Formula 1 will impose on teams a cost cap of $175m a year from 2021 to 2025, with the measure inscribed in the sport’s newly created Formula 1 Financial Regulations that will exist alongside the FIA Sporting and Technical regulations.
The long-awaited limit on spending, that will force F1’s top three teams – Mercedes, Ferrari and Red Bull – to reduce their budgets, was devised by former Brawn and Mercedes financial executive Nigel Kerr.
Kerr was hired by F1 managing director Ross Brawn to design a viable schedule of cost cutting measures.
The $175m limit shall be in force for five seasons, from 2021 to 2025, but will include a provision allowing the level to be adjusted upward for inflation.
F1’s top teams initially sought a higher number to be implemented from 2021, with a multi-year glide-path down to $150m.
However, while the final figure is a feasible compromise it also excludes several significant items from a team’s budget.
The $175m number will not include driver salaries or the salaries of a team’s top-three executives. The figure also discard engine costs and marketing expenses.
It’s unclear how Formula 1 and the FIA will police the mandatory cost cap, but the regulations will allow for the application of penalties – such as loss of championship points or a removal a team principal’s FIA licence – for those in breach of the covenants.
Formula 1 has proposed a “dry run” in 2020, when teams will be invited to open their books for a control and audit procedure but without any regulatory constraint.
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