WILMETTE, Ill. — Sports is about competition, with first place being the ultimate objective.
Many espouse winning at all costs, but there is a trend toward leveling the financial playing field.
This month, The Business of Speed examines how motorsports is addressing the money bank.
Various leagues have implanted financial limitations. They are used to keep costs down and to maintain a competitive balance. Caps may be found in terms of salary or budgets. They are designed to prevent entities from using economic power to disrupt sporting parity.
Without limits, there is the risk that teams will overspend in order to win now at all costs, putting long-term stability at risk. Excessive outlays may jeopardize the stability of the team or the reputation and viability of the league.
This is a delicate balancing act. Fans want winners and constant gratification. If the owner spends on talent that does not deliver, backers call for change. All of those things take resources.
Motorsports is not usually associated with minimalism. Speed equals money — do whatever it takes to lead the pack.
Racing utilizes rules to level the competition. From an equipment perspective, this takes the form of spec parts (chassis, engines, tires, etc.) or technical inspection. There are gray areas of the rulebooks, where interpretation leads to innovation. This has been and always will be part of motorsports’ DNA.
Formula 1 has always been about being at the forefront. The latest technology and innovation are its hallmarks.
As in life, there are haves and have nots. Those backed by excessive resources and others with modest means. This tends to correlate with on-track performance and makes it difficult to catch up in terms of speed.
Put into place for the 2021 season, the Formula 1 Financial Regulations originally had several objectives — competitive balance, sporting fairness and financial stability and sustainability. They were an attempt to not only level the playing field, but also ensure the teams survive to make up the grid.
Under the cost cap, any expenditure related to the car performance (not the engines) is relevant. This includes all parts on the car, elements needed to run the car, most team personnel, garage equipment, spares, transport costs and miscellaneous other items.
Excluded from these calculations are driver salaries, highest paid staffers, travel costs, marketing spend, real estate, legal costs, entry and license fees, non-F-1 activities and employee health and benefits expenses.
Engine expenses are covered by their own set of cost regulations.
Formula 1 teams are obligated to comply by submitting documentation in regard to their expenditures. These are provided to the FIA on an interim and annual basis. Procedural manners are overseen by administrative panels.
Breaching the financial budget or failing to comply with other requirements results in sanctions. This could be a public reprimand and financial penalty.
The initial cost cap was set at around $145 million and lower in following years. Adjustments were made for additional races and inflation indexing.
Red Bull Racing was found to have exceeded the cost cap. The team accepted the punishment and paid fines and received restrictions on testing and development.
Did the penalties affect their on-track performance? It is debatable. They won the Formula 1 championship and continue to dominate the series with record-breaking results.
The industry will probably take a wait-and-see approach as to whether financial caps are needed for other series. After all, taking the checkered flag at all costs is what racing is about.
