As with most elite sports in the modern era, Formula 1 is as much a business as it is a sport. And not only is F1 a business, but it’s also a booming business that generates hundreds of millions of dollars per year. Given how expensive it is to run a F1 team, you may wonder how they make money.
F1 teams make money from sponsors, prize money, and merchandising. Advertisers and sponsors know their audience and F1 fans are often lifelong supporters. Even with costs rising, income in F1 is soaring, in large part due to F1’s expansion into markets like the USA.
F1 is arguably the world’s premier motorsport, and due to its worldwide races and coverage, sponsors and investors know their products are being seen by hundreds of millions of people per year. Below, we’ll discuss the various revenue streams for F1 teams and exactly how much they bring in.
Do F1 Teams Make Money?
F1 teams do make money. The majority of F1 teams at least broke even in 2021, and TV audiences rose by 4% to a staggering 1.55 billion, which is around 70.3 million viewers per race. Overall total revenue of $2.14 billion shows just how profitable the sport of F1 is.
The key to F1 teams making money is diversification of revenue streams, and luckily for the constructors, there are many ways to generate extra funds in F1 besides actually winning the championship. Prize money is just one part of how an F1 team brings in money, there is also sponsorship, advertising, partnerships, and many other ever-shifting sources of income.
There is always a desire to finish as high up in the constructors’ league table as possible, after all, Formula 1 is a sport and the drivers and teams are insanely competitive when it comes to winning races. But perhaps just as importantly, the higher up a team finishes, the greater the financial rewards that are reaped.
Prize Money Can Be Increased
To put it into perspective, half of the money generated by F1 goes into the prize money pot to be shared among the teams. In 2021 this was $2.14 billion, so around $1 billion to the prize fund. Out of that pot, almost 24% is shared amongst the top 10 teams in that year’s championship (currently all teams). A further 23.7% is distributed to the constructors depending on where they finish that year.
Formula 1 transportation costs for each constructor to relocate to each race cost upwards of $8 million a season. It’s an expensive and logistical effort that can’t be avoided. Moving two F1 cars, hundreds of staff, huge amounts of equipment, and so on really starts to add up over 22 races.
With the top teams in F1 receiving around $150 million from F1 alone, and even teams nearer the bottom of the championship raking in around $60 million, it’s hard to see a negative to being an F1 team. Keep performing, or at least try to finish as many races as possible, and short of a catastrophe, money should keep coming in to allow teams to compete year after year.
Is F1 Profitable For Teams?
F1 is very profitable for the top teams, although lower ranked teams may struggle to break even. The budget cap is expected to greatly increase profitability. As F1’s popularity grows, so can the prize fund, meaning teams directly benefit from F1’s profitability.
Even teams lower down the pecking order are rarely out of pocket over a full season, and with the budget cap remaining very relevant, profits are expected to soar for all teams in F1. Fans’ appetites for F1 have remained very strong, TV viewership is climbing, prize money is phenomenally lucrative, and the actual races themselves are increasingly exciting.
The USA And Formula 1
One new revenue stream that until now has been fairly untapped is the American market for F1, which both Liberty Media and F1 are attempting to refocus on. There are several reasons for a lack of overall interest in F1 in America, marketing has often been poor, and there are very few American F1 drivers.
Not only is the time difference between the US and the European countries where races are being held hard to work around, but several other US motorsports have a massive following, such as NASCAR and IndyCar. The sports-loving Americans are there to be tempted by F1, and should this market finally be cracked, revenues could go through the roof.
Paying For A Ride
At the end of the day, profit is profit, and any added income is welcomed by F1 constructors as they push for higher placings. An extra source of income that allows teams to remain profitable is through drivers paying for the chance to drive in F1. This could be through the drivers finding their own sponsors, sometimes this can be through companies in their home country sponsoring them due to their nationality.
Some drivers bring their own, or at least their family’s money with them, and this offers a route into F1 that may otherwise be unavailable. Pay drivers are often paid by their sponsors, further reducing costs for a team, as well as bringing in extra funds. There are inherent issues with this system, however, as some drivers are able to buy a seat at a table of only 20 drivers, for cold hard cash.
