DonSmee commented on the post, After capping their budgets, F1 teams eye limits on drivers' salaries

Back in January Lewis Hamilton took to social media to rubbish claims he was demanding $90 million per year from Mercedes to re-sign with the team for the 2020 F1 season.

The pattern was repeated earlier this month when Hamilton responded to further reports, now insisting $50 million was the magic figure, by insisting “the conversation hasn’t even begun” over his salary.

Team principal Toto Wolff likewise stated “all the things that are out there about contract negotiations, whether him demanding a hilariously high salary or me saying it’s only 50 per cent of that, they are all made up.”

Nonetheless our sources are adamant negotiations started at around this level before the Mercedes main board imposed an absolute maximum of half that. But even at the lower level, a stipend of over $1m per race might be thought an eye-watering amount in return for twiddling a wheel for under two hours in alternate Sundays.

The counter-argument is, of course, that the job description of a Formula 1 driver extends well beyond a bit of steering, for they are simultaneously an ambassador for whatever team and sponsors he represents. Like him or not, ‘get’ him or not, Hamilton combines the dual roles better than anyone else on the grid, and thus should earn more than the rest.

How much are F1 drivers earning in 2020 – and should their pay be capped?

‘More’, though, is a relative term, and like any team Mercedes will only pay what they believe a driver is worth, all angles considered. Whatever figure is ultimately agreed upon – if any, as Hamilton may well decide to walk away – still represents a large portion of the team’s budget, particularly with the looming $145m budget cap. $25m represents almost 20% of that; $50m over a third. For one man’s services. For a year.

Put differently, $50m equates to the total payroll of a team employing around 600 heads – the estimated level under the $145m cap, which will reduce in $5m increments in each of the following two years. Can one man really be worth more than 325 ($25m) or even 650 ($50m) highly motivated heads, all slogging minds and hearts out for eight hours for 230 days per year to build the suitable vehicle he drives?

Why is any team prepared to shell out such sums for a driver? The answer is simple: A driver is a performance differentiator, able to find a spilt-second here through bravery, a nano-second there through sheer skill, and micro-second everywhere through application. Teams willingly pay more for top drivers because they deliver lap times and victories.

So do top aerodynamicists and chassis engineers, yet from 2021 their salaries fall within the budget cap. So much so that teams have commenced retrenchment proceedings while others plan to redeploy their staff in other motorsport categories or even activities outside of racing.

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Should it not ultimately come down to a choice of hiring, say, a team of top engineers and providing them with facilities to find those elusive tenths of a second, or blowing the same on a driver able to conjure the same lap time gains out of the car? Arguably, as car performance diverges as a result of restrictions imposed by budget caps, faster drivers should be in greater demand as performance differentiators.

Otmar Szafnauer, Racing Point, Red Bull Ring, 2020
Szafnauer wants drivers’ pay to be capped

Should their salaries not then be included in the budget cap?

“I’m definitely in favour of including driver salaries within the cap because it forces teams to make those decisions,” Racing Point boss Otmar Szafnauer said in Austria, asking rhetorically: “Do you spend your money on a driver or do you take one that doesn’t cost you so much and spend it elsewhere on performance?”

Claire Williams of the eponymous team believes “drivers are performance differentiators, and in order to get a much more equitable playing field in this sport, as the financial regulations are there to do.

“I think it’s absolutely critical that anyone who is performance related should be part of that cost cap.”

Haas team principal Guenther Steiner has a similar take: “For sure if you spend a lot of money on a driver then you cannot do other things. [Including salaries in the cap] should level the playing field even more and I think the salaries would adjust by themselves and they would end up lower than they are now.”

Mercedes Motorsport CEO Toto Wolff, however, is concerned such inclusions could see F1 lose star drivers. “We don’t want to lose the superstars out of this sport,” he warned. “So it needs to be a gradual introduction from 2024 onwards so that future generations of drivers end up on more sensible levels in considering that we have a cost cap on the team.”

Cynics may point out that Wolff controls arguably F1’s biggest budget and is thus able to pay well over the odds and that his star is likely to have retired by then, while some of the Austrian’s peers do not believe that drivers would leave F1, given the sport’s position at the pinnacle of motorsport, and that they would still be earning substantially more than in other categories.

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“I think the likelihood of drivers being discouraged from participating in our sport would probably be minimal, just simply because this is the highest echelon of motorsport and it’s a destination where drivers want to be racing,” Williams said.

Wolff favours a glide path for capping salaries

It is not only team bosses who are concerned about salary escalations, but the Grand Prix Drivers Association is, too – as GPDA director Romain Grosjean recently divulged. Are drivers therefore participating first out of passion or for the pay?

Where once budget caps were viewed as flights of fancy that morphed into reality, so salary caps – whether via inclusion in overall budget caps or by direct caps on wages – are sure to eventuate; the only questions being: what format, what level and how to control it?

The latter poses the biggest obstacle, for there are myriad ways in which teams and sponsors are able to ‘hide’ payments. For example, by paying a driver $1m for his wheel skills and $49m for his PR image. But such arguments raged during budget cap discussions and sensible solutions were found by consensus. The current budget cap regulations cover a three-year period (2021-2023) and are then up for revision.

Until then Hamilton is free to demand $50m or whatever; whether he does and whether Mercedes accedes is down to two factors: common sense and prevailing market forces.

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