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This a safety rule and is constantly being tweaked to protect fallen riders and the men who go to their aid. It has been controversial in the past because its enforcement has been inconsistent at best—evidenced by the Ryan Dungey penalty last year that cost him a victory (which was reviewed after the race was over on video — a video which showed other riders committing the same violation and not being punished). The newly revised rule (all the bold type represents 2017 rule changes) sets up the penalties for racing through the Red Cross Flag area. If you do it in practice, you lose your fastest lap. If you do it in a heat, semi or Last Chance you are penalizes two positions (at the least). If you do it in the main event you are not penalized any positions as far as the fans in the stands are concerned, but when the results are officially posted, you are penalized by getting your points and purse deducted two places (and two additional AMA points).
The main event rule is a little confusing. Look at it this way, if a rider finishes third, but violated the Red Cross flag, he will be paid the purse money for fifth (a two position penalty) and get the AMA points of the fifth place guy (plus a 2 additional point penalty). And, after the fact, he will be moved in the official results from third to fifth. The only other things of import are that the Race Director can waive the penalties, by issuing a warning or fine, and Red Cross Flag violations on the sighting lap or cool-down portion (after the checkered flag) are subject to a fine only.