This article is written by Akshaya V, pursuing LLB from CMR University, School of Legal Studies. This article deals with everything relating to Formula One Champion Lewis Hamilton’s contract with Mercedes.

It has been published by Rachit Garg.

Introduction

Lewis Carl Davidson Hamilton is a British National, born on 7th January 1985 in Stevenage, England. He was born into a mixed-race family. His father and mentor Anthony Hamilton, worked hard every day to advance his son’s career. At the age of eight, Lewis Hamilton was given a well-used go-kart to begin his racing vocation. In the year 1995, Lewis Hamilton was awarded trophies at a motorsport ceremony in London. During that year, he had approached Ron Dennis, head of the McLaren Mercedes formula one team and said that he will race for his team one day. Three years later, Hamilton’s family received a call from Ron Dennis himself that he would financially support Lewis’ career, provided he keeps working hard at his school and was signed by McLaren Mercedes-Benz to their Young Driver Support Programme. However, Lewis Hamilton needed to be worthy of his benefactor’s investment by winning all the time. He did so by showing progress in motorsports ranks. His prodigious talent made him an inspirational role model and the ideal ambassador for the racing profession.

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Early days

Lewis Hamilton played kart racing for about six years and won eight championships. He continued to win three major single-seater titles, of which the most prestigious one was the GP2 Championship, wherein he bagged five victories in 2006. After having many comeback performances, McLaren was prompted to promote him to the Formula One racing team. He stormed through the 2007 season with astonishing ease. He consistently outperformed his celebrated teammate Fernando Alonso by barging into the podium a dozen times. To mention, he won four races, and led the championship for straight five months but lost the final race with a difference of a single point to Ferrari’s Kimi Raikkonen.

That year was so turbulent for McLaren because two drivers became bitter adversaries and their new hire’s astonishing debut was the only bright spot. In 2008, he became the team leader and scythed his way to the podium by winning five matches. All the rivals he overtook accused him of dangerous driving and arrogance. Hamilton insisted that his abilities and self-belief were wrongly interpreted though his driving was firm but fair. However, he lost his form in the following seasons, for which he blamed distractions from his personal life. He vowed to regain his lost focus In 2012, he drove really well and bagged four wins, and finished fourth in the standings. Post this incredible win, he announced his resignation from McLaren and offered his gratitude to the McLaren team for being a supportive team throughout his racing career. He also declared that he would replace the retiring Michael Schumacher at Mercedes. In no time, the 2013 championship earned him a respectable fourth position as an F1 racer for Mercedes.

Lewis Hamilton and Mercedes 

In 2014, Mercedes won 16 out of 19 Championships and eventually dominated the season. Mercedes had a policy of letting their own drivers race against each other which brought Lewis Hamilton and Nico Rosberg into a long duel by competing for honours at the peak of motorsport. It tested the strength of their character and strained their friendship because of the intensity of rivalry. From then, he never lost his driving charm and his hunger to win. He worked on self-improvement and insuperable force in 2015. At the United States Grand Prix race held in Austin, he made full use of the Mercedes F1 team and capped the triple crown triumph. Despite making any driving errors and having many close calls even with his own teammate Nico Rosberg, he emerged victorious. This made him a third-place candidate on the all-time winner’s list, making him one of the greatest drivers. However, he lost the 2016 championship due to driving errors and mechanical problems. In 2017, he overcame these errors and demonstrated exemplary driving skills and efficiency winning nine races and finishing on the podium thirteen times.

With this triumph, Lewis Hamilton had established himself both on-field and off the field and remained one of the most popular personalities. Continuing this, in 2018 he won his fifth world championship equalling the record of Juan Manuel Fangio. Hence at the age of 33, he had seventy-three wins, eighty-three poles, and one hundred and thirty-four podium finishes. Mercedes and Hamilton’s partnership only kept growing stronger as Hamilton kept emerging victorious in various other races. He also remarked that it was the highest point of his career and his fans agreed by supporting him on social media making him one of the popular social media personalities. This fame also helped him launch his high fashion line of clothing which was successful. In 2019, the talented Hamilton won his fifth driving title with the strong support of Mercedes, who encouraged him to consistently deliver performance. Hamilton continued to develop interests in various other fields such as fashion, food choices, animal welfare, and other social welfare measures. The 2020 pandemic made Hamilton fit into a very tight schedule but did not hamper his performance. He won his seventh title with Mercedes and became the most successful F1 driver statistically. However, the pandemic also took a toll on him as he lost a few races but his fans continued to support him during these tough times. He is one of the few celebrities who used his fame and status to promote social causes. He broke Michael Schumacher’s win record in 2020 and he is now the race win record holder in Formula One. 

