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Formula 1: What expenses are exempt from the $175M budget cap?

By Asher Fair

AUSTIN, TEXAS - NOVEMBER 03: Charles Leclerc of Monaco driving the (16) Scuderia Ferrari SF90, Alexander Albon of Thailand driving the (23) Aston Martin Red Bull Racing RB15 and Carlos Sainz of Spain driving the (55) McLaren F1 Team MCL34 Renault battle for position at the start during the F1 Grand Prix of USA at Circuit of The Americas on November 03, 2019 in Austin, Texas. (Photo by Mark Thompson/Getty Images)
AUSTIN, TEXAS - NOVEMBER 03: Charles Leclerc of Monaco driving the (16) Scuderia Ferrari SF90, Alexander Albon of Thailand driving the (23) Aston Martin Red Bull Racing RB15 and Carlos Sainz of Spain driving the (55) McLaren F1 Team MCL34 Renault battle for position at the start during the F1 Grand Prix of USA at Circuit of The Americas on November 03, 2019 in Austin, Texas. (Photo by Mark Thompson/Getty Images) /
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While there is a $175 million budget cap for the 2021 Formula 1 season, there are still many expenses that are exempt from that cap.

Formula 1 is set for a major rules and regulations overhaul ahead of the 2021 season, and one of the new regulations that is slated for implementation is a new budget cap.

Beginning in 2021, the budget cap for teams will be $175 million, a cap that only four of the sport’s 10 teams are currently under and a cap that three of the other six teams currently spend more than twice as much as.

While this is certainly a huge change, especially for the highest spending teams, there are still quite a few exemptions from this $175 million budget cap outlined in the official FIA 2021 Formula 1 Financial Regulations document.

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According to Forbes, these exemptions total about $1.8 billion. This means that while the total budget cap for these 10 teams is $1.75 billion, they are all slated to spend roughly twice that amount. Based on what they currently spend, this ends up not being that huge of a reduction other than the fact that where their money goes is regulated to a greater extent.

So in essence, even some of the teams that do currently spend more than $175 million will not be affected by the budget cap. FIA president Jean Todt even stated back in July that only three teams (Mercedes, Ferrari and Red Bull Racing) would end up being affected by it. Here is what he had to say, according to Grand Prix.

"“I would have preferred a lower number. Only three teams will be affected or will have to restrict themselves. It would be better to have a limit that gives all the teams the same chance, but that was not possible. At least now we have a foot in the door. This budget cap is better than none, so maybe in a second step we can reduce the amount.”"

So what are the exemptions?

Such exemptions include but are not limited to finance costs and activities, legal activities, property costs, corporation tax, super license fees, heritage activities, marketing, flight costs for races or testing, hotel costs for races and testing, activities not related to Formula 1, human resources, engine development, engine production, world championship entry fees, foreign exchange gains and losses and even financial penalties for breaching the Financial Regulations themselves.

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Perhaps most notable is the fact that driver salaries are exempt. This could lead to massive bidding wars among top teams for the top drivers, and it could lead these teams to still spend far more than the other teams that currently don’t spent as much as they currently spend, even the top three teams that are actually expected to be affected by this budget cap. It will be quite interesting to see how it all plays out leading up to and during the 2021 Formula 1 season.

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