How will F1's 2023 salary cap work?

A salary cap for Formula 1 drivers and top team personnel is a step closer to being introduced for 2023 - but how will it work, and can it be policed?

How will F1's 2023 salary cap work?

The principle of a salary cap was supported in an F1 Commission meeting held after the Portuguese Grand Prix, but the details have yet to be signed off and it's not entirely clear how it will operate.

What has been agreed is that reining in salaries is the logical next step following the introduction of the budget cap that comes into force next season.

Earlier this year, with the start of the 2020 season postponed and with limited income being generated by the F1 organisation with which to pay the teams, the category's stakeholders made the decision to reduce future spending.

The original budget cap had been set at $175m but, after discussions, it was reduced drastically to $145m for 2021, and then $140m for 2022 and $135m for 2023.

There's a long list of items that are not included in the budget cap, which in essence represents the cost of building and running the cars.

Among the exclusions are driver salaries, plus those of the three best-paid employees at each team - typically including the team principal and technical director.

With all stakeholders aware that the financial impact of COVID-19 could be felt for years to come, the team bosses have now agreed to the idea of adding drivers, and themselves, to the cap equation.

However, the restrictions won't come into force until 2023. Contracts that have already been signed and which extend to that season - such as that of Charles Leclerc at Ferrari - are not affected.

Furthermore, until the rules are published there is a window in which new deals can be agreed.

The basic idea is that teams will have a maximum budget of $30m to split between two drivers. Most will spend substantially less than that and, if they take two paying drivers who bring sponsorship and don't take a salary from the team, the bill could be zero.

Teams can also spend more than $30m on drivers should they wish, but it's been agreed that any excess will be lopped off the team's operational budget cap.

However, it won't work the other way - you won't get 'credit' to spend elsewhere if you don't use the $30m limit on drivers, which was a major topic of discussion in the F1 Commission meeting.

Haas boss Gunther Steiner, whose team is never going to trouble a $30m driver salary limit, sees that concept as a way forward.

It's a complicated and controversial issue. Some driver salaries are paid directly by team sponsors anyway, while most have their own personal deals on the side with companies not affiliated with their teams

"I think at some stage, there will be that crossover point coming," he said at Imola. "So that if you invest in drivers, you cannot invest in the car, but you need to go step-by-step on these things.

"The ultimate goal would be that - how much do you invest in the drivers, and how much do you invest in the car? But we cannot do that straight away.

"We need to stabilise these financial regulations first, that we know exactly how it works, and then maybe can make a step forward."

However, the idea of adding the $30m to the rest of the budget cap generated opposition - mainly related to the fact that year-on-year a team might switch from a cheap driver pairing to an expensive one, or vice versa.

The grey area is how to stop teams getting around a salary cap by channelling payments from elsewhere.

As a theoretical example, there's little point in restricting what Lewis Hamilton is paid by Mercedes if a third party like Petronas diverts some of its sponsorship budget directly to the driver to top up his official team salary.

It's a complicated and controversial issue. Some driver salaries are paid directly by team sponsors anyway, while most have their own personal deals on the side with companies not affiliated with their teams - and logically those extra earnings should not be limited by the new rules.

The salary cap is an emotive subject, and a particularly difficult one for Toto Wolff, who is currently engaged in discussions with Hamilton over a future contract.

"It's clear that drivers, the ones that in F1, are the best in the world," Wolff said in Imola.

"And they should earn high salaries like all the other top stars in sport. And today those salaries are limited, or their income is limited, to what they are getting from the team, because the scope of promoting the brand endorsement deals etc and the rights are very limited.

"And I think that's why it would be interesting to sit on a table with representatives of the drivers and the drivers themselves to say how can we align ourselves long term that everybody's benefiting from a growth in F1?

"And like American sports have done it, without really harming future earnings for the drivers."

So what of the team bosses? You might think that them agreeing to a cap on their wages would be akin to turkeys voting for Christmas but, to their credit, they've recognised that it would not be a good look to cap driver salaries, and not their own.

The complication with restricting payments to the top three employees is that the system has to be fairly balanced between the 10 teams, and yet each has a different set-up.

At some, the team principal and CEO are the same person, at others they are not. At McLaren for example Zak Brown spends much of his time on non-F1 projects, so how would his salary be apportioned?

And where would someone like Helmut Marko, technically an employee of the main Red Bull company but involved in two teams, fit in?

Most team principals are purely employees, while others - notably Wolff - are also shareholders, which further complicates matters.

The size of the pot for the three best paid team members has yet to be decided, but one option under discussion is that - in contrast to the drivers - the number could be added to the overall budget cap as payments are more stable.

Team principals have greeted the salary cap with varying degrees of enthusiasm.

"It's far from being a set of regulations, because there's all kinds of legal ramifications that need to be looked at to see if it is actually implementable" Christian Horner

"We are supportive of the discussion to introduce a salary cap for the drivers," said McLaren's Andreas Seidl. "I don't see a lot of negatives really, and I think there's enough examples around in other sports that it is actually feasible to introduce it.

"I just think it's important we introduce it in parallel with a cap on the top three salaries of each team, and for us it's simply the next logical step to do after we introduced the budget cap next year.

"We all know we are facing challenging times at the moment in terms of financials, we also don't know how long exactly this COVID situation is ongoing and the effect of it medium and long-term. So that's why we definitely support these discussions."

Christian Horner, whose Red Bull team is in the big pay league with an ongoing multi-year Max Verstappen deal, sounded less convinced.

"The discussion of a cap is at the moment exactly that," he said. "There's no firm rules or regulations, it's not been voted in, it's not become part of either sporting, financial or other regulations.

"And of course, if a team chooses to spend more than the cap, it comes out of the amount within the cap. So it's not therefore limiting the amount that a driver can earn, it is just simply dictating to a team that there will be a maximum allowance for the drivers, and anything beyond that would have to come out of effectively the chassis cap.

"Obviously costs are sensitive for everybody at the moment, and it was tabled, it got a reasonable response.

"So we'll see where it goes. But it's far from being a set of regulations, because there's all kinds of legal ramifications that need to be looked at to see if it is actually implementable."

It's clearly a complex issue and one of the questions now concerns timing, and how that impacts any new driver deals that are agreed or extended at current market rates before new restrictions come in.

However one man who definitely won't be agreeing mega deals any time soon is AlphaTauri's Franz Tost, who is adamant top drivers are paid too much.

"We don't know how it is next year," he said. "If spectators are allowed at the races or not. And if spectators are not allowed, that means the income will be reduced. FOM will get less money, we'll have less revenues.

"The teams will get less, and I don't see any reason why the drivers should not get less. First of all, they should be anyway happy to sit in such a fantastic car and to do such a good job. And then they get some money. And this is how the future will be..."

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Series Formula 1
Author Adam Cooper
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