Red Bull fined $7m for cost cap breach

CIRCUIT ZANDVOORT, NETHERLANDS - SEPTEMBER 04: Max Verstappen, Red Bull Racing RB16B, waves to fans on his way to Parc Ferme after securing pole during the Dutch GP at Circuit Zandvoort on Saturday September 04, 2021 in North Holland, Netherlands. (Photo by Charles Coates / LAT Images)

The FIA released its finding from the investigation into Red Bull Racing’s breach of the cost cap regulations for the 2021 season. As you would imagine, Mercedes boss Toto Wolff feels the penalty handed down to Red Bull is not strong enough while Red Bull Racing boss Christian Horner feels it is enormous and draconian in scope.

The arguments among fans have ranged from the notion that even $10K spent on catering is $10K another team didn’t have to spend and had they had it, they could have spent it on car development. The other side of the arguments is that the breach was more focused on cost classifications like paid leave, payroll issues, and other expenses that had nothing to do with the performance of the car and may have been an issue about how the FIA decided to classify expenses they had previously not given Red Bull direction on.

Ultimately it will come down to a $7M fine plus a loss of wind tunnel time of 10%, which is added to the loss of time they incur as the championship winner. Some believe that’s a fair penalty while others don’t. As you would expect, not everyone agrees nor will they.

The bigger question is the regulations themselves in the sense that if they aren’t strict enough or are too strict, that needs sorting out. For me, the biggest issue is the leaks that occurred about the breach, details of the amount of the breach and communications form teams to the FIA with regards to the breach.

FIA Press Release:

Following the submission of all required documentation by all ten Formula One Teams, the Cost Cap Administration carried out the first ever Review process under the FIA Formula One World Championship Financial Regulations. These new Financial Regulations are a very complex set of rules that competitors were required to adapt to for the first time.

Red Bull Racing was found to be in breach, however, the Cost Cap Administration recognised that Red Bull Racing has acted cooperatively throughout the review process and has sought to provide additional information and evidence when requested in a timely manner, that this is the first year of the full application of the Financial Regulations and that there is no accusation or evidence that RBR has sought at any time to act in bad faith, dishonestly or in fraudulent manner, nor has it wilfully concealed any information from the Cost Cap Administration.

In these circumstances, the Cost Cap Administration offered to RBR an ABA to resolve this matter. That offer was accepted by RBR.

An Accepted Breach Agreement (“ABA”) dated 26 October 2022 was therefore entered into by and between the Cost Cap Administration and Red Bull Racing pursuant to Article 6.28 of the FIA Formula 1 Financial Regulations (“Financial Regulations”). A link to a summary of the terms of the ABA as provided for by Article 6.32 of the Financial Regulations is below.

FIA Full Report:

RBR Public Summary ABA / Article 6.32

An Accepted Breach Agreement (“ABA”) dated 26 October 2022 has been entered into by the Cost Cap Administration and Red Bull Racing F1 Team (“RBR”) pursuant to Article 6.28 of the FIA Formula 1 Financial Regulations (“Financial Regulations”). The Financial Regulations are issued by the FIA and form part of the terms and conditions of participation in the FIA Formula One World Championship.

The Cost Cap Administration recognised that RBR has acted cooperatively throughout the review process and has sought to provide additional information and evidence when requested in a timely manner, that this is the first year of the full application of the Financial Regulations which are a very complex set of rules that competitors were required to adapt to and that there is no accusation or evidence that RBR has sought at any time to act in bad faith, dishonestly or in a fraudulent manner, nor has it wilfully concealed any information from the Cost Cap Administration.

The Cost Cap Administration considered it appropriate, in these circumstances, to offer to RBR an ABA to resolve this matter on the terms set out below, given the limited nature of the Procedural Breach in issue and the fact that the Minor Overspend Breach falls at the lower end of the <5% minor overspend range, and RBR’s willingness to accept the breaches and to cooperate with the Cost Cap Administration. That offer was accepted by RBR.

The ABA concerns:

  • RBR’s submitted Relevant Costs reported in its 2021 Full Year Reporting Documentation of £114,293,000;
  • Subsequent to the findings of the Cost Cap Administration, a Procedural Breach committed by RBR pursuant to Article 8.2(e) of the Financial Regulations due to the submission of inaccurate Full Year Reporting Documentation in respect of the Full Year Reporting Period ending on 31 December 2021 because it inaccurately excluded and/or adjusted costs amounting to a total of £5,607,000 in its 2021 Full Year Reporting Documentation; and
  • Consequently, a Minor Overspend Breach committed by RBR under Article 8.10(b) of the Financial Regulations because its Relevant Costs, as adjusted by the FIA, exceeded the 2021 Cost Cap of £118,036,000 by less than 5%, namely by £1,864,000 (i.e., 1.6%).

