The political minefield set out by F1’s recent cost-cap grievances

Last weekend in Malaysia, Williams team principal James Vowles had put together his assertions that Formula 1's cost cap had succeeded on one of its three foundations - to bring financial stability to all teams - but had failed in the other two: sporting equity, and compression of the field. 

The genesis of this viewpoint hails back in 2023, when Vowles took over at Williams and found that the team's facilities were considerably out of date given years of underinvestment at Grove. Here, he led the push to expand the allowed capital expenditure (all spending on fixed assets like machinery, tooling, and other facilities which has use beyond one financial year, plus repairs and updates on existing assets, and the depreciation thereof) for those at the bottom of the championship.  

Following successful lobbying, the capital expenditure regulations were changed part-way through 2023 to allow an extra $20m of spend on assets for those at the bottom of the championship for the reporting period between 2021-2024, as part of a sliding scale format; the capital expenditure limit was increased for those at the top of the championship too, but only by $8m.  

2026's cost cap of $215m per season now includes capital expenditure. In theory, this removes the limitations on CapEx spending, but must be spread equally over a set period - or straight-line depreciation. Therefore, any spend on big infrastructural items comes out of the team's budget for the next few seasons; if you spend $100m on something over a 10-year period, that’s $10m taken out of the budget each year.  

As such, this takes money away from car development spend, manufacturing, wages, and anything else that counts within the cap.  

Why Williams wants a cost cap boost

Carlos Sainz, Williams

Photo by: Joe Portlock / Getty Images

Vowles' argument is that this is not an issue that the top four teams – Mercedes, Ferrari, Red Bull, and McLaren - have to worry about too much, as their facilities were already up to standard before the cost cap was introduced in 2021. Or, as Vowles put it, "whatever investment you made seven years ago is what's deciding how performant you can be today."  

That’s not to say that those teams are not subject to the same limitations, although then we get into the murky world of accounting. It ultimately depends on how the teams manage the depreciation of the assets, although the argument on Vowles’ side is that those teams already have the infrastructure in place and thus don’t have to contend with the same level of spend.  

In short, the top teams can spend more on their cars because their capital expenditure on facilities should be less. Vowles argued that the effect of having older facilities can snowball; with better machinery and tooling, there are fewer inefficiencies in the car build phase - therefore the actual manufacturing costs also shrink. He reckons that, for an equivalent car produced by the top four teams, it costs Williams 30% more to produce.  

"I've been pleasantly surprised with the support provided up and down the pit lane," said Vowles. "Everyone I've spoken to can understand it because it's ultimately, while I'm putting it through a lens of this is not a fair fight, this is not playing with the same tools, it's not a meritocracy. It's actually an inverse BOP championship. 

"Whatever investment you made seven years ago is what's deciding how performant you can be today, which is not what we should be doing. The support has been there, irrespective of talking to individuals, because there is a lens that everyone understands the sport is better off if it ends up being a meritocracy. 

"It would always be difficult for a team at the moment that has these assets to accept that they will be weakened in that position. What I'll say is, the number of votes, I think we're already there on in terms of number of votes, but it isn't just about that. It's about finding the right solution for the sport long term that gets us to where we need to be. 

"I will take this moment to stand on a pedestal for just reiterating this: there were three elements that we wanted in the cost cap. One was this financial long-term sustainability, and that has succeeded. Teams are not profitable yet, but I can see a pathway there. More importantly, I've unlocked investment that allows me to get there, and as does pretty much everyone on the grid as a result of it. 

James Vowles, Williams

Photo by: Alastair Staley / LAT Images via Getty Images

"In terms of sporting equity, we're not. What we have locked in is whatever you invested seven years ago, and that is now really, really hurting. What we did for a period of time, and finally the last one is competitive advantage: the field should be compressing." 

Vowles pointed to the spread of points across the past few seasons, plus the spread between teams in terms of podium finishes, as evidence that the cost cap has not performed as expected in compressing the field. 

He says that the previous capital expenditure regulations, the $36m over the previous cap regulations before the sliding scale was introduced, simply locked in the advantage that other teams already had - and thus made progress between 2021-2025 incredibly difficult for teams of Williams' stature.  

