F1 and budget cap: the winning ‘formula’?

One of the most relevant topics in recent weeks concerns the budget cap for F1 teams, combined with the possible introduction of a salary cap for drivers. In addition to the purely technical aspect of the issue, there is also the economic one for those who have invested, continue to invest and will invest in the future here: will cutting the funds reduce the spectacle/appetite for sponsors?

Before talking about the possible consequences, let us briefly summarise the situation.

The budget cap is a ceiling on single-seater spending to which the team must adhere. It was introduced in 2021 and takes its cue from the salary cap of other overseas sports such as the NBA and NFL. Its creation has a clear purpose: to protect the smaller teams (i.e. to allow them to have an economically sustainable season) and to increase competitiveness with the top teams.

It is clear how an economic powerhouse like Mercedes has decidedly different revenues than its lower-ranking competitors. It is equally clear how this has affected the German dominance in the recent hybrid era.

The current team budget cap for the season in F1 stands at $140 million, which is expected to vary depending on the number of races added or removed in progress.

The teams are rather at odds on this issue, so much so that they have to directly inconvenience the FIA to make a final decision. In particular, the request for an increase in the budget cap comes from the top teams such as Ferrari, Red Bull and Mercedes itself, as they are the protagonists of the most substantial updates during this season.

On the other hand, teams such as Haas, Alfa Romeo and Williams have opposite visions to the aforementioned, as they do not see the need for such an intervention while the competition is underway, as it would distort the final results according to their perspective.

Moving on to the seats, the drivers’ salaries have also become a cause for discussion. The fear is that there could be a sharp rise in demand compared to the current contract offers from the protagonists in the paddock. At the moment, it would be the likes of Lewis Hamilton and Max Verstappen, the most highly rewarded in the circus, who would suffer the most. Already expressing his own opinion is the young Dutchman, who clearly objects: ‘At the moment F1 is more and more popular and everyone is earning more and more. Why should the drivers have a ceiling? They are the ones who put on a show and risk their lives‘.

Having established that this is not an easy topic to deal with, given the multitude of facets present, we begin to evaluate the consequences of all possible scenarios.

The items listed above leave no room for detail: every cost is tracked, clearly recognisable and filed. There is a very small margin for error and this is well known by the teams as well as by the drivers themselves who live with the pressure of the grid result, the team’s objectives, personal ego, their own safety at 350 km/h and all that at the same time.

Not raising this ‘ceiling’ means seeing fewer updates on the single-seaters, therefore fewer improvements that could translate into less spectacularity in the eyes of the fans. The teams at the top suffer the most, as the title race is more ruthless than ever. Every screw, every bolt, every aerodynamic appendage that the opponent possesses and is more powerful can make the difference. In the world of ordinary mortals like us, we almost never give weight to time as a qualitative unit of measurement. In Formula 1, a tenth of a second can cost millions. Either in the development/upgrading phase to beat the stopwatch, or in the event of an accident.

Precisely in the latter scenario, from this year on there could be a serious risk of not seeing all the teams finish the world championship due to costs on the track. Once the repair budget runs out, there is no ‘third car’. All that would be left would be the insulating tape for Yuki Tsunoda’s rear wing in the 2022 Azerbaijan Grand Prix.

Such a situation would be nothing short of catastrophic for the image of the teams involved, who would have to face the consequences in both sporting and legal terms. Sponsorship contracts in Formula One are tied partly by results, partly by the mere presence of the team in the motorsport world championship. It would not be the non-achievement of a sporting goal that would create particular turmoil, but the non-participation in one or more GPs.

Not exactly. As explained above, not all teams can invest astronomical sums. Raising the budget cap leaves the smaller teams no choice, so they are forced to make a further, not inconsiderable economic sacrifice.

It is only fair to specify, however, that they – above all – have an interest in trying to finish each race in the points zone, since the federation recognises a monetary compensation for each placing above tenth. Therefore, one would be talking about an investment that can be financed by sporting results, which can be obtained on the track.

Moreover, F1 today enjoys a media wave of unprecedented dimensions. It would be a waste not to exploit it, both on the part of the teams and drivers, and for the federation itself. Increasing the possibility of putting hands on the single-seaters would have a remarkable return in terms of spectacularity. It is precisely the increase in the infamous ‘drama‘ that has allowed a remarkable expansion in recent years.

Sponsors who decide to invest in this world do so precisely because there is no other sport so adrenalin-fuelled and extreme with such a spectrum of visibility. Limiting the possibilities would leave that ‘what if’ aftertaste that the whole complex environment of the agents in the sector (from F1 down to the fan) would have when the season is over.

The FIA‘s intention to make competition a level playing field for all is a gesture aimed at making the spectacle more interesting for fans and sponsors.

What makes the difference remains the funds available for the choice of engineers working on the single-seaters, from concept to road-going. In addition to the performance of the car, a team of experts in the field promises much in terms of reliability (a topic that is now more than ever at the centre of discussions, especially at Maranello). On this, the budget cap has no say.

We are all witnesses to the fact that race pit strategies can decide a world championship as much as the power of the car or the skill of the driver. Being confident in one’s own means despite criticism can also have a positive effect on the environment.

The statements of Team Principal Ferrari, Mattia Binotto, are proof of this: ‘I prefer to have a fast and competitive car rather than a reliable one. It is easier for us to work on this aspect’.

Harsh words if seen from the purely ‘fan’ perspective, but encouraging if framed as ‘we have the situation under control’.

The salary cap is a different matter. If we think in terms of comparison, the salaries received by athletes in the world’s top sports leagues are slightly different to F1.

The drivers who lead this ranking, as already mentioned, are Max Verstappen and Lewis Hamilton who earn €36M and €35M per season, respectively. Next, we find Fernando Alonso at €17M. Below them, we can find a few more above €10M down to the €650k of Yuki Tsunoda.*

Now let us take the example of basketball players’ salaries in the NBA, remembering that this is a league where the salary cap is in force. It is interesting to note that as many as 12 athletes are paid more than the top 2 drivers in Formula 1.**

Football could also be mentioned, but as there is still no salary cap or transfer cap in place, it would be misleading. However, it is fair to at least mention the fresh contract renewal of footballer Kylian Mbappè, which will tie him to Paris Saint German for the modest sums of €118M per signing plus €54M per season until 2025.***

Comparing the rate of risk to the safety of athletes in these sports with the top class of four-wheelers, let us leave it to those in charge to ponder.

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