A driver with potentially more skill or potential, but without the financial backing of sponsors ready to sweeten the deal, could lose any opportunity for driving in F1 through no fault of their own. And while it may leave a sour taste in the mouth watching a driver who all are aware is there as much for their ability to bring in money as their driving ability, money talks.
Where Do F1 Teams Get Their Money?
A F1 team can bring in money from sponsors wishing to be associated with their team or driver, they get prize money from where they finish in the races and championship, and from selling merchandise to fans. These amounts vary greatly between teams, creating a large income disparity.
It can cost as “little” as $100,000 to sponsor a team, and hundreds of millions for others, so the better a team is doing, the more financially rewarding it can be. Some F1 teams are owned by other companies, and these companies use their F1 teams as ready-built advertising boards that around 70 million people see every race.
Red Bull and Mercedes are good examples of this in action, and both companies pump huge cash reserves into their respective teams every year. Between 2004 and 2019 sponsors in Formula 1 brought in a mouth-watering $30 billion, and that figure is only going to rise over the coming years.
Points Win Prizes
Winning in F1 is all-important, not just for the prestige and glory of being number 1, but also due to the massive pay-outs that teams receive for finishing high in the Championship table. As well as each team getting a flat rate per season for simply competing in F1, there are numerous other prizes on offer.
For teams finishing in the top three of the championship, there is a prize fund to share between them. The actual value of this prize depends on how much F1 makes, as the three top teams get 20% of whatever is earned over $650 million by F1. Teams such as McLaren and Ferrari get extra money each year, as they have been competing for a long period of time – since the start for Ferrari.
Winners Sell More Hats
Okay so it’s not just hats, but merchandising is another great source of income for F1 teams to make the most of fan loyalty. Here too there is disparity though, as yet again the better the team, or at least the better the team’s reputation, the more merchandise they can sell to adoring fans.
Ferrari is a great example of a team being able to merchandise their product very well, regardless of the success of the team in F1. With a rich history behind them that generates new fans every year as well as having extremely loyal fans who follow the team their entire lives, Ferrari make a tidy profit from selling merchandise worldwide.
The Big Dogs Eat First
It may seem unfair, and that’s because it is, but the bigger an F1 team and the more successful they are, the bigger their revenue from both prize money and sponsorship. This is a self-perpetuating issue as teams keep being successful, they have more money to spend than other teams, and become even more successful, and so on.
Prize money for finishing at the top of the constructors’ championship is vastly different from those competing at the bottom of the table, and this extra income has allowed teams to spend more on developing the best F1 cars available. F1 owners Liberty Media have acknowledged this disparity over the past few years, and the new spending cap imposed is expected to level the field somewhat.
Levelling The Playing Field
A budget cap was introduced to Formula 1 for the 2021 season, although due to cars being designed and built prior to that, the real impact of the new spend cap wasn’t really going to be felt until the 2022 season. A budget of $140 million per team is hoped to level the playing field for the less wealthy teams.
In theory, the narrowing of this gap will allow for greater competition and more emphasis on driver ability rather than the awesome power of a bottomless well of cash. Realistically we will only see how this goes at the end of the 2022 season, and while it may take a few years for the balance of power to settle, it is hoped that having more teams fighting for points will make F1 more competitive.
How Much Do F1 Teams Get From Sponsors?
F1 teams can get hundreds of millions of dollars per year from sponsorships if they are successful. Companies will pay a lot of money to be seen prominently on the fastest cars. Red Bull and Mercedes both have sponsorship deals worth over $400 million from one sponsor alone.
As with most sponsorship deals, sponsors only want to invest in excellence, their company or product has to be tied in with an entity that is at least capable of being a winning team. In the case of F1 teams, the money earned is proportionate to the success of the team, the better a team performs over time, the higher the sponsorship returns.
