Michmutters

Daniel Ricciardo

It wasn’t so long ago that McLaren was in a cash crisis, but it is now apparently prepared to spend millions to replace Daniel Ricciardo with Oscar Piastri for the 2023 Formula 1 season.

Sources revealed to Speedcafe.com earlier this week that severe negotiations between Ricciardo and McLaren had opened at USD 21 million.

The Australian holds a valid agreement for 2023, and it is understood that he alone has the right to terminate that early – something of an oversight on the team’s side when it comes to that particular contract.

To clear the path for his replacement, McLaren must therefore reach a settlement with Ricciardo.

The 33-year-old has not delivered what was predicted prior to his arrival in Woking, with Lando Norris having, for the most part, out-performed him since the start of 2021.

Aside from performance, over which there are never guarantees when hiring any driver (evidenced by Ricciardo himself in this instance), another motivating factor on McLaren’s side is likely to be financial.

It’s reasonable to suggest that part of the motivation for Zak Brown, McLaren Racing’s CEO, to change his driver line-up is to reduce the wage bill for a similar return in terms of on-track performance.

Ricciardo is no longer one of the sport’s highest earners, but by the same token, why spend more than one has to for the desired result?

By the same token, there’s no logical reason for the eight-time grand prix winner to settle for less than what his 2023 earnings would be. It can be reasonably assumed, then, the USD 21 million is somewhere north of that figure.

There are suggestions an accelerator exists in Ricciardo’s contract that would see his salary increase next year, further motivating Brown, though as that specific information is contained in a confidential contract, it’s impossible to validate such claims.

Paying out Ricciardo therefore only makes sense for McLaren if it’s saving money, or netting significantly better results to ensure greater prize money and to increase its attractiveness to sponsors.

The latter is something of a long shot given the gulf that currently exists to the likes of Ferrari and Red Bull, and so it’s most likely the former is the key motivator.

We can therefore discern that the intent is that, whatever it spends on the drivers at the end of next year, after forking out a settlement plus any costs associated with the acquisition of a new driver, must be less than it was otherwise going to.

In Piastri’s case, there could be significant additional costs.

There is a strong probability that Alpine will look to recover what it’s spent in running a series of Formula 1 tests for last year’s Formula 2 champion.

Otmar Szafnauer, Team Principal for the Enstone squad, has mooted potential legal action in the high court if Piastri does not drive for his team next season.

Figures ranging from USD 15 million to USD 25 million have been quoted to Speedcafe.com with regards to the figure Alpine will pursue.

That sum would presumably be sought from whichever team he ends up joining since it’s unlikely the Melburnian himself would be able to stump up that sort of money.

Should Ricciardo remain firm on his termination value, and Alpine get top dollar, that could put McLaren on the hook for as much as USD 46 million, and that’s without considering any salary aspect it might have agreed with Piastri.

One can understand the intent for Brown to reduce the business’ cost base, given it’s in something of a rebuilding phase, with significant investment taking place off track (a new wind tunnel and simulator), not to mention that McLaren Group has faced some financial challenges in the recent past.

It came perilously close to running out of cash in July 2020 before the injection of a GBP 150 million loan courtesy of the National Bank of Bahrain, which has links to Mumtalakat, the sovereign wealth fund of Bahrain and also McLaren’s largest shareholder.

That came after the British Government rejected a request for a loan in May 2020, which prompted the company to consider mortgaging its historic car collection which was, at the time, estimated to be worth in the region of GBP 200 million.

In December 2020, a 15 percent stake in McLaren Racing was sold to a consortium led by MSP Sports Capital for GBP 185 million, that slice potentially rising to a maximum of 33 percent by the end of this year.

It’s a deal that, at the time, put a valuation on the racing operation of GBP 560 million.

Since then, the McLaren Campus, which houses the company’s Formula 1 operation within the McLaren Technology Centre, has been sold for GBP 170 million as part of a lease-back agreement with Global Net Lease in April 2021.

Finances have now seemingly stabilized, but McLaren has divested both assets and equity in the process, while the Group is on a seemingly perennial round of capital raising to support the Automotive side of the company.

A potential bill in the region of USD 50 million to hire a new driver will therefore be noticed.

Even in the best-case scenario, and Ricciardo’s settlement is reduced and there is nothing payable for Piastri beyond a salary, it’s difficult to imagine a scenario where that total figure is less than it would have paid out in 2023 without the current kerfuffle.

That would appear to defy the financial motivation for the move, leaving only a disruptive and expensive way to procure a new driver without any guarantee of returns.

It’s a seemingly high-risk strategy, even in F1 terms.