Formula 1’s cost cap – the rule that limits how much teams can spend each season – has risen significantly to $215 million for 2026, an increase of $80 million. Naturally, that raises two key questions: why does the cost cap exist in the first place, and what has driven this latest increase?
What to know
- The F1 cost cap has increased to $215 million for 2026: The overall cap has risen by $80 million, but the increase reflects rule changes and extra costs now included within the limit.
- The cap was introduced to make F1 fairer and more financially sustainable: Brought in for 2021, the regulations were designed to reduce the advantage of the biggest-spending teams and support a more competitive grid.
- Not every team expense is covered by the cap: Performance-related spending is included, while areas such as driver salaries, senior staff pay, marketing, HR, legal and travel remain excluded.
- The separate power unit cost cap is also going up: The engine budget limit will rise to $190 million in 2026, with extra allowances in place to support new or underperforming manufacturers.
What is the F1 cost cap?
Formula 1 introduced its financial regulations ahead of the 2021 season, setting a strict spending limit for all teams. The aim was clear: create a more competitive grid while ensuring the long-term financial health of the sport.
Before these rules were introduced, teams were free to spend without restriction. This gave wealthier outfits a major advantage, allowing them to hire the best talent, invest heavily in cutting-edge technology and build superior facilities — all of which translated directly into better on-track performance. The cost cap was designed to reduce this imbalance and bring the field closer together.
The concept is not unique to Formula 1. Other major sports leagues, including the NFL, NHL and NBA, use salary caps to control spending on players. In F1, the car itself is the key performance differentiator, making the cost cap broadly comparable in intent.
What does the cost cap include?
The cap applies to spending that directly influences car performance. This includes everything from research and development in design to the production of aerodynamic upgrades aimed at improving lap times.
However, several areas are excluded from the cap. These include:
- Legal, HR, finance and marketing costs
- Sustainability initiatives
- Driver salaries and retainers
- Salaries of the three highest-paid team members (typically including the Team Principal and Chief Technical Officer)
- Heritage car programme expenses
- Travel costs for races
How has the cost cap evolved?
When first introduced in 2021, the cost cap was set at $145 million. It then reduced to $140 million in 2022 and $135 million in 2023, where it remained until last season.
While widely regarded as a success, the system has been refined over time. As with any major regulatory change, adjustments have been made to improve clarity, consistency and enforcement as teams and governing bodies gained experience with the rules.
For 2026, the cap has risen sharply from a base of $135 million (plus inflation adjustments in 2025) to $215 million. Although this appears to be a substantial increase, the change is broadly neutral when factoring in how the rules themselves have evolved.
Why has the cost cap increased?
A major reason for the increase is that several previously excluded costs are now included in the cap.
One notable change is the removal of the separate capital expenditure cap, which previously allowed teams to spend up to $36 million over a rolling four-year period. Instead, annual depreciation costs are now included within the main cap.
Additionally, the rules around staff allocation have been tightened. If an employee spends any time working on F1-related projects, their costs must now be counted as 100% F1 expenditure. Combined with depreciation changes, this significantly increases the total accounted spending within the cap.
There are also new exclusions. Health and safety costs, along with catering expenses at both factories and race events, are now excluded from the cap.
Further flexibility has been introduced as well. Teams are allowed to carry forward up to $2 million of unused cap into the following year. There is also an allowance for teams operating in high-cost locations, such as Switzerland, where Audi is based.
What about the power unit cost cap?
In addition to the chassis-focused cap, Formula 1 introduced a separate power unit cost cap in 2023. This was designed to control spending on engine development, particularly with the arrival of a new generation of hybrid power units.
These new engines feature a 50-50 split between electric and internal combustion power, making them significantly more complex and expensive to develop.
The introduction of this cap played an important role in attracting manufacturers to the sport. Honda’s return, along with partnerships like Ford’s collaboration with Red Bull Powertrains and Audi’s entry, were all influenced by the financial controls in place. General Motors is also set to join as an engine supplier in 2029.
Initially, the power unit cap was set at $95 million per year (plus inflation) for 2023, 2024 and 2025. New manufacturers were given additional allowances: $10 million extra in both 2023 and 2024, and $5 million in 2025, to help them establish their programmes.
Has the power unit cap increased, too?
Yes. The cap was always scheduled to rise to $130 million, plus inflation, from 2026, reflecting the added costs of producing, supplying, and maintaining engines, alongside ongoing research and development.
However, following further discussions among stakeholders, the removal of the separate capital expenditure cap led to a revised figure. As a result, the power unit cap will now increase to $190 million in 2026.
For new manufacturers entering the sport in the future, the allowance has also been increased, rising from $95 million to $148.5 million for each of the three years leading up to their debut.
Support for underperforming manufacturers
To maintain competitiveness, Formula 1 has introduced mechanisms to support manufacturers who fall behind in performance but are restricted by homologation rules, which limit engine development once specifications are locked.
These support measures are known as “ADUO”, which stands for Additional Development and Upgrade Opportunities. The level of support available depends on the size of the performance gap, giving struggling manufacturers more room to improve.
There are also provisions that allow manufacturers to spend outside the cost cap on reliability upgrades, provided they meet specific criteria.
Together, these measures aim to balance cost control with competitive fairness, ensuring that while spending is limited, teams and manufacturers still have opportunities to close performance gaps and keep the racing close.
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