The feud concerning the responsibility of Formula 1 regulation has prompted the FIA to reaffirm that the task lies with the sporting body, and not with the F1 commercial rights holder. This robust assertion alludes to the now inherent importance of the cost cap in the championship’s operation. This regulation is continually scrutinized amid unfounded rumours and insinuations about teams potentially exceeding the expenditure limit in the previous year.
The 2021 overspending incident involving Red Bull exposed the gravity of contravening financial rules, likening it to technical and sporting infractions. The severe consequences, which include a fine and a reduction in aero testing, were met with dissatisfaction from some competitors who felt Red Bull‘s punishment was lenient. Regardless, teams now accept and believe in the FIA‘s capacity to effectively enforce the cap.
However, teams largely criticized the lengthy duration spent to enforce the cap in the previous year. The final verdict of the 2021 investigations, which led to Red Bull‘s penalty, wasn’t disclosed till late October during the Brazilian Grand Prix weekend, almost at the end of the 2022 season. FIA Chief Executive Stefano Domenicali asserted the need for a more swift approach this time while assigning all control to the FIA. Domenicali told F1 Initiative, “Control is in the hands of the FIA. Personally, what I have asked is to anticipate as soon as possible the publication of the investigations made by the staff of the FIA. But I say this only because, in this way, it does not give rise to speculation and comments that are not good for anyone.”
Concurring with Domenicali, the FIA agrees that expediting the process, without compromising the thoroughness of the investigations, is critical. After learning valuable lessons from the previous year, the sporting body exudes confidence in ensuring a quicker revelation of the 2022 cap analysis outcomes, including any violations and penalties. This process commenced in last year’s mid-term when teams had to submit interim submissions by June 30; these projections of year-long spending to December laid the foundation for the FIA‘s probe into any potential issues.
Teams had to provide full details of their actual spending for 2022 by March 31 of this year. This marked the beginning of the FIA‘s in-depth examination of each team, inclusive of multiple factory visits. The initial month post the deadline was dedicated to meticulously reviewing the 150 to 200-page submission documents. This was followed by a series of on-site audits from the beginning of May, where each team’s submission received validation by the FIA.
Concerning this, FIA single-seater financial regulations director Federico Lodi stated, “The first month after that deadline is dedicated to an in-depth review of the information submitted. And when we talk about submission, it’s not just a few spreadsheets. Each submission is composed of a 150-200 page document, so there is a lot of documentation to go through. The first month is usually dedicated to a detailed review of all the documentation to perhaps identify areas that require a little bit more in-depth analysis. We then identify follow-up questions and request more documentation, if needed, in preparation for our planned arrival at their facility. This is where we basically undertake an on-site audit and this usually starts at the beginning of May. And from then onwards we basically spend months on the road, visiting one team after another and basically rubber-stamping their submission.”
Conducting such extensive audits unsurprisingly requires significant amounts of time. However, Lodi is acutely aware that waiting for as long as last year is not feasible this time around. He stated, “It’s clear that there’s an interest from the stakeholders to have a quick outcome. We, as the FIA, understand these requirements, so we have strengthened the department, and now we have ten full-time employees working on F1 financial regulation. This is a significant increase over last year when it was just four. However, it is still clear that it’s difficult to commit to a rigid timeline, as there are many variables that need to be taken into account. First, there are the findings themselves – what we identify and what we need to dig into further. On top of that, we also have to take into account the fact that we do the review with the support of the team. And, obviously, the finance department of the team is also busy with running its business; they may also have a reporting commitment to their shareholders, for example. So, while we need to work as quickly as possible, for us, the most important thing is not to undermine the robustness of the process.”
Lodi admitted that acquiring the right personnel for his expanded team was challenging. Everybody in the department is a former auditor and though their pool is vast, the real challenge lies in finding individuals with sporting and motorsports background who are well-versed in F1 specifics. Reflecting on this, Lodi said, “It’s massively complicated. Everyone in our department is a former auditor. That’s not a problem, the pool of auditors is quite large. The challenge is to find someone with a sporting background and then a motorsport background and finally knowledge of F1 because it is specific. We struggled initially, so we have decided to take another approach, and we are training them internally on the specificities of F1.”
In addition to increasing his team’s size, Lodi believes the process will organically speed up, as the FIA and the teams get accustomed to the extent of detail necessary. He said, “Simply, the more everyone becomes accustomed to the regulation, the more you become accustomed to the process, the more we are structured, clearly the time will be reduced. But we have to be realistic, because I don’t think that it will be feasible to finalize the review after one month or 45 days. It also depends on the findings, because if you need to open a formal investigation, it takes time. There are lawyers involved, advisory boards, so the process is a long one. But we have a clear target in mind to do it quicker.”
The 2021 process taught us all valuable lessons, mainly Red Bull, who interpreted some aspects of spending differently from the FIA. It’s not a secret that this year the governing body is paying closer attention to technology divisions associated with racing teams and to how engineers divide their time between the two.
Lodi shed light on this by saying, “I think that in year one, there was a little bit of uncertainty because it was the first time financial regulation had been brought into professional motorsport. Also, I think that for the teams it was a little bit challenging because the regulations are objectively complicated because the businesses we have to regulate are complicated. When we are talking about organizations with 1000 employees, undertaking engineering activities, manufacturing activities, with commercial and racing arms. So the business is complicated. Now, after last year, I am confident that the doubts everyone had last year are clarified. So, hopefully, going forward, we will have less and less difference of interpretation in respect of the regulations. Even if they are still discussing how to interpret things on a weekly basis.”
This recurring conversation, in turn, influences the rules, which are continually being reviewed. Most updates coming are in the form of clarifications that parallel FIA technical directives and which are viewed only by teams and not officially published. Lodi observes that during the 2021 process, some teams asked more questions than others, and those who seemed more relaxed have become more active during current investigations. Reflecting on this phenomenon, Lodi said, “Last year the numbers of clarification requests varied significantly from team to team. I think this is another lesson everyone learned from last year. What we have seen after last year is that now, almost all the teams are very forthcoming and are now trying to discuss with us any doubts they have beforehand. This is another aspect that will hopefully reduce the risk of misunderstanding.”
With these improvements in place, could there have been any 2022 transgressions leading to severe penalties? For the sake of the championship, we hope to find out sooner than later.