year. In the 2019 season, eventual Championship winners Mercedes spent around 484 million USD, receiving approximately 177 million USD in prize money. In contrast, last-place finishers Williams spent roughly 141 million USD, receiving 60 million USD in prize money. Next season, once again, Mercedes finished first and Williams finished last.

Such practices were often anti-competitive in nature, with the top few teams dominating the sport. In the past, this led to an infamous 2015 dossier where smaller teams such as Force India (now Aston Martin), Sauber and Lotus (now Alpine), lodged a complaint against the practices of what they called a ‘questionable cartel’, which is a subset of leading teams in the sport. This ‘cartel’ allegedly controlled much of the Championship’s decision-making and often received higher payouts.

To combat this, the FIA introduced the cost cap to: 

• promote a competitive balance in the championship by setting a strict budget threshold;

• promote sporting fairness; and

• ensure the long-term financial stability and sustainability of teams. 

These objectives had to be accomplished while preserving the unique technology and engineering challenges of F1.

Consequences of Breach

Pursuant to Article 7.1 of the Regulations, the Cost Cap Administration has the power to investigate alleged breaches of the cost cap. They might refer them to the Cost Cap Adjudication Panel, an independent body of judges who determine whether there have been alleged breaches of the Regulations. The Panel’s decisions may be appealed to the International Court of Appeal.

There are also different categories of breach. 

1. Procedural breach, late-submission and non-submission: A procedural breach is when an F1 team fails to carry out its obligation of submitting its half-yearly documentation by the reporting deadline, while a late-submission or non-submission is when a team fails to submit its full-year documentation by the deadline. 

2. Exceeding the cost cap: Minor and material overspend breaches indicate that a team had exceeded the season’s cost cap by less than 5% and more than 5% respectively. 

The consequences for breaching any of the above categories could range from a public reprimand to exclusion from the Championship. 

In 2022, the FIA found Red Bull guilty of breaching the cost cap. The Cost Cap Administration found that Red Bull had exceeded the 145 million USD cost cap in 2021 by 1.6%. Ultimately, as the overspending was minor, the FIA did not deem the offence serious enough to warrant disqualification. Instead, Red Bull was hit with a 7 million USD fine, a 10% restriction in Restricted Wind Tunnel Testing and Computational Fluid Dynamics, as well as other costs incurred by the Cost Cap Administration during its investigation.

Conclusion

The cost cap’s introduction has proved a necessary step in levelling the competitive parity of the teams currently on the F1 grid. With new limitations of the expenditure of ‘big’ teams, and ‘backmarker’ teams like Haas being able to meet the cost cap for the first time by acquiring new sponsors, we might be able to see more competitive Championship battles within the next decade. However, it might still take some time for the ‘backmarkers’ to catch up, as the cost cap initially had limited effectiveness, with Red Bull and Max Verstappen’s dominance in 2022 and 2023. With the introduction of new sporting regulations that will radically alter car design in 2026, fans will just have to wait and observe whether the ‘backmarker’ teams will be able to effectively capitalise on the cost cap to catch up to their bigger rivals.

References and Further Reading

"Examining Formula Once's Cost Cap" (Inside Sports Law)

"F1 Maintains Financial Strength as Q1 Revenue Climbs to Over $550M" (Sportcal)

"F1 'Spygate': Fifteen Years on from the Sporting Scandal That Had Everything" (BBC Sport)

"FIA Regulations" (Federation Internationale de l'Automobile)

"Formula 1 Cost Cap: What Is It and How Does It Work?" (Autosport)

"Formula 1: 'Human Error' Responsible for Incorrect Application of Rules in Abu Dhabi" (BBC Sport)

"Formula One Races to Resolve Legacy Issues around Competition Law" (Osborne Clarke)

"Haas to Operate at Formula 1 Cost Cap for First Time in 2025: A New Era for the Team" (AutoGear)

"How Much Does an F1 Car Cost in 2024? Key Parts, History of Most Expensive Formula 1 Cars" (Sporting News United Kingdom)

"Red Bull: F1 Cost Cap Breach Penalty 'Enormous' and 'Draconian'" (Autosport)

"The 2021 F1 Cost Cap Explained - What Has Changed, and Why?" (Formula 1)

"What You Need to KNow about the F1 Cost Cap" (Global Sports Advocates LLC)

"Why Was Michael Schumacher Disqualified from the 1997 F1 Championship?" (Sportskeeda)