Christian Horner, Red Bull, Autodromo Hermanos Rodriguez, 2022

Red Bull explains how budget cap breach happened and why it accepted penalty

2022 Mexican Grand Prix

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Red Bull team principal Christian Horner has explained how its team came to exceed the Formula 1 budget cap in 2021.

The FIA announced today the team has been fined $7 million (£6.04m) for the breach and given a 10% reduction in its aerodynamic testing allocation for 2023.

Before the FIA’s decision was announced, Horner repeatedly insisted the team’s cost cap submission was within the limit set by the sport’s governing body. Today the FIA confirmed Red Bull’s submitted costs amounted to £114.293m, inside the cap of £118.036m.

However the FIA judged Red Bull had “inaccurately excluded and/or adjusted costs amounting to a total of £5,607,000.” Once those were added, Red Bull had over-spent by £1.8m.

Horner learned of cost cap breach after Suzuka triumph
The FIA originally planned to issue cost cap certificates to teams on October 5th, but postponed its announcement. Horner was informed of their decision four days later, in the aftermath of Max Verstappen’s championship win at Suzuka.

“Ninety minutes after Max Verstappen had won the the drivers world championship in Suzuka, I was informed that we were in fact in breach of the regulations to the tune of 1.8 million,” he told media including RaceFans at Autodromo Hermanos Rodriguez today.

“Again, we were hugely surprised by that having felt that we’d countered each of the points that have been been discussed.”

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The Financial regulations define with costs should be included within a team’s submission – i.e., spending which does count towards the budget cap – and which are excluded. It transpired Red Bull had both failed to fully account for items which should have been part of their cost cap submission, and vice versa. Some included costs were excluded and one particularly significant excluded cost was included.

This related to a tax payment. The FIA noted that “RBR [Red Bull Racing] 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%).”

Horner pressed home the point that the team’s overspend could therefore have potentially been far less than it was had all its paperwork been in order.

“The FIA accepted that there were mitigating factors in particular to one specific item where, essentially we had overpaid within the cap the amount of tax,” he explained. “We hadn’t excluded 1.4 million pounds-worth of tax that was an excludable item.

“So when you take that into account that £1.8m breach becomes as the FIA clearly states in their release, down to little over £400,000. So a 0.37% breach is essentially what we’re talking about.”

Horner also believes Red Bull missed out on the opportunity to reduce their costs relating to unused parts. He suspects rival teams were able to take advantage of this.

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“[There] was a change to the regulations in June after the submission that, had we been allowed to resubmit, would have had a benefit to us in the region of 1.2 million pounds of unused parts and the way that those unused parts are accounted and treated,” he explained. “That we believe has been adopted by other teams within their submissions.”

Red Bull driver Verstappen won 2021 drivers championship
According to the FIA, Red Bull acknowledged it incorrectly excluded or adjusted 13 separate costs which should have been included. Horner explained some of these were relating to their catering costs, sick pay and staffing.

“Catering within Red Bull has always been a benefit that’s been provided by the group,” he said. “It’s a benefit of working within the Red Bull group that free food and beverage has always been provided. Therefore, as something of a Red Bull policy, we viewed it as an excludable cost. Aggressive, but we felt acceptable.

“The FIA took a different viewpoint on that and said that food was not excludable. Fair enough. But what was included was the entire catering bill of the entire company. So £1.4 million worth of food, drink, coffees – any of you [media] that attended Milton Keynes during the last 12 months have contributed to our overspend. Red Bull Powertrains have nothing to do with Red Bull Racing, its activity this year the costs are included. So there’s a difference of opinion on how that was applied.”

Red Bull and the FIA also differed over the inclusion of sick pay for an unwell employee, said Horner. “We have always taken a view that we wanted to support our staff, in sickness and in health, and when members of staff have been on long-term sick we have supported them as we will continue to do in the future.

“We felt that the sick pay, because the role played no function in the grand prix team for a period of eight months, was an excludable costs. Unfortunately, the regulations can be interpreted in two ways.”

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One aspect of the regulations Horner highlighted meant that, “had the person died, which thankfully they didn’t, the cost would have been excludable.”

He also questioned whether it was correct to include the salary of a member of staff who had moved from the F1 team to another department prior to joining a rival.

Penalty will affect development of RB18’s successors
“We had a senior member of staff on a fixed-term contract, that was offered a Hollywood-style offer from another team, and at that point, you can see that their heart and mind is not within your company. And so they were transferred from the Formula 1 activity into our Advanced Technology activity which is currently designing the RB17 [road-going hypercar] and America’s Cup projects amongst a myriad of other projects.

“The individual then left the company from there but the time that he was spent not in the Formula 1 activity was included in the cap. So again, something that we vehemently felt was an excludeable costs.”

Despite their disagreement over the inclusion of those items, which Horner believes “probably come in excess of three to three-and-a-half million worth of value”, Red Bull chose to take the penalty detailed by the FIA in an Accepted Breach Arrangement. He said the alternative was a potentially drawn out legal row.