"The field isn't compressing. You don't have to use my stats, you can go and look it all up. There were fewer points scored now by the bottom five or six teams, depending on how you count it. The top four is scoring more in cost cap than they were before. 

"It always tells you it's the other way around. You don't need me to tell you it's there. Another stat is there's been one win that hasn't been a top four team in the last 130 Grands Prix. Previously, you used to have someone that's not on the top four team on the podium before cost cap 10% of the time. Now it's 5% of the time. It doesn't matter what stat you choose, you will find we have made it worse. Why have we made it worse? 

"What we've done is lock in investment that happened before, and what the cost cap did is said you can't invest anything anymore. You're locked in. That's $36m total of CapEx that you can spend across that entire, I think it was five years in the end, which, frankly, you spend more on machine tools getting those replaced than you do in that, so it's nothing. 

"It was done on purpose. It was done to effectively hold that advantage. Then what we've said is not a problem now: you can invest what you want in CapEx, but you're going to have to take your depreciation hit in cost cap, and depreciation typically for us is five to 10 years. So if I take the assets that I need, and this will be a shocking number to all of you, I could spend my entire budget, my OpEx [operational expenditure] budget, for one year in all the facilities I need. It's $200m. 

"That's what I'm missing right now, and that means every year across 10 years, I'll take another 20 million of a hit for coming to that compared to my rivals down the road. That's not a fair fight. I'm not asking for special treatment. That's not it at all. What I'm saying is we have something that's an inverse BOP. Let's fix this properly once and for all to have a sport that's structured the right way." 

Are Vowles' assertions correct? 

Alexander Albon, Williams

Photo by: Mark Sutton / Formula 1 via Getty Images

Let's start off with the statistics, taking two equivalent periods of 2021-25 and compare that to the pre-cap 2016-2020. We’ll take two different measurements: the average percentage that the top four teams in the constructors’ championship scored in those periods, and then the average percentage that Mercedes, Ferrari, Red Bull, and McLaren scored. 

The distribution of the points in the top four finishers in the constructors’ championship both pre-cap and with the cap is not too dissimilar: the teams from first to fourth scored an average of 83.56% of the available points across 2021-25, and 82.82% during 2016-20. This demonstrates that the cost cap has not necessarily produced a ‘two-tier’ formula as such, but merely enshrined it. 

However, this deserves the context of the other measurement. The current quartet of Mercedes, Ferrari, Red Bull, and McLaren would be expected to score 83.44% of the available points between 2021-25 (slightly down, as McLaren finished fifth overall in 2022), but 79.04% across 2016-20. Thus, to further our assessment from the first set of calculations, the cost cap has rather locked the competitive order. From season-to-season, it is harder for a ‘tier two’ team to bridge the gap to ‘tier one’, and it is generally easier for the ‘tier one’ teams to stay where they are. 

There was more variance in team position pre-cap, although some of that is circumstantial; McLaren suffered a sixth-overall finish in 2016 and 2018, and ninth overall in 2017, while Ferrari slipped to sixth in 2020 following its disclosure of its alleged fuel-flow circumvention to the FIA post-2019.  

One might say that there have been fewer mitigating circumstances for the current “Big Four” post-2020. McLaren had been able to catch up over 2023 with a revised development path at the start of the year, perhaps indicative of its wealth of resources compared to the other teams on the grid. 

Hulkenberg finished third at last year's British GP, one of four instances where a non-top-four team got to the podium

Photo by: Andy Hone / LAT Images via Getty Images

So Vowles’ assertion that “The top four is scoring more in cost cap than they were before” is correct, but it’s a bit more of a nuanced debate.  

Now, for the other metric: the percentage of podiums scored by the top teams. Excluding sprint races from this (because, technically, a top three finish isn’t a podium) we have taken the percentage of podiums scored by that season’s top four constructors, and averaged that across the two five-season spans once more. Spoiler alert: our calculations do not agree with those of Vowles, who stated that the non-top-four previously had 10% of the podiums pre-cap, and 5% now. 

Pre-cap between 2016-2020, the top four teams took an average of 95.6% of the podium finishes available. With the cap, it actually goes down to 93.5%. Even when you recalculate and track only the podiums scored by Mercedes, Mclaren, Ferrari, and Red Bull, there is still a marginal improvement.  

