How important is money in Formula 1?

By Duniya Jan

How can you win without money? This was the question most Formula 1 teams had to grapple with prior to 2021. The endless domination of Ferrari during the Schumacher era first brought into question the financial integrity of the sport; what is the point of having a drivers’ championship if money is always the leading driver? 

With fears of racing becoming repetitive rather than competitive, Formula 1 decided to introduce the renowned ‘cost-cap’ in order to level the playing field. A $135 million cap has been in place since 2021, with extra allowances for additional races beyond 21 Grand Prixs gradually increasing the limit each year. The cost cap covers various car-related expenditures including parts, spares, garage costs and more. From 2026 onwards, this limit is due to be increased to $215 million, with the FIA claiming this accounts for inflation and increased costs in developing cars under the new regulations. 

Thinking back to times before the 2021 cost restrictions, it’s pretty safe to say that money was the decider of championships. During Ferrari’s early 2000s domination, the Italian giants were reported to be spending upwards of $200 million a year on their challengers. By comparison, mid-table teams such as Williams were spending approximately $105 million, with Prost and Sauber spending roughly $60 million each. In a sport so heavily intertwined with engineering, only the richest teams could afford the trials and errors that allowed breakthroughs, translating to repeated championships. Whilst there are outliers like BAR, who somehow managed to spend more than Ferrari in the early 2000s yet end up with nothing, the general correlation between wealth and success in Formula 1 became a cause for concern, hence the long-time coming cost cap implemented in 2021.

The success of the cost-cap, however, is limited at best. Many big-ticket items such as driver salaries or driver-development costs are still not covered by the cap. Alongside these, benefits for team-staff such as bonuses and sick pay are not taken into consideration, likely forcing many smaller teams to downsize. Marketing funds are also ignored by the cap. 

Oh, and the penalty for breaching the cap? Fines. When Red Bull’s 2021 expenditure exceeded the 5% leeway granted, they were hit with a $7 million fine and received a 10% reduction in wind tunnel and CFD testing. When the punishment for spending too much is to spend a little more, you know the system is broken. Granted, other penalties such as potential exclusions from races and complete removal from the WDC altogether do exist, even if we have never seen them be imposed. Perhaps the mere threat of the aforementioned penalties is enough of a deterrent. 

Simply put, the cost-cap has done virtually nothing to change the top-four teams since its introduction. With placement in the constructors’ championship unlocking more funds – and thus car improvements – for future seasons, it is likely that the same cycle of Mclarens, Red Bulls and Mercedes will continue lest lower-table teams somehow secure mass investment. After all, a cost-cap minorly inconveniences the top-spenders. It does not give the lower-spenders more money to spend.