Summary of ABA terms and sanctions

In accordance with the findings of the Cost Cap Administration, RBR has acknowledged that the Reporting Documentation submitted by it included the following incorrectly excluded and/or adjusted costs:

  1. Overstated excluded costs pursuant to Article 3.1(a) of the Financial Regulations (concerning catering services);
  2. Costs pursuant to Article 3.1(w) of the Financial Regulations (concerning consideration and associated employer’s social security contributions);
  3. Costs pursuant to Article 3.1(h)(i) of the Financial Regulations (in respect of Non-F1 Activities), as those costs had already been offset within Total Costs of the Reporting Group;
  4. Costs pursuant to Article 3.1(k) of the Financial Regulations (in respect of bonus and associated employer’s social security contributions);
  5. Understatement of Relevant Costs in respect of a gain on disposal of fixed assets by failing to make the necessary upwards adjustment;
  6. Costs pursuant to Article 3.1(q) of the Financial Regulations (concerning apprenticeship levies);
  7. Costs pursuant to Article 3.1(h)(ii)(i) of the Financial Regulations (concerning consideration and associated employer’s social security contributions);
  8. Understatement of Relevant Costs in respect of provisions set forth by Article 4.1(a)(i) of the Financial Regulations (concerning the cost of use of Power Units);
  9. Costs pursuant to Article 3.1(h) (i) of the Financial Regulations (concerning consideration and associated employer’s social security contributions);
  10. Understatement of Relevant Costs in respect of provisions set forth by Article 4.1(f)(i)(B) of the Financial Regulations (concerning use of inventories);
  11. Clerical error in respect of RBR’s calculation of certain costs re-  charged to it by RedBull PowerTrains Limited;
  12. Certain travel costs pursuant to Article 3.1(r) of the Financial Regulations;
  13. Costs of maintenance pursuant to Article 3.1(i) of the Financial Regulations.

and further that consequently its Relevant Costs for the 2021 Reporting Period exceeded the 2021 Cost Cap by £1,864,000 (1.6%). RBR has therefore accepted that it has breached: (i) Article 8.2(e) of the Financial Regulations due to its failure to file accurate Full Year Reporting Documentation in respect of the 2021 Full Year Reporting Period, and (ii) Article 8.10(b) of the Financial Regulations due to its failure to keep its Relevant Costs under the 2021 Cost Cap.

The FIA acknowledges that had RBR applied the correct treatment within its Full Year Reporting Documentation of RBR’s Notional Tax Credit within its 2021 submission of a value of £1,431,348, it would have been considered by the Cost Cap Administration to be in compliance with Article 4.1(b) of the Regulations and therefore RBR’s Relevant Costs for the 2021 Reporting Period would have in fact exceeded the 2021 Cost Cap by £432,652 (0.37%).

On that basis, RBR has accepted the imposition of the following sanctions:

  1. a)  RBR must pay a Financial Penalty of USD 7,000,000 to the FIA within 30 days of the date of execution of the ABA (Article 9.5 of the Financial Regulations);
  2. b)  RBR receives a Minor Sporting Penalty in the form of a limitation of RBR’s ability to conduct aerodynamic Testing during a period of 12 months from the date of execution of the ABA through the application of a reduction of 10% of the Coefficient C used to calculate the individual Restricted Wind Tunnel Testing (RWTT) and Restricted Computational Fluid Dynamics (RCFD) limits applicable to each Team as set out in Article 6 of Appendix 7 to the FIA Formula 1 Sporting Regulations. For example, if the Coefficient C, based on RBR’s championship position is 70%, the effective new value of C will be: CNEW=70% x (1-0.10) = 63.0%; and
  3. c)  RBR bears the costs incurred by the Cost Cap Administration in connection with the preparation of the ABA.

The decision of the Cost Cap Administration to enter into the ABA constitutes its final decision resolving this matter and is not subject to appeal. Non-compliance by RBR with any terms of the ABA will result in a further Procedural Breach under Articles 6.30 and 8.2(f) of the Financial Regulations and automatic referral to the Cost Cap Adjudication Panel.

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Matt

So, does the fine come out of their budget for next season???

Or can they just pay it separately?

Thanks FIA for being clear.

Ian Finlay

I don’t think fining the team the same amount is as you overspent is as punitive as it should be. Especially in a year like this with new regs. Why wouldn’t you overspend to get a baked-in advantage on your competition for years to come? It’s just a good return on investment to overspend here. If anything they should have to pay out to every team who didn’t overspend to help them copy and catch-up on RB’s development. IMO

Peter

You clearly have read the article well !

Glen Mhor

It is odd that these highly disciplined F1 teams cannot adhere to a budget, or at least one cannot. A difficult one to categorise in terms of what advantage they gained this year and with that in place, it’ll set them up for next year, or even they have superior catering. We’ll probably never know until someone comes out with a book. Teams by nature will push the envelope and bend the rules, or step into the greyness that surrounds interpretation. However, figures are figures and its worrying that the potential breach wasn’t identified internally prior to the event etc.… Read more »