Formula One is already slashing how much teams can spend developing their cars to win the global racing series. Now the tens of millions of dollars paid to superstar drivers such as Lewis Hamilton is under scrutiny.
Federation Internationale de l’Automobile, the Paris-based regulator, is in talks over a possible salary cap with Liberty Media-owned F1, the sport’s teams and drivers, who are set to return to the glamorous Monaco Grand Prix after the 2020 race was cancelled because of the pandemic.
“The details of any such regulation are still in very early stages of discussion and at this point no conclusions have been made about the specific details or whether this is something we will pursue further,” the FIA told the Financial Times.
The discussions come after a cap on team spending was agreed last year, alongside a deal to spread revenues more evenly. One figure being discussed by racing chiefs is $30m split between two drivers every year, posing a conundrum for top drivers such as Hamilton, whose pay exceeds this amount.
Otmar Szafnauer, team principal at the Aston Martin F1 team, said some form of cap “makes logical sense because what you’re doing is trying to cap the money you spend on [racing] performance and the driver is a big part of performance”. He suggested that teams should have flexibility to pay drivers more if they cut spending elsewhere.
A further tightening of financial regulations would mark the next step of F1’s transformation under the ownership of Liberty Media, the investment vehicle of US billionaire John Malone, which acquired F1 for $8bn in 2017.
This season is the first to feature the newly agreed $145m cost cap, which was agreed last year and aims to limit the extent to which Mercedes, Red Bull and Ferrari can outspend rivals in pursuit of victory.
The cap and the wider Concorde Agreement that governs how F1 splits revenues was agreed in 2020 after a three-year battle between Liberty Media and the teams. But the limit, which is set to fall by a further $10m over the next two seasons, excludes salaries paid to drivers and the top three staff, where the attention has now shifted.
A person close to F1 said “the driving reason” for the continued focus on cost control was to “balance out the system so [the] best drivers could be attracted to other teams while also reducing the overall spend in F1”.
Zak Brown, chief executive of McLaren Racing, said a cap would not necessarily mean that drivers’ salaries would fall. One option, he said, would be to increase the team budget limit, by the mooted $30m for instance, to include an allowance for driver contracts. Teams would be free to sacrifice expenditure elsewhere to pay drivers more. Similar measures could be applied to salaries for top staff.
“This is something all the teams have discussed,” said Brown. “Making sure the sport doesn’t go back to its bad habits is important and so when you have a few key elements that sit outside the sporting cap that are yet sporting related, it seems like we have some unfinished business.”
Investors have poured cash into the sport over the past year, with the Williams team changing hands and McLaren raising £185m from MSP Sports Capital, as the pandemic disrupted the 2020 season and hit teams’ income.
But imposing limits on driver salaries in the name of financial sustainability threatens a new rift within F1 after years of negotiating the broader cost cap. “Of course, when you put this on the table, drivers have a strong negative reaction,” said Alejandro Agag, founder of the Formula E and Extreme E electric car racing competitions.
Teams must balance the need to cut costs against the risk of pushing away star drivers who attract sponsors, fans and media.
“I’m not sure whether it’s fair to bring them [drivers] in under a cost cap,” Damon Hill, who won the 1996 world championship with Williams, told the FT. “A driver’s career is short.”
Hamilton, who this week called F1 a “billionaire boys’ club” as he urged the sport to become more inclusive and accessible, has raised concerns about a salary cap.
The British star, who has been at the centre of Mercedes’ seven consecutive constructors’ championships, is set to negotiate a new contract. At 36, he is in the latter stages of his career.
A person close to Mercedes said a cap would not be relevant while Hamilton, who has won a joint-record seven F1 world championships, is still racing.
Although Mercedes supports the introduction of a soft cap, team principal Toto Wolff has said any changes should be introduced gradually from 2024 to avoid losing the “superstars” of the sport.
The stakes are also high for Red Bull, which has put its faith in Max Verstappen, 23, to win its first championship since 2013.
“We understand the joint responsibility to reduce costs in all areas and are part of the discussions, but this is a decision that requires a balanced approach and agreement across all teams, which has not yet been reached,” said Red Bull. “We also need to consider the athletes involved as this directly affects them as well as the teams.”
Salary caps are complex and difficult to police, according to several senior figures in the sport, who warned that there were many ways to circumvent the rules such as by asking sponsors to cover driver salaries.
Any pay limit is also complicated because team principals often have responsibilities beyond their organisations’ F1 outfits, meaning they can be paid by different parts of a bigger parent group. “It’s a really difficult one,” said Agag. “There are so many ways around a salary cap.”