The FIA introduced Financial Regulations for the 2021 season after unanimous agreement between the FIA, Formula One Management, and every competitor. Before the cap, the highest-spending teams could outdevelop smaller budgets by a factor of three or four — the regulation exists to force convergence in performance instead of just convergence in rulebook interpretation.
What counts toward the cap: aerodynamic development, car design, most staff salaries, race operations, testing.
What doesn't: driver salaries, marketing and hospitality spend, the three highest-paid non-driver staff at each team (typically the team principal and senior technical directors), and — critically — sponsorship revenue itself. A team can sign a $100M title sponsor without that money touching the cap; the cap governs spending, not income.
Enforcement: the FIA's Cost Cap Administration audits every team's accounts annually. A breach under 5% of the cap is a "minor" overspend (fines, restricted aero testing time). Anything above that is a "material" breach, which can carry championship point deductions or, in the most extreme case, exclusion.
The cap has risen from its original 2021 figure as F1's own cost base (freight, travel, energy) has inflated — $215M is the number for 2026, reviewed and adjusted by the FIA on a defined schedule rather than negotiated ad hoc.