What is the F1 cost cap, and how does it work?
The cost cap, first introduced by the Fédération Internationale de l’Automobile (FIA) in the 2021 season, marked a significant change in how F1 is regulated off the track.
The cost cap limits how much each team can spend per season on the design and operation of their cars.
According to Clause 1.3 of the FIA’s Financial Regulations, the cost cap was introduced to promote competitive balance, uphold sporting fairness and secure the long-term financial sustainability of all ten teams on the grid.
Why did F1 introduce a cost cap?
From 2010 up until 2020, only three drivers claimed the F1 World Championship title. Between them, Lewis Hamilton and Sebastian Vettel claimed nine of those ten titles.
In the Constructors’ Championship, dominance was similarly clear, with Mercedes and Red Bull sharing every title. Their dominance stemmed largely from their financial power.
In 2019, Mercedes’ clean sweep of both titles was aided by an enormous $484 million budget. In contrast, Williams, who finished last in both standings, operated on a $141 million budget.
This disparity highlighted the strong link between spending and success, reinforcing calls for a cost cap.
However, the idea of introducing a cost cap is not new. Then-FIA President Max Mosley floated the idea in 2009, but it was shelved after several top teams threatened to launch an alternative championship.
Change finally came following Liberty Media’s 2017 acquisition of Formula 1.
One of the most significant changes came in 2021 with the signing of a new Concorde Agreement. This is a historic contract in place since 1981, that governs how F1 is run. It sets the sport’s regulatory framework and commercial terms, binding the FIA, Formula 1 and all ten teams.
The 2021 version, the first signed under Liberty Media’s stewardship, introduced F1’s first-ever cost cap.
What expenses fall under the cost cap?
The cost cap covers all expenditure directly linked to on-track performance. This includes:
By targeting these areas, the cap aims to control core spending that directly influences results, while still allowing flexibility elsewhere.
What costs are exempt from the cost cap?
Several key areas fall outside its scope:
How has the cost cap changed over time?
The F1 cost cap was set to launch in the 2021 season at $175 million, but the COVID-19 pandemic forced a rethink.
With many teams facing severe financial pressure in 2020, the cap was cut to $145 million before the start of the 2021 season.
In the 2020 season, the calendar shrank from 22 to only 17 races. Moreover, 14 of the races were held behind closed doors, with the remaining three operating at a very limited capacity.
The pandemic slashed F1’s revenue. According to Liberty Media’s financial accounts, Formula 1’s primary revenue dropped by 42% between 2019 and 2020, with smaller teams bearing the brunt.
The reduced cap prevented wealthier teams from outspending the rest and avoided a further decline in competitive parity.
In 2022, the cap was reduced further to $140 million. The FIA had aimed for deeper cuts, but rising energy prices and global inflation halted those plans.
The 2022 season also saw the introduction of a race-based adjustment, as teams were granted an additional $1.2 million for every race beyond the 21st on the calendar.
In 2023, the cap was lowered once more to $135 million, a figure that will remain until the end of the 2025 season.
However, with the racing calendar expanding to 24 races in both 2024 and 2025, slight increases to the cap have been made in line with the per-race allowance.
What’s next for the cost cap in 2026?
In 2026, the cost cap will undergo a major overhaul. According to new Financial Regulations published by the FIA in December 2024, the base cap will rise to $215 million, a huge increase from the current $135 million.
This higher figure reflects the absorption of previously exempted costs, rather than a true expansion in spending power.
Notably, the $300,000 allowance per sprint race, which was previously added on top of the base cap, will now be absorbed into the main cap.
Introduced in 2021, sprint races have become a regular feature of the F1 calendar. In 2025, six Grands Prix will include a sprint race, with eight championship points on offer for the winner.
The threshold for additional race allowances is also changing. Currently, teams receive extra funds for each race beyond 21 Grands Prix. From 2026, extra funding will only kick in after the 24th race, with $1.8 million allocated per additional race.
