INEOS BUYS IN TO MERC – BUT LEWIS HASN’T
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While two teams are rebranding completely this year – Racing Point takes on yet another new skin as Aston Martin while Renault becomes Alpine, along with a host of management changes – possibly the most significant shift during the off-season will barely be visible at all.
Mercedes title sponsor Ineos has become a one-third shareholder in the team, enabling Daimler to reduce its exposure. This is one of several investment deals completed since the signing of the new Concorde Agreement last summer, and it points the way to a future in which teams both enjoy a franchise value and – theoretically – become profit generators rather than money pits.
But this may also have an impact on driver salaries – at least in the short term as F1’s business model goes through a period of adjustment. Manufacturer largesse has wrought many inequalities on F1, not least the ability of the most deeppocketed entrants to comply with the salary demands of the biggest stars. Now, though, the market is changing, as evinced by the fact that Lewis Hamilton has yet (as GP Racing went to press) to sign a contract for the 2021 season and beyond.
GP Racing understands that Hamilton’s proposal places the value of his services in the region of $150million over two years, while Daimler chairman Ola Källenius is unprepared to venture north of $100million. Although driver salaries are not included within the $145million budget cap which comes into force this season, a future salary cap of $30million per year for both drivers could be written into the rules from 2023 onwards. The long-term commercial vision for F1 is that all the teams should attain profitability. Mercedes already makes a profit despite being among the highest spenders: its most recent published accounts indicated a post-tax profit of $19.3million in 2019 despite an expenditure of $442million.
Given the more equitable share of revenues enshrined in the new Concorde Agreement, it’s likely Mercedes will be less wellrewarded even if it continues to dominate, which may have an impact on profitability. It will also have to downsize in order to meet the salary cap. For these reasons, agreeing to pay its star driver such an extraordinary amount would not be a good look even if it made business sense.
“Turning the team into something that can produce cashflows rather than consuming cashflows is very tangible,” said Källenius when the Ineos investment was announced.
As F1 pivots towards the US sports franchise model, where territorial exclusivity makes teams more stable and investable, there may yet be a point in the journey where the stars can command megabucks again, as they do in NBA basketball. But for now a new frugality holds sway…
HAMILTON’S PROPOSAL PLACES THE VALUE OF HIS SERVICES IN THE REGION OF $150MILLION OVER TWO YEARS, WHILE DAIMLER CHAIRMAN OLA KÄLLENIUS IS UNPREPARED TO VENTURE NORTH OF $100MILLION