The entry of Max Verstappen in 2021 drastically changed the domination of Hamilton. He gave a tough fight and even ended up winning against Hamilton in this season though it was a controversial decision. However, Lewis Hamilton and his team wholeheartedly congratulated his team for his victory. The decision of the race was a contentious issue and is being analysed by the FIA. However, Lewis Hamilton continues to remain one of the most successful people to have ever graced this sport.

Mercedes and Lewis Hamilton’s new contract for 2022

The reigning Formula One World Champion was pleased to announce his continuance with the Mercedes-AMG Petronas F1 team in 2021 by agreeing to sign a new contract after a lengthy negotiation period before the scheduled start of preseason testing at Bahrain International Circuit. As surprising as this admission sounds, it is one of the most successful collaborations in the history of sports for a ninth consecutive season. This agreement revealed that it would be a pathway to greater diversity and inclusion in all its forms in motorsport by virtue of a joint commitment achieved by Mercedes and Lewis Hamilton until then. Hamilton declared that actions would be taken for the inclusion of equality and diversity. Although Mercedes agreed to put Hamilton on the grid after resolving the contract saga, the speculation about his future after the end of 2021 as their tradition had always been to sign a multi-year agreement.

Hamilton stated that he was excited to head into the ninth season with his Mercedes teammates and to build his success even further both on and off the track while continuously looking to improve. He wanted to make this motorsport more diverse for future generations and thanked Mercedes for extending its support to address this issue. He also added that a foundation would be launched dedicated to diversity and inclusion in the coming years and that he is waiting to get back on track. 

Toto Wolff, CEO and Team Principal stated that “we have always been aligned with Lewis that we would continue, but the very unusual year we had in 2020 meant it took some time to finish the process. Together, we have decided to extend the sporting relationship for another season and to begin a longer-term project to take the next step in our shared commitment to greater diversity within our sport. Lewis’s competitive record stands alongside the best the sports world has ever seen, and he is a valued ambassador for our brand and our partners. The story of Mercedes and Lewis has written itself into the history books of our sport over the past eight seasons, and we are hungry to compete and to add more chapters to it.”

Markus Schafer, Non-executive chairman shared that “we’re very happy to keep the most successful F1 driver of the current era in the most successful F1 team of the current era. Lewis is not only an incredibly talented driver; he also works very hard for his achievements and is extremely hungry. He shares his passion for performance with the entire team which is why this collaboration has become so successful. But Lewis is also a warm-hearted personality who cares deeply about the world around him and wants to make an impact. As a company, Mercedes-Benz shares this sense of responsibility and is proud to commit to a new, joint foundation to improve diversity in motorsport. Opening the sport to under-represented groups will be important for its development in the future and we’re determined to make a positive impact.”

What is this contract about

The deal with Mercedes might mark the end of an era for Lewis Hamilton. The belief that the deal would be a win-win for both Mercedes and Hamilton, however, is questionable on many levels. To begin with, this deal is beneficial for Mercedes. This is attributed to the fact that Hamilton still is the best F1 racer in the world. Though there have been rumours of his exit for multiple reasons, Mercedes has a wonderful opportunity to partner with Lewis just based on his capabilities and talent in this arena. In addition, with sustainability becoming a core strategy for the automotive industry, social contribution through the development of Charity with a famous personality like Lewis would catalyse their attempt to enhance society. With such a vision, this deal is heavily dependent and vulnerable on prospects. Therefore, the need to have an “equally-valued” alternative is inevitable. The external factors that could affect this deal are not limited to:

The future of Lewis Hamilton in F1: Given the fact that Lewis contracted COVID-19 and the importance that sports stars assign to their health, the need to find alternatives who have reputations as much as Lewis displays would be a challenge. Max, Russell, and Bottas though serve as potential drivers, the majority of them have their careers dependent on Lewis’s next step and hence there is a lot of uncertainty. Not only is the future of Lewis a dependent factor but his current commitment to Mercedes would be a factor to consider as well.

Market situation: Given the loopholes in the contract and the fact that the terms and conditions for one year are not transferable to the next year, a long-term relationship would be mandatory keeping in mind that Mercedes need to claim value. In addition, the phase shift in the automotive industry, the impact of COVID-19 on the company’s bottom line, and the race drivers would make it crucial for either of the parties to come up with a figure adhering to both the parties’ preferences.

To make the negotiation more integrative, additional issues that pertain to non-monetary benefits too have to be put on the table. Contract length, possibilities of long-term relationships, societal benefits, etc. could all be addressed to create better trade-offs and enhance value from the negotiation. 

Increased competition: With mergers and acquisitions, the idea of collaboration is on the rise, especially during the pandemic, it is important the deal is offered with maximum security and is not having any scope for the short-term. Given that the T&Cs vary by year, discussions must be made in advance, additional values in terms of guarantees post the negotiation gives Mercedes greater security and also reduces the risk of Hamilton getting involved in other deals. 