A new geographical adjustment mechanism will also be introduced by the FIA. Teams based in high-wage economies, like Audi in Switzerland, will be eligible for compensation to offset the local salary pressures, which will be calculated using OECD wage data.
This huge increase has raised concerns over whether smaller teams can remain competitive.
If smaller teams are unable to reach the cap’s ceiling while larger teams invest heavily, the competitive gap which the cap aimed to shrink could begin widening again.
How are cost cap breaches enforced?
Teams must submit audited financial reports by the end of March, covering the previous season’s spending, to the FIA’s independent Cost Cap Administration (CCA).
The CCA is tasked with monitoring compliance, investigating any suspected breaches, and enforcing the FIA’s Financial Regulations.
After reviewing the submitted documents, the CCA determines whether a team has adhered to the cost cap rules.
If compliant, the team receives a formal compliance certificate. If not, the breach is classified as either a minor overspend, defined as less than $5 million, or a material overspend, which exceeds $5 million and is considered a serious violation.
For minor or procedural breaches, the CCA may offer an ‘Accepted Breach Agreement’, which is a settlement that allows the team to avoid a formal hearing.
If the breach is more serious or parties fail to reach an agreement, the case is escalated to the Cost Cap Adjudication Panel.
This panel consists of 6 to 12 independent judges elected by the FIA General Assembly and is tasked with adjudicating disputes related to cost cap compliance.
The FIA can apply a range of penalties individually or in combination.
These include financial fines determined on a case-by-case basis, reductions in aerodynamic testing time, points deductions in the Constructors’ or Drivers’ Championships, suspension from specific race weekend sessions such as free practice or even Grand Prix events, and in the most severe cases, exclusion from the championship.
Which teams have breached the cost cap?
In October 2022, the FIA announced that Red Bull had committed a minor breach of the 2021 budget cap, exceeding the $145 million limit by $1.8 million.
The overspend stemmed from misinterpretations across thirteen areas, including staff catering.
Following the breach, Red Bull agreed to an Accepted Breach Agreement, resulting in a $7 million fine and a 10% reduction in aerodynamic testing time for the 2023 season. They also covered the FIA’s investigation costs.
The penalty faced criticism, including from seven-time World Champion Lewis Hamilton, who called it “a slap on the wrist” that lacked real deterrent power, given Red Bull’s substantial budget.
Separately, engine manufacturers Honda and Alpine were found to have committed procedural breaches of the cost cap regulations.
Honda was fined $600,000 for misrepresenting certain financial data, while Alpine received a $400,000 penalty mainly for late submission of documentation.
Both manufacturers resolved their cases via Accepted Breach Agreements, with neither facing harsher sanctions.
How has the cost cap reshaped F1 teams?
Since the cap’s introduction, teams have made major changes to stay within the budget.
This has included notable reductions in staffing levels. Red Bull Racing’s ex-team principal, Christian Horner, revealed that the team let go of more than 90 employees, starting in 2022. Mercedes also cut around 40 staff members during the same period.
What lies ahead for the F1 cost cap?
Major changes are set for the cost cap in 2026. However, the cap’s long-term future faces uncertainty.
FIA President Mohammed Ben Sulayem has openly questioned the cap’s effectiveness. Speaking to the Associated Press at the 2025 Miami Grand Prix, he said: “I’m looking at the cost cap and it’s just giving the FIA a headache. So, what’s the point of it? I don’t see the point. I really don’t.”
Since the cap’s introduction in 2021, Max Verstappen has won every Drivers’ Championship.
However, with Red Bull’s dominance looking to end this season, some argue the cap is starting to achieve its goal of creating a more balanced playing field.
As F1 approaches 2026, the cost cap’s ability to level the playing field remains in question. Will it foster new champions like Norris or Piastri, or does the increased limit risk tipping the balance back in favour of the wealthiest teams? The sport’s future is finely poised.