Formula 1: costs exempt from budget cap destroy sustainability

Formula 1 and the budget cap, this is the key focus of the first article of the week that will end with the Miami Grand Prix. The driver and technical market is now the suggestion that keeps alive the interest in a championship that is starting to resemble the past given the clear domination of one team. Lewis Hamilton’s surprising move to the Scuderia Ferrari and the internal investigation at Red Bull regarding the Christian Horner controversy have produced an unpredictable domino effect, that was difficult to image until a few months ago. The highly likely departure of British car designer Adrian Newey from the Milton Keynes team after almost two decades is causing even more uproar than the market movements involving renowned Formula 1 drivers.

The toxic environment long hidden by repeated successes risks imploding the reigning world champion team. It is no secret that Mercedes is making a strong push, with the clear goal of signing the three-time Formula 1 world champion from rivals Red Bull. Team principal Toto Wolff is willing to do anything to make it happen and he has not even hidden it, as the Austrian motorsport executive is even willing to bring in the historic consultant of the Red Bull team, namely Helmut Marko, in order to convince the Dutch world champion to take up the mantle left prematurely by Lewis Hamilton following his move to Scuderia Ferrari.

A hiring “at the limit of decency” is hypothesized, just to properly pick up the legacy of the seven-time Formula 1 world champion, given the figures that have been reported by the media. The same goes for Adrian Newey, who has effectively received a staggering offer from the group of entrepreneurs led by Lawrence Stroll, in order to convince the British engineer to join the ambitious Aston Martin project accompanied by strong support from Honda. From the perspective of financial regulations, both the salaries of the drivers and the three highest-paid technicians do not count in terms of the budget cap restrictions.

However, the escalation of expenses in areas not covered by the financial regulations is undermining the spirit of the regulatory body itself. The limit on salaries was designed to contain the annual expenses of the teams, which before the 2021 Formula 1 season exceeded half a billion dollars for the top teams, primarily Mercedes and Scuderia Ferrari. At the moment when the best drivers and technicians are on the market, it is therefore very clear that many teams will never be able to afford to sign them.

The budget cap fails to regulate many areas that determine a competitive advantage. If it were true that the Brackley team had offered around 150 million dollars per season to Max Verstappen for the enlightened services of the Dutch driver, it would be the equivalent of the money that a team has available to cover the expenses of the entire Formula One racing season. It is highly likely that, when considering both costs included and excluded from the budget cap rules, the top teams spend exactly the same amount of money before the effectiveness of the measure.

F1, Economic Sustainability Goes out the Window

As often happens, Formula 1 preaches well but practices poorly. The much-heralded and desired economic sustainability, capable of leveling the playing field, goes out the window when a mountain of money exits through the back door of costs not included in the financial regulations. So the question is: are market operations that move a similar if not greater amount of money than that theoretically set by the financial regulations ethically permissible? Due to random factors and existing contract deadlines, the market for drivers and technicians has shown the fragility of a regulatory body that aspires to achieve a very difficult target.

The same regulation that prevents investment in environmental sustainability. In recent months, American businessman Zak Brown, the Chief Executive Officer of McLaren, sounded the alarm, asking for some expense items related to sustainability projects and initiatives to be eliminated from the budget cap calculation, without compromising the integrity of the cost cap. These should include initiatives and training in diversity, equity, and inclusion, activities for team well-being, and cost reduction for internship programs aimed at promoting access to careers in motorsport.

Secondly, a technical regulation should be reached that actively encourages the adoption of more sustainable materials and processes, capable of promoting the research and development of a Formula 1 car. These are topics that the world of the premier motorsport category is dragging its feet on, while unchecked costs are taking on dangerous proportions for the continued existence of some teams in the medium to long term. This is the much-discussed scenario that, if allowed to continue at this pace, has all the potential to do more damage than hailstorms, as the saying goes.