With the risk of all these factors, and the pandemic showing the impact of uncertainty, suitable risk assessments and the use of technology such as predictive analytics would be strategic enablers for effective communication. The importance of non-monetary benefits or off-track values would be quintessential to addressing the pointers in the deal. The transformation of the automotive industry and the need to establish balance in the lives of the race drivers without jeopardising their performance would be needed to take into account as well. A proactive approach would be required from Mercedes to avoid delays concerning any talks or conversations.

Why did Hamilton and Mercedes sign a one year contract

Given the unparalleled success, it seemed inevitable that Hamilton and Mercedes would strike a new deal. However, due to various delays, the process was repeatedly pushed back and all urgency was removed once Hamilton’s rivals were all given new contracts, effectively closing off any exit routes for him and turning down Mercedes any of the established front runners as substitution options. When the season finally started and the COVID- 19 threat became a factor, Wolff and Hamilton had no rush to sign the deal while Hamilton hinted that he changed his desire to continue with Mercedes and that his usual three-year deal would not appeal. Formula One contracts consist of the options that may allow the continuation of the contract for more than a year provided they are agreed upon by both parties. However, since the season was all set to begin in March 2021 and the hard deadline was fast approaching, the team had to get something done. This led to the joint agreement for one year as the only way forward. Now Mercedes has given confirmation as to its star driver continuing with the team for at least the 2021 season. 

Advantages of a short-term deal

It is already known that Mercedes and Hamilton could not agree on certain matters of the contract which lead to the delay in sealing a deal between them. This positioning, although not ideal, is sorted for this season before preparing themselves for a longer-term arrangement. Hamilton clearly stated that he would be needing a better next deal not only to focus on his personal arrangement with the team but also to extend support to diversity and inclusion. This new arrangement signifies that the deal centres around launching a foundation entirely dedicated to inclusion and diversity in Formula One and may last for a foreseeable period. The form in which the working relationship will take is unknown and open for discussion.  

Downfalls of a short-term deal

The short-term deal, in effect, is kicking the can down the road. For the past year, Hamilton and Wolff have been swamped with inquiries about the British Driver’s future. This new agreement will temporarily alleviate the pain but it will not be long before they are asked about 2022 when new wide-ranging regulations will be implemented. For such a short-lived deal, both parties face risks. Hamilton could decide to leave Formula One and pursue opportunities with another team, which will give him some negotiating power. Mercedes, on the other hand, may decide that the time has come to promote George Russel at the end of 2021 or to make a move for another driver elsewhere on the grid, by giving them some advantages. As there could be many changes in the Formula One regulations in the future, Mercedes would like to prefer stability while Hamilton will, given the team’s resources and recent success, know that Mercedes will be best placed to respond to such a change.

Contract extension until 2023

Lewis Hamilton, the 7-time Formula One champion, has signed his contract extension with Mercedes till 2023, the German Formula One car constructors’ outfit said in a press release on Saturday. Since signing for Mercedes in 2013, Hamilton has won the World Drivers’ Championship (WDC) for a record 6-times with Mercedes. The British F1 driver has always voiced out against racism and is a staunch advocate of the Black Lives Matter Movement. Hamilton said in a statement that it is going to be a couple of exciting years of partnership with the team and he couldn’t believe it’s been almost 9 years with an incredible team like Mercedes. He also added on the accomplishments he has achieved with the Mercedes Team both professionally and personally. He couldn’t hide his grin when he stressed the fact that how he is incredibly proud of and thankful for the support Mercedes has shown towards inclusivity and equality in the pinnacle of motorsport of racing i.e., Formula One.

Hamilton reminded us of the important steps taken by his team to make themselves as one of the diverse teams on the paddock which was possible only by creating an “All are equal” environment. It is to be noted that the contract extension has been announced at a time when he is behind his competitor Max Verstappen by 18 points in the World Drivers’ Championship table. The free practice session of the Australian Grand Prix on Friday was kind to Hamilton as he was faster than Max Verstappen of the Redbull Racing Team.

Toto Wolff, who’s the Team Principal & Chief Executive of Mercedes Team has sung praises for Hamilton by saying that the achievements and the records broken by the Briton speak for themselves, which were a result of valuable experience, pure speed, and the know-how of motor racing. Wolff believes that Hamilton has still got what it takes to be consistently on top of the Formula One drivers’ list. The top man of Mercedes is smacking his lips on the battle they have got this season with their rivals Red Bull racing and says the rivalry was one of the main factors to renewing Hamilton’s contract much earlier this season so that there were no distractions for their favourite driver on track this season. Wolff wanted to repeat the fact that as long as Lewis Hamilton has got the hunger and fire for racing, Mercedes will always welcome him with open hands.

