The value (or lack of it) of F1 pay-drivers

The decision by Lewis Hamilton to move to Mercedes, bizarre though it is, has started things moving in the F1 driver market, with Michael Schumacher being elbowed out of the sport (again) and much talk about who will go to Sauber, to replace Sergio Perez. Kamui Kobayashi showed on Sunday that he is no slouch and that Sauber would be foolish to dump him, unless there is a better offer. Kobayashi, contrary to popular belief, is not a pay-driver. Sauber pays him and there is no sponsorship that he had to bring to get the drive. Drivers like Kamui are becoming fewer and fewer as teams tighten their belts and look for men with talent AND financial support. It is hard to define a pay-driver these days because some argue that sponsors follow them, rather than them taking the money to the team, but the best way to define it is to ask: “Would Driver X be with Team Y if there was no money?” If you apply that test down through the F1 grid, it gets rather frightening. There are the big stars, who get paid a lot of money, and there are the pay-drivers, who hand over a lot of money, but there are only a handful of drivers in between.

Most teams will tell you that a pay-driver is unlikely to score the same number of points as a driver who is earning. This is logical given that the earning drivers have risen through the sport on their talent and ability alone, without needing to pay. Others have paid the bills. Thus all the F1 teams have to make their driver decisions based on whether the revenue from the pay-driver will be more or less than the prize money gained or lost. One must also take into account the tangible cost of the salary that must be paid to a non-paying driver, and the intangible cost of damage that is done to the team’s image, which might deter sponsors from getting involved. Points generate cash and so one needs drivers who will score points, or who will provide enough cash not to need to score points. To understand the dynamics of such calculations, one needs to understand the prize fund, which of course is a secret.

Why? Because people in F1 like keeping secrets and do not understand that money can be used as a promotional tool. In the United States of America, for example, you will often hear promoters thumping their drums over “a race for a million dollars”. It gets fans excited. F1 has no such imagination but the races even for minor positions are often worth a great deal more than that. The numbers change each year, based on the revenues generated, but in 2011 the teams divided a prize fund of close to $700 million between them.

Ferrari has a special deal at the moment that means that the Italian team takes two and a half percent of the prize money straight off the top, which means that it got $17.5 million in 2011, leaving the prize fund with $682.5 million.

This money was then divided into two equal payment schedules, each worth $341.25 million.

The first fund was divided equally between the top 10 teams, giving them each $34 million.

The second fund was divided up based on performance, with the winning team in the Constructors’ Championship getting 19 percent and the other nine teams taking percentages of 16, 13 11, 10, nine, seven, six, five and four. The 11th and 12th teams get $30m apiece and fewer benefits so the fight for 10th place is particularly fraught. But what is it really worth?

With the numbers we have above, one can calculate with reasonable accuracy the prize money that was paid out last year. First place would have paid $64.8m, plus the $34m share, giving Red Bull Racing a total of $98.8m in prize money. Second place (McLaren) would have been worth $54.6 plus $34m, giving $88.6m; while third-placed Ferrari ended up with $95.8 million (more than McLaren) because third place would have been worth $78.3m plus the team’s special payment of $17.5m.

Fourth place was worth $71.5m; fifth $68.1m; sixth $64.7; seventh $57.8; eighth $54.4; ninth $51m and 10th $47.6m.

From these figures one can extrapolate the value of each place gained in the Constructors’ Championship, so one can ascertain the difference between first and second at $10.2m; second and third $10.3; third and fourth $6.8m; fourth and fifth $3.4m; fifth and sixth $3.4m; sixth and seventh $6.9m; seventh and eighth $3.4m; eighth and ninth $3.5m; and ninth and 10th $3.4m. The reason the little teams get so excited about being 10th is because there is a difference of $17.6 million between the two places.

With these numbers one can see that a drop from sixth to eighth, for example, would cost a team $10.3 million in prize money, plus image damage, so any pay-driver would have to bring at least $15m in order to make the deal a worthwhile one for the team involved. This means that midfield teams like Williams, Lotus, Force India, Sauber, Toro Rosso and Caterham must balance the money paid by a driver against the lost revenues.