Now, that’s not to say that the 2.1% improved chance of a non-top-four team scoring a podium is approaching anything equitable, but it’s also untrue to say that the cap has made it directly worse.  

Top teams have their own cost cap concerns 

Wolff had some sympathy with Vowles, but added that the cost cap was hurting staff retention

Photo by: Anni Graf - Formula 1 via Getty Images

Vowles’ main assertion hinges on the current disparity between his team’s resources and those of the top teams; ultimately, when we forget about all the politicking, this is a fair grievance to have. When we cut through the fat, it is evident that it’s difficult in the current state for a team to catch up without completely ‘tanking’ their development programme.

But the top teams also have legitimate grievances against the cap as-is as well, for a very different reason. Mercedes CEO Toto Wolff, who worked with Vowles at Mercedes, agreed that his former strategist has “ballast” in terms of the facilities at his disposal – but that’s not to say that he was entirely sympathetic to his cause. 

It's true that the top teams would like more cost cap allowance, not for CapEx reasons, but for wages. Given staff wages are predominantly cap-governed, those top teams are finding it very tough to retain staff; as Wolff put it, “you can get someone into a Formula 1 team today on enthusiasm, but at a certain stage, when after five, six or seven years and you have a PhD, your salaries are still depressed versus a tech company or a hedge fund or investment banking.” 

Wolff also believes that the other catch-up mechanics enshrined in the regulations, those being the aero testing regulations (ATR) and the additional development and upgrade opportunities for power units (ADUO) should continue to bear fruit. 

Additionally, the top teams are wary of adding more leniency into the cost cap simply because, to meet the cap across 2021 and 2022, they had to shed a considerable quantity of staff to ensure their expenditure fit the budget. Going through a lengthy redundancy process without any leniency from the auditors first time around would sting, if it meant that this was walked back on later. 

“I'd love to have a little bit more room in the cost cap for [raising the bracket on] lower salaries,” Wolff added, “rather than buying new front wings, but give the possibility of paying a little bit more and being attractive as a sport. Now, I'm not sure that many find this a good idea.  

Mercedes was one of a handful of teams that had to let staff go to fit the introduction of the cost cap

Photo by: Clive Mason / Getty Images

“Obviously, it also depends on the size of the team. I think we exchanged that is something we would like to do, but if you have the reality of the budget, a smaller team is not going to be happy about us having five million more in the cost cap to spend for PhDs. 

“What James is alluding to is the CapEx allowance or the CapEx possibilities. Now, how the regs were changed was that rather than having this CapEx budget, your CapEx would go into operational costs, into OpEx. So, the consequence is the teams that spent a lot in the past on CapEx, like us, for example, have a huge amount of costs that we need to depreciate in the cost cap.  

“I think I have super sympathy with a team like Williams and with James, and he's super clever, but we just need to find the right balance of not undoing something that we actually consciously changed a year or two ago. So, yeah, it's just a forward-moving discussion. Personally, I don't like the concept of adjustment based on some positions.” 

McLaren CEO Zak Brown agreed with Wolff, stating that “I do think we made a step forward in combining the CapEx and the OpEx; now you have a decision to make where to invest, just like you have a decision to make on what drivers you want to bring on board. 

“If you look at last year, it was the closest grid in the history of Formula 1. And then when I was growing up racing, most of the time it was one or two teams winning. Now it's four. A fifth got a pole this year. So, I think the sport's extremely competitive as it is, but always open to any conversation.” 

Of the other teams, the likes of Racing Bulls were also not particularly interested in a CapEx rule change, stating that “if James wants to go and spend $100 million on something, he can do that. You just pay it off over the X number of years. So, the mechanism is already there.” This very much suggests that, given their alignment, Red Bull would be of a similar opinion. 

Haas is understood not to be keen on Vowles’ proposal either, albeit for a very different reason; historically, the team has not spent up to the cost cap as-is, and any extra expenditure allowed to other teams would only result in conceding a further advantage.  

Haas believes it has the largest budget in place it's ever had for 2027, but still not enough to lend its support to a reworked cost cap

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