“Had we dragged it out through the administration process, to go effectively to appeal, that could have taken months. And then beyond that the International Court of Appeal could have taken further months. So we could have been looking at a 12-month period to have this situation closed.

“[With] the amount of speculation and commenting and sniping that has been going on in the paddock, we felt it’s in everybody’s interests – in our interests, in the FIA’s interests, in Formula 1’s interests – to say we close the book here and today. We accept the penalties, begrudgingly, but we accept them.”

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2022 Mexican Grand Prix

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Keith Collantine
Lifelong motor sport fan Keith set up RaceFans in 2005 - when it was originally called F1 Fanatic. Having previously worked as a motoring...
Claire Cottingham
Claire has worked in motorsport for much of her career, covering a broad mix of championships including Formula One, Formula E, the BTCC, British...

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37 comments on “Red Bull explains how budget cap breach happened and why it accepted penalty”

  1. What a count…..

    1. Been a very long time since we’ve had a world championship winning team manager who wasn’t one of those…

    2. So he reckons it was only 400k really? What’s that, two tenths per lap?

      1. The way I read it, he thinks they should be 3M under the cap.

  2. So cheat and pay money to circumvent the cap? What is the point of the cap other than making it possible for well-funded teams to avoid the cap and poorer teams to have to abide by it. This is somehow worse than Ferrari’s cheating a few years ago and the rigging of the championship at the end of last year. Makes WWE seem closer to a sport than this.

    1. @darryn I believe it’s quite an overstatement to say this is worse than what Ferrari did. They bluntly cheated, by fooling the fuel flow meter. This is different..
      Everyone working in finance knows how easy it is to have different interpretations of regulations surrounding financial reporting, leading to discussion with auditors. Luckily, most misinterpretations in existing regulations have been cleared, but it took years and still IFRS and Local GAAP are being altered and improved upon. Now, F1’s cost cap regulations are new and underdeveloped and they too require time to clear up any misunderstandings. I am sure this will happen.

      Reading the explanation of RBR and the FIA it is very clear RBR had no bad intent. Effectively, it’s an infringement of “only” 432K. It’s not millions. It requires a punishment and punishment has been given. At first, I thought it was too lenient. But considering the explanations of RBR and the FIA, the fact that it is a relatively small infringement (0.37%) and the cost cap regulations give too much room for multiple interpretations, I think it is acceptable.

      1. That said, you could also make a case for RBR taking big risks with the new budget cap that they could had avoided. They chose to walk on a very thin line here, while they could (should?) had chosen for a little but more margin in their spending to stay well within the boundaries of the budget cap.

        1. Not only that, they made 2 other massive mistakes (from what Horner has said):
          1) they didn’t take part in the dry run, so weren’t as prepared as other teams, and
          2) they have said they didn’t get much feedback from the FIA, when receive else has said there was an open discussion between the teams and FIA all last year and this one, which indicates they refused to take part for whatever reason. The FIA would likely have clarified any of these points had they been involved.

          All in all, taking what they’ve said at face value, they shot themselves in the foot. This is likely the most generous interpretation of what they’ve said…

        2. @spafrancorchamps I have a similar opinion to you I think. It feels like Red Bull have tried to push the boundaries as far as possible (as teams do with the technical regs, e.g. double diffuser or DAS), but the FIA feel their interpretations are too creative and therefore they exceeded. I don’t think anyone can bear the blame for that apart from Red Bull, because they, as you say, took a big risk and it has clearly backfired.

          At least it starts to clear up some of the grey areas the FIA left in their rules…

  3. The problem is that they can’t really pick and choose what they spent the additional funds on when it’s a mixed overall budget.

    You could just as easily say that an upgrade cost an unexpected 5million more.

    Overall they gained an advantage in 2021 so hopefully they lose some in 2023 and it somewhat equals out.

    I think something both sets of fans can agree on is just how badly this has been handled from the FIA.

    1. There is no mechanism for them to lose an advantage in ’23 though. Why not just not pay attention to the loss of tunnel time and take the fines?

  4. They literally had access to a FIA representative in their factory to clear all these differences of opinion up far before their submission. And now they are playing we didn’t know how the FIA would interpret the rules card? Come on. Credulity can only be strained so far.

  5. $7M seems cheap to get the most dominant car in F1 history and dual championships this year. I don’t there is any team on the grid that wouldn’t be happy to pay a lot more than that for the result. Not that it would work as easily in the future.

    1. The most dominant car in F1 history?! You must be very new to F1 lol.

      1. Not just me. Take a look here

        1. That’s not even what the article says!

    2. @jms90h5 why always this need for hyperbole? “Most dominant car in F1 history” – are you for real? Suggest you study F1 and its history a bit better if you really think that is true.

      1. See my reply to @Adam above

        1. @jms90h5

          The article that you linked says “one of the most dominant” cars. It doesn’t say THE most dominant one.

          1. just like any lapped cars doesnt meant all lapped cars …funny… potayto, potahto.

          2. @mysticus no, “the most dominant ever” is not the same as “will be regarded as one of the”.
            Also that graphic says “successful”. Which is something else.