Williams, as an example, has a deal with PDVSA for a Venezuelan driver – currently Pastor Maldonado – which is worth an estimated $55 million per season, although there are likely to be some commissions paid on this deal which will reduce the money that arrives at Grove. There was minimal risk for the team with such a deal because with ninth place in the Constructors’ Championship in 2010, plus Bruno Senna’s support amounting to a rumoured $12m, the team gained in the region of $60m, but only risked a tenth of that figure in terms of prize money. This meant that the team could invest in new engineers and improving its infrastructure. There was no doubt some image damage done to Williams, but it is easy to repair such things when money is available. You simply buy the best available drivers and everyone soon forgets the bad old days of pay-drivers.

When one understands the prize fund, one sees that it is more logical for a smaller team to take a risk and pay a half-decent driver a couple of million in order to be in a position to score points, rather than taking a pay-driver with a $10m budget. This is why Sauber had Kamui Kobayashi, Caterham has Heikki Kovalainen, Marussia has Timo Glock and HRT has Pedro de la Rosa. These men MUST prove their value against pay-drivers or face paid dismissal. Right now Glock’s future is not very bright as pay-driver Charles Pic has done a very decent job and Kovalainen needs to watch out as well because Vitaly Petrov has matched him all year.

Kobayashi’s podium finish in Japan ought to save his drive in 2013 because if he and Sergio Perez can overhaul Mercedes in the final races this year, the team could finish fifth in the Constructors’Championship, compared to last year’s seventh place. The financial gain would be prize money around $10m, so it is clear that it was a far better idea to keep Kobayashi rather than to take on a pay-driver with “only” $10m available.

If Pic moves from Marussia, the team would probably take a similar kind of driver to replace him. This will work in Glock’s favour because the team needs technical continuity to move forwards. This would seem to play into the hands of Max Chilton, who not only has money behind him, but has also been something of a revelation in GP2 this year. Others such as Luis Razia, Davide Valsecchi and Giedo Van der Garde have money behind them and pretty decent results in GP2, although none of them have enough of a reputation to get into F1 without funding behind them.

Sauber will continue to have support from its Mexican sponsors in 2013, and it would be logical to promote Esteban Gutiérrez to take over from the departing Perez, but only if the team believes that the youngster would do a similar job to that done this year by Sergio. It is a gamble.

It is a similar story down at Williams. The team has high hopes for third driver Valtteri Bottas but must now decide whether it is worth the risk of putting the young Finn into a race drive. He will probably make a few mistakes, but he is likely to collect more points than the quick but highly unreliable Maldonado and the accident-prone Senna. If Bottas can find some sponsorship to reduce the team’s risk then he is a slam-dunk for the drive, if only because Williams does not want to see its young hopeful snatched away by a rival team with more cash.

Senna might argue that he will be better next year, but unless he has a bigger budget he has no chance of holding on to the Williams drive because he has not done enough to make it worthwhile ousting Pastor and he does not have the same kind of money that Maldonado can pull in. That is tough for the Brazilian but it is a reality. However he could be attractive to a Sauber or a Caterham as the possibility of more sponsorship AND more prize money would make him a better choice than Kovalainen or Petrov. The other man who would be very attractive to these midfield teams is Pic, but only if he has a sensible budget supporting his progress.

Lotus has had an interesting year with Kimi Raikkonen and Romain Grosjean. That was a risky pairing in that Kimi was rusty from rallying; and Grosjean was a man who had failed in F1 and wanted to try again. The success this year has not been enough to increase prize money in a dramatic fashion as the team will only get $3.4m extra, but this is because F1 gets harder the closer one gets to the top.

It is not clear whether the combined salaries of the two men are more or less than the increase in prize money they have won, but sponsors are more likely to support the team nowadays, so it has been a successful gamble – even if Grosjean has been a little wild. Next year he ought to calm down and become more consistent. So, even if Mark Webber thinks Grosjean should be kicked out of F1, the Franco-Swiss driver is a logical choice for the team.