Let’s Talk Equity in Formula 1
Max Verstappen’s $1.3 million champion tax
Fellow Substack writer and journalist
and I were guests on the Motorsport of the Americas podcast this week. Check it out on ’s Substack: MOTA Walks the F1 Paddock with Olivia and Sasha.When preseason testing commenced at the end of February, a stream of small numbers flooded the news and social media feeds of Formula 1 spectators. With mere seconds stretching between the 20 newly unveiled cars, all eyes zeroed in on the blurring decimals.
Much larger numbers, however, guaranteed each driver’s place on the grid when the lights went out in Bahrain.
At the end of 2023, Max Verstappen’s record-breaking season came with a highly criticized tax. Ranking third on Forbes’ 2023 list of the highest-paid athletes under the age of 25, Verstappen brought in a $45 million salary accompanied by an estimated $25 million in bonuses across the season. Packing up his third World Drivers’ Championship trophy, the Dutch driver finished the year with a payout larger than the GDP of the small island nation of Tuvalu.
Verstappen’s historic season, scoring the most consecutive wins and a total of 575 points (paired with teammate Sergio Perez’s 285 points), meant an estimated $140 million in earnings for the team, but a $1.3 million fee to race again in 2024 for the Red Bull Racing driver.
Per the Fédération Internationale de l'Automobile’s (FIA) super license regulations, the certification necessary to compete in F1, drivers must renew their racing license each season with a $11,249.42 base fee and an additional $2,271.52 per point scored.
Winning teams and drivers are rewarded at the end of a season with a chunk of the championship prize in earnings. The commercial contract between Liberty Media’s Formula One Group, the FIA and all F1 teams — known as the Concorde Agreement — allows for roughly 50 percent of F1’s commercial profits to make their way into the bank accounts of teams. In recent years, Formula One Management’s share has shaved that percentage down, according to Motorsport.com.
The pot of gold at the end of a 24-race rainbow is meant to incentivize teams to build a machine capable of crossing the finish line first. However, the better teams and drivers perform the more the next season will cost to compete.
Verstappen condemned the large sum, saying that he doesn’t “think it’s right that we have to pay so much. It’s not the case in other sports either. And there are more and more races.”
F1’s entry fees do differ from other sports. While the single-seater motorsport series employs a pseudo-“tax the rich” model, professional golf requires all competitors except the top earners to pay to play. Sponsors and media rights deals fund the prize money for pros while the less gifted amateurs with smaller wallets must pay into the prize pot themselves.
Verstappen went on to tell Viaplay that there should be a “normal ratio.”
Quick comparisons were drawn between Williams’ Logan Sargeant and Verstappen. Headlines pointed to the former paying one percent of Verstappen’s 2024 entry fee. They failed to mention that Sargeant makes around one percent of the world champion’s salary as well.
Even if the fees were “fair” as Verstappen proposed, he would come out unscathed.
Of the 20 drivers on the grid, Verstappen’s fee is on the low end when adjusted for his estimated $70 million payout. Drivers like Lewis Hamilton, Fernando Alonso and Verstappen went into the 2024 F1 season paying between 0.9 and 1.9 percent of their annual pay. For Verstappen, his income remained untouched. Red Bull paid the fee for him.
George Russell, on the other hand, made an estimated $9 million last year, according to Forbes, and paid 10.2 percent of his base salary or 4.5 percent of his total annual pay with bonuses to enter F1 (bonuses are typically a reward for points finishes, race wins or championship wins and can help potentially offset the extra fee per point in super license costs). It is unclear whether Russell paid the fee himself or Mercedes coughed up the change for him. Red Bull was the only team to confirm paying for driver entry fees.
Super license fees and driver salaries are not included under F1’s $135 million team cost cap. For teams, the entry fee begins at $657,837 with an additional payment of $7,893 per point for Red Bull and $6,575 per point for the other nine teams, according to Fox Sports. Based on those rates, Red Bull paid around $7 million in sporting fees to enter the 2024 season.
The words “equitable” and “Formula One” don’t pair well together. Instead of rolling off the tongue, they sit inside the mouth unnaturally — squaring up on opposite ends. In a sport with billion-dollar bottom lines and VIP ticket packages scaling the low millions, arguing about the fair distribution of seven-figure numbers seems laughable.
But fees act as one of the few taxes imposed on drivers.
In 2023, the Dutch newspaper De Volkskrant claimed that Verstappen evaded up to $200 million in taxes in the Netherlands. Verstappen’s residence in the tax haven city-state of Monaco means that he is free from the average income, capital gains and property taxes.
The driver’s manager, Raymond Vermeulen, pushed back against the accusations stating “We pay tax on the sporting performances we put on in the Netherlands, as well as the income Max earns over the weekend in Zandvoort. We also pay taxes in other countries where he generates income as an athlete.”
Taxing non-resident athletes isn’t rare. In the U.S., the “jock tax” ensures that foreign high-earning entertainers or athletes must pay U.S. income tax on any “compensation for performances, endorsements, the sale of merchandise and royalty, or other, income closely related to the event,” according to the IRS.