The location of a sponsor’s logo on the F1 car also has an impact on how much a sponsor pays, for the sidepod of an F1 car, which is the largest flat surface on the car, the returns can be astronomical. Other key locations for sponsors to be put on cars are the nose and the rear wings, and sponsors will pay less for the rights to have their product or company logo there.
Partnerships in F1
Similar in almost every respect to sponsorship, a partnership between an F1 team and its partner is essentially a supercharged version of sponsorship. A sponsor such as Oracle or Petronas, who are partnered with Red Bull and Mercedes respectively, will pay many hundreds of millions of dollars to have pride of place on a car’s bodywork and will be viewed as an almost integral part of the team.
Mercedes’ partnership contract with Petronas is a reputed $450 million, a crazy amount that has massively contributed to Mercedes being able to invest in the best R&D, drivers, and cars ever produced for F1. Likewise, Oracle is reported to be paying Red Bull F1 team $100 million per year over a five-year contract to be the main partner, making this one of the most lucrative incomes for the team.
Eyes On The Prize
Not only do sponsors offer better financial packages to teams doing well in the Championship to ally themselves with a successful product, but it is also about TV viewing time. A car that is consistently racing at the front of a race, challenging for podiums, is much more likely to be on TV for longer than a car that is either last or already crashed out.
The more a car is on television, the more people are seeing the sponsors’ logo.
What Do F1 Teams Spend Their Money On?
F1 teams have to spend their money across a wide range of areas to compete. From cars to mechanics, and from drivers to research and development, just building a car and putting someone in it is very expensive. That is before the expense of travel, repairs and staff during the season.
It’s a good job that Formula 1 is now becoming a fairly lucrative enterprise for teams, because the costs of running a team, at least up until the spend cap was introduced, have always been very high indeed. The cars themselves are very expensive, and a team’s finance department can be heard weeping every time a car goes into a barrier.
A car costs over $12 million per vehicle, and that is before any repairs or new parts are even taken into consideration, so this is always a drain on finances for a team. The huge teams of mechanics, designers, engineers, and technicians also cost a team,designing and building a car is expensive, and keeping it running is even more so.
It’s not just the pit crew and control room teams that are seen at race days that are employed, back at a team’s headquarters there are potentially hundreds of other staff all with one goal in mind, to win races. And winning costs money, lots of money, the best designers and engineers are paid very well, and the equipment they use often runs into the millions of dollars to buy or rent.
Buying Car parts
Unlike buying a new car part for your road vehicle, which itself can be a costly affair, buying parts from another team to use on an F1 car can be expensive on a whole new level. Any parts deemed non-listed by the FIA regulations can be purchased from another team, one that has the design and building capabilities to make multiple parts and supply them to other teams for a profit.
A team will always prefer their car to finish a race, especially in the points, but even if the chance of scoring points is slim, having a car crash can put an extra financial strain on the team as they have to pay for replacement parts. As these parts can be incredibly costly, the need for drivers to take as much care with their car as possible is vital.
It’s likely that when a team manager is seen on TV frothing at the mouth after a silly mistake by a driver, they are thinking as much about the financial repercussions as they are about the lost chance of a podium spot. F1 is about calculated risk, drivers are expected to manage the risk to themselves and their cars accordingly, and teams are about maximizing a driver’s chances of winning.
Paying The Drivers
F1 drivers are some of the most highly paid athletes in world sports, and rightly so, as the drivers put their lives on the line week after week in the search of points for themselves and their teams. As well as a basic salary, drivers also often have bonuses inserted into their contracts. The better a driver is at scoring points, the more their eventual earnings are for that season.
Formula 1 driver salaries range from around $750,000 at the lowest and up to $40,000,000 at their highest. Lewis Hamilton is on a reported $40 million for the 2022 season, with Max Verstappen estimated to be making more than $50 million. Even at the lower end of the salary table, a driver still has the potential for earning more if they can outperform their cars.
An F1 driver having a long and successful career can expect to earn much more than their F1 salary through sponsorship, and other financially rewarding sources, although the better they do at their main job, the more chance they have of earning more outside of F1. Michael Schumacher, arguably the greