Oracle Team USA will be docked two races in the 17-race championship round, meaning competitors Emirates Team New Zealand will only have to win nine races to claim the cup to Oracle Team USA's 11, the San Francisco Chronicle reported.
A key sailor who was found to have orchestrated the cheating and two land crew members have been banned from competing in the championship round.
A jury of sailing experts investigated claims the Americans stowed lead pellets near the front of their 45-foot catamaran during preliminary races to make their boat faster.
In the America's Cup, all boats are identical so sailing prowess, not engineering, determines the winner.
Jurors found the wing trimmer, Dirk de Ridder, instructed two crew members to stow the lead onboard without the knowledge of skipper Jimmy Spithill and Chief Executive Officer Russell Coutts -- who called the punishment "outrageous."
"It sets a bizarre precedent as to the future," Coutts said. "If a few individuals on a team commit a rules breach, the whole team gets penalized for it. Without the knowledge of management and skippers, the whole team gets penalized. We've got penalized two points in the match for something that a few of our sailors did ... more than a year ago without the knowledge or approval of management or the skippers. I think it's an outrageous decision."
The investigating team said the level of deception and unsportsmanlike conduct "cannot be understated."
Oracle Team USA was also fined $250,000.