All three states where F1 competes — Florida, Texas and Nevada — do not have jock tax laws.
While one of the few checks on wealth, the sport’s entry fees don’t do much to offset untaxed income. Clamping down on inflating salaries would require super license fees to be proportional to a driver’s yearly pay, rather than performance.
But when tax-paying dollars pave streets and fund education, where do these steep fees go once in the hands of the FIA?
According to the FIA, its not-for-profit organization structure means money in the form of penalty fines or extra fees that exceed the ruling body’s operating costs are put towards “grassroots development projects.” The FIA’s 2022 income from sporting regulatory fees reached $36.6 million, according to the FIA’s annual financial report. The profits generated from sports fees increased by $6.9 million between 2021 and 2022.
Ahead of the 2024 season, the FIA made an estimated $5.8 million in super license fees alone.
The organization lowered super license price points in 2010 after drivers critiqued Max Mosley, the former president of the ruling body, for suggesting that drivers race in other series if they were unable to pay, according to the BBC.
Since 2012, the fees have only increased.
Verstappen’s record-setting entry fee was accompanied by a jump in penalty fines. Last season, Hamilton criticized the FIA’s decision to raise the penalty fee cap to $1 million — nearly four times the previous $270,000 maximum fine.
The money grab comes at an unsteady time for the FIA.
Despite generating lofty profits — earning $52.4 million from registration and entry fees and $32 million in “other income” — the FIA hit a peak operating loss of $26 million in 2021. The ruling body’s debt accumulated significantly beginning in 2019 with $13.8 million in losses and then jumped to $23.9 million at the height of the COVID-19 pandemic. Once leadership turned over, 2022 losses decreased to $8.3 million.
The debt is puzzling at first glance. The sport is worth more than ever: F1 reached $17 billion in value with a three-year ESPN media rights deal renewal worth up to a reported $90 million per year.
In the second Concorde Agreement created in 1987, 49 percent of TV revenues went to Formula One Promotions and Administration (FOPA), teams received one percent and the FIA collected 50 percent of rights earnings.
But when the agreement was renegotiated in 2000, the Formula One Group (operating under FOPA) took ownership of broadcast rights, and therefore, profits.
Research Handbook on Major Sporting Events: Entrepreneurs and commercial ownership of sports events — the business development of Formula One
“In between Concorde agreements, [Bernie] Ecclestone continued to push forward his vision of raising commercial interest in F1. In June 2000, FIA delegates from over 70 national motoring associations around the world comprising the FIA’s general assembly met in extraordinary session and voted unanimously on a single resolution. It was to approve a deal, recommended by the FIA’s senate, to grant the FIA’s broadcasting rights to Formula One motor racing until December 2110 — i.e. for more than 100 years — to one company, International Sportsworld Communicators (ISC), founded in 1982 and solely owned by Ecclestone… There was no auction for these valuable rights, Ecclestone’s ISC was the only option if to proceed, and the delegates were sworn to strict secrecy to ensure no leaks on what critics said was an absurdly low price for the lease of $360 million. Of this, $60 million was an up-front patent to initiate the lease, followed by fixed annual rates of $3 million. On the decision, it was also noted that this allows the FIA to remain a non-profit-making organization under French law and settled its taxation despite with the French government.”
Harald Dolles and Karthik Raghunathan, authors of “Entrepreneurs and commercial ownership of sports events — the business development of Formula One,” argued that the commercial leasing agreement between the FIA and Formula One Group failed to benefit the FIA. While Liberty Media and Bernie Ecclestone — the former CEO of the Formula One Group who pleaded guilty to tax fraud in 2023 worth north of $700 million — helped media revenues soar, the FIA continued to cash out its comparatively meager $3 million fixed annual pay.
Amid debt and limited commercial rights payouts, quadrupling penalty fees, surging entry costs and additional races come as no surprise.
The addition of sprint races in 2021, for example, was marketed as enhancing entertainment — enticing new casual fans who skipped over free practice and qualifying sessions by adding another race to the weekend. With a sprint race winner accumulating eight points, the extra points grab means higher entry fees.
If one driver wins all six sprint races in 2024, he will pay an additional $109,032.96 in 2025 super license fees.
Throwing around the fairness argument is a dangerous (albeit common) game in F1. The sport is built on a foundational principle of inequity. Until recently, no cost cap was in place to limit teams worth $3.9 billion from squashing teams generating just 23 percent of their annual revenue. Even now, top personnel and drivers are excluded from the $135 million team budget, leaving higher-value teams to snatch up top talent. The result is an endless loop of gaps in operating income leading to gaps in performance spawning even bigger gaps in revenues.
Super license fees aren’t likely to change that — especially when those regulations tax a $70 million athlete just 1.8 percent of his income.
Great work…Seems odd that the ones at the top of the sport—and presumably making similarly large contributions to pulling in fans etc—pay the most to keep playing.
Great analysis!