Formula 1 is more than just a sport. It is a spectacle of speed, technology, and glamour that captivates millions of fans around the world.
But behind the scenes, there is a fierce and complex business that requires a lot of money to operate. How do F1 teams make money and what are the secrets of their financial success?
In this article, we explore the main sources of income for F1 teams and how they manage their budgets. It is the most competitive and expensive sport in the world.
Formula One Management (FOM) Payments
The most significant source of income for F1 teams is the payments they receive from Formula One Management (FOM). The company owns and manages the commercial rights of the sport. FOM generates revenues from broadcasting fees, race hosting fees, advertising, and merchandising. It distributes them to the teams according to a formula that is based on their performance and status.
The formula is determined by the Concorde Agreement. This is a contract that binds FOM, the teams, and the FIA (the governing body of motorsport). The current Concorde Agreement runs from 2021 to 2025 and introduces some changes to the previous distribution system.
According to the new agreement, FOM pays out 68% of its revenues to the teams. This amounts to about $1 billion per year.
How F1 Team Payments Are Split
The payments are divided into four categories:
- Column 1: This is a fixed payment of $35 million that every team receives if they have finished in the top 10 of the constructors’ championship in two of the past three seasons. This ensures that new entrants or struggling teams have a minimum income to survive.
- Column 2: This is a variable payment that depends on the team’s position in the previous season’s constructors’ championship. The higher the position, the higher the payment. For example, in 2020, Mercedes received $66 million for winning the title, while Williams received $15 million for finishing last.
- Column 3: This is a bonus payment that rewards teams for their historical success and contribution to the sport. Only five teams qualify for this category: Ferrari, Mercedes, Red Bull, McLaren, and Williams. Ferrari receives the largest bonus of $68 million for being the longest-standing and most successful team in F1 history. Mercedes receives $35 million for winning seven consecutive titles. Red Bull receives $36 million for being the first team to sign the new Concorde Agreement. McLaren receives $30 million for being one of the most successful teams in F1 history. Williams receives $10 million for being a heritage team with a long history in F1.
- Column 4: This is a new payment that aims to create a more level playing field. It rewards teams for improving their performance. It consists of two parts: a performance bonus and a cost cap bonus. The performance bonus is based on a sliding scale. It rewards teams for moving up or penalizes them for moving down in the constructors’ championship. The measurement is made over the previous three seasons. The cost cap bonus measures how well teams adhere to the budget limit.
F1 Team Sponsorships
Another major source of income for F1 teams is sponsorships. Sponsors are companies or brands that pay teams to display their logos. These can be on their cars, drivers’ suits, helmets, or other equipment.
Sponsors also provide teams with products or services that they need for their operations. These include fuel, tires, lubricants, or technology.
Sponsorships are vital for F1 teams because they help them cover their operational costs and invest in car development.
The amount of money that teams can attract from sponsors depends on several factors, such as their performance, popularity, exposure, image, or marketing strategy.
Some teams have more sponsors than others and can charge higher fees for their partnerships.
For example, Ferrari has over 30 sponsors and partners, including Shell, Philip Morris, Kaspersky, Ray-Ban, or Hublot. Ferrari’s sponsorship income is estimated at over $200 million per year.
On the other hand, Haas has only six sponsors and partners, including Uralkali, Jack & Jones, MindMaze, or Richard Mille. Haas’s sponsorship income is estimated at less than $50 million per year.
F1 drivers are not only essential for driving the cars and scoring points but also for generating income. Drivers can bring money to their teams in two ways: by attracting sponsors or by paying fees.
Some drivers have personal sponsors or endorsements that they can bring to their teams.
For example, Lewis Hamilton has personal deals with Tommy Hilfiger, Bose, Monster Energy, and Puma, among others, that also benefit Mercedes.
George Russell has a personal sponsorship with Nike that he can display on his helmet and cap while driving for Williams.
Some drivers have to pay fees to their teams to secure their seats. These drivers are known as pay drivers and they usually come from wealthy backgrounds or have strong connections with sponsors.
Pay drivers are often seen as less talented or deserving than other drivers, but they can also help smaller teams survive financially. For example, Nikita Mazepin was a pay driver who drove for Haas thanks to the backing of his father’s company Uralkali, a Russian fertilizer giant. Mazepin’s fee was estimated at $20 million per year.
Manufacturers and Investments
Some F1 teams are owned or supported by car manufacturers or other investors. These provide them with money, resources, or technology. These teams can benefit from economies of scale, synergies, or strategic advantages. Ultimately it helps them reduce their costs or improve their performance.
For example, Mercedes is owned by Daimler AG that also owns brands like Smart, AMG, and Maybach.
Daimler provides Mercedes with financial support, engine supply, and access to its research and development facilities. Mercedes also has a partnership with INEOS, a British multinational chemical company that owns a one-third stake in the team.
Other teams that have ties with manufacturers or investors include
- Ferrari (owned by Exor NV, an Italian holding company that also owns Fiat Chrysler Automobiles).
- Alpine (owned by Renault Group, a French multinational automobile manufacturer).
- Aston Martin (owned by a consortium of investors led by Lawrence Stroll, a Canadian billionaire businessman).
- McLaren (owned by McLaren Group, a British conglomerate that also operates in automotive, racing, and technology sectors).
Sale of Tickets and Merchandise
F1 teams can also make money from selling tickets and merchandise to their fans. Tickets are sold for attending races, testing sessions, or other events organized by the teams.
Merchandise includes items like clothing, accessories, models, posters, or books that feature the teams’ logos, colors, or drivers.
The income from tickets and merchandise is usually modest compared to other sources and varies depending on the team’s popularity, fan base, or marketing strategy.
Some teams have more loyal or passionate fans than others and can sell more tickets or merchandise.
For example, Ferrari has a huge global fan base that is known as the tifosi (Italian for “fans”) and can sell out races or sell millions of dollars worth of merchandise every year.
F1 teams make money from four main sources: FOM payments, sponsorships, drivers, and manufacturers/investors. These sources help them cover their operational costs and invest in car development.
The amount of money that teams make depends on several factors. These include their performance, status, popularity, exposure, image, or marketing strategy.
F1 teams also make money from selling tickets and merchandise to their fans. This income is usually modest compared to other sources.
F1 teams need a lot of money to compete in the sport and they have to balance their budgets carefully to ensure their sustainability and success.