Neither Hamilton nor Mercedes wanted it to be just a one-year contract but due to circumstances and to hammer out the finer details. They primarily wanted a two-year deal for stability. The question that must be pondered over is whether this is the final contract for Lewis Hamilton as he will turn thirty-nine years old when his new deal expires. But this is common in Formula One times as many people have been racing even beyond the age of forty years. But since he has interests outside Formula One such as music, dance, and fashion, which he may have in store. In any way, he will be the control of his destiny. 

Hamilton’s earnings in the new deal

Mercedes has not disclosed the value of Hamilton’s contract. It is known that his contract was worth forty million per season and is believed to be of the same value as all the add-ons and bonuses. Initially, the one-year contract also included a pay cut from Mercedes owing to the implications of COVID-19. Team boss of Mercedes Mr. Toto Wolff said that the company is aligned with what the other side would expect on the contractual terms. He added that since Hamilton has a helicopter perspective, it was equally difficult from both health and economic aspects to meet his needs. With the extension of the contract for two years, Hamilton went back to his old earnings from before the pandemic, i.e., forty million per season which recognised Hamilton as the best-paid driver on the field. 

While Max Verstappen, has laid his onslaught with a 156-138 point lead and entered the Austrian Grand Prix, Hamilton made his entry in the title race impressing in the Styrian GP although he finished second. For Hamilton, keeping Max Verstappen at Red Bull is not the only incentive to stick with Mercedes but he is said to earn eighty million pounds over the two years. So in comparison, it keeps Hamilton well ahead of his rivals in terms of salary as it is more than double the salary of Max Verstappen and about three times the salary as that of Fernando Alonso with Alpine. Formula One boss Stefano Domenicali stated that there could be more earnings for Hamilton as he seems to be overtaking Michael Schumacher’s world record and that his positive impact on Formula one is huge, both on and off the race track. 

Veto clause in the contract : fact or fiction

Toto Wolff stated that the one-year contract agreed by Lewis Hamilton was the result of wanting some time to settle for a longer-term deal. Speculation on Mercedes’s side was over when it was announced that Hamilton would be staying for one more season with Formula One until 2021. However, speculation persisted among others and prompted some surprise that 2021 would be Lewis Hamilton’s last season in Formula One. Speaking to the media, Toto Wolff explained that their negotiations about taking this contract beyond 2022 kept going until both were affected by a Coronavirus that derailed the hopes of talks taking place, resulting in the change of plans. Considering the ongoing uncertainties due to the impact of the virus both on Formula One and on the team budgets, it would be tough to commit to a longer-term contract yet it was stated that they will carve out the plans via video conferencing between Christmas and the end of January. 

Although the extended contract was not made public, there were rumours that Lewis Hamilton is entitled to veto who his teammate would be if Max Verstappen is put in the second seat. Damon Hill also stated that it was hard for him to believe that Hamilton would demand a veto clause in the contract since he has seen his metamorphosis from the youngster that defeated the partnership of Sebastian Vettel in 2017 and 2018 and beat Fernando Alonso. Of all the speculations as to why Lewis Hamilton and Mercedes delayed in reaching an agreement, no one would have anticipated that Hamilton would have made such demands especially when he had already openly stated that they did not care who his teammate was. So the question herein is whether the demand concerning the addition of the veto clause is a fact or fiction. The prolepsis to this can be put forth in a threefold manner – 

  1. Hamilton would have specifically demanded a veto clause to prevent Max Verstappen from being in the same car as them as they are the best drivers on the grid now and would want to see the two drivers from the same car fighting it out. It may be because Lewis Hamilton thought that Max would surpass him one day and cannot beat him in the same car. 
  2. On the other hand, Nico Rosberg stayed consistent and close to Hamilton’s performance and capitalised whenever he had momentary falls. He was even able to make up for the inadequacy of his driving acumen by keeping pressure on Hamilton. Hamilton may have even been looking to avoid the repetition of the same incident. 
  3. After winning seven championships and the eighth one looking highly possible, he must carry his legacy, as that is the only aspect to which the focus shifts from races and championships. He might have also thought that losing Max in the same car would not work for his legacy.

Looking at all the above expectations, none of it stands ground. If fear was a factor for Lewis Hamilton, he would not have agreed to race in the first place. He had not shown anything that would make you think that his approach or his changed attitude. So coming to the topic, the rumours of Lewis Hamilton demanding a “Veto” clause in his contract in my view was pure fiction with no proper stand behind it.

Conclusion

The Mercedes team does have a track record of responding brilliantly to rule changes, such as in 2014 and 2017, and continuing its impressive dominance. All this change could have worried Hamilton, but it is believed the Briton retains full faith in the company’s ability to react to change and progress – and has full trust in the leadership team and the handling. If he didn’t think they could contend for the world championship over the next couple of years, he would have not signed again. With the Hamilton deal done, Mercedes can now switch their attention to the second seat and spend the coming days and weeks considering other things over at length. 

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