          3. True, but it mainly focuses on wins. My (IMO only slight) embellishment to make a point also took into account how easily RB won their races this year. Their margin this year was frequently astounding enough that the outcome was really never in question, even when they started back in the grid.

            Since the cost penalty doesn’t come out of their cap, $7 is a pocket change. In the years leading up to the cap the team had been used to spending at a much higher level. As for the wind tunnel penalty, that does seem slightly in the right direction but probably not enough or should have been for multiple seasons. I’ve read estimates that it might cost them 3-5 tenths which seems a bit high to me, but still less than the advantage that they have had in many races this season. So at best it might allow Mercedes and Ferrari to pull a little closer next season but I really don’t see how they won’t still be the fastest car next year by enough to make their overspend a very winning gamble.

        2. You can check f1 metrics and his mathematical models for the most dominant cars ever, I believe the 1961 ferrari was insane (most likely was the one that wins this) but had terrible drivers, and the mclaren 1988 was insane too and had drivers worthy of the car.

        3. The 1988 mclaren could’ve won every race on performance, the 2022 red bull couldn’t, and won many races through ferrari’s mistakes.

  6. If Red Bull really thought that this penalty was wrong and unfair they would have fought it, and even taken the FIA to court. Twelve months be damned. The very thought that the 2022, and perhaps even the 2023 championships might only be settled in court would terrify the commercial rights holder and the FIA. They would almost certainly have backed down. Instead, Red Bull have rolled over. They knew they were in the wrong.

  7. Red Bull have rolled over. They knew they were in the wrong

    Not so much “rolled over” as snatched the gifted opportunity to keep what they illegitimately acquired at minimal cost.
    I fail to see how a fine levied on a mega-money corporation is a punishment if it has zero effect on what they can spend on this year, next year and beyond.
    Money spent last year and this year will affect their performance through to the next major regulation change. If it doesn’t, they are clueless and don’t know how to budget on the right items, and I don’t think even the most rabid anti-RBR F1 follower would call them stupid.

    1. So why only focus on the money? They have 10% reduction of windtunnel time, this for a breach of what actually amounts to 0.37%.

      That definitely does not sound overly lenient.

      1. Michael (@freelittlebirds)
        29th October 2022, 4:22

        @mattds the amount is not that small – the FIA and Red Bull have found a way to try and reduce it using some baloney tax credits etc.

        However, 0.37% translated into time over the course of a race is 26 seconds. It’s a guaranteed championship.

        1. @freelittlebirds

          the amount is not that small – the FIA and Red Bull have found a way to try and reduce it using some baloney tax credits etc

          Please indicate how it is baloney and not just correct.
          Also, please prove to me how “the FIA and Mercedes (or any other team for that matter) have not found a way to hide overspends”. See how easy it is to just spout baseless stuff?

          Given how RBR’s submitted budget was actually under, if the FIA really wanted to act as if nothing happened they would’ve just accepted the submission. Which they didn’t. Which makes your allegation… Well. You get my point.

          However, 0.37% translated into time over the course of a race is 26 seconds. It’s a guaranteed championship

          Yeah, no. I’m sure you have some quote of a rival team member which you are very ready to believe as gospel, but no. It does not work that way.

        2. There’s no way that 0,37% amounts to that much, what can you say about the pre-budget cap era, where teams spent hundreds of millions more than others and still lost? Ferrari in the dominant merc era example.

  8. “Catering within Red Bull has always been a benefit that’s been provided by the group,” he said.

    Oh I see. Well in my new team I’m thinking of setting up (google for my GoFundMe page), Engineering, Design, Testing, Manufacturing, and Operations are (coincidentally) all benefits that the “group” has set up, so I won’t need to account for them, will I. Oh look, $140m budget for entertainment! Party On!

  9. Why does the budget cap even mean anything or not? A red herring or just a joke…

  10. Seann Sheriland
    29th October 2022, 2:13

    I wouldn’t trust Horner.
    He is certainly a shady guy, that is questionable in all his dealings.
    He is a whinger, and should be discredited, for his outrageous remarks.
    They should have been fined at least 20 Mil, for blatant abuse of the regulation.

  11. Agree that it seems weird they would accept a penalty that could indeed hurt them in 2023 (wind tunnel part), especially with mercedes recovering rather than drag it into the court for a year, I feel like they knew they’d have lost.

  12. So, as expected no biggy. Can we please move on now or do the UK fans need 20 more articles on this again?

  13. It rather seems FIA was desperate to find something in the submission. I would have never accepted the ABA for 0,37% overspend. FIA clearly doesnt have their affairs and processes in order and once again prove to be unworthy of regulating F1. I wish a few teams had the balls to start a new competition without FIA involved.

  14. So, if I understand Horner correctly, the breach was only because of filing unused parts costs and tax income under the wrong headers and no means to correct this afterwards. Well done FIA! Taking bureaucracy to the limit I suppose.

    So there shouldn’t have been a penalty after all, except maybe for a procedural error of filing costs under the wrong header.

    I understand the reason for wanting to end this saga, but would have liked RBR to go to the CCAP or ICA if necessary.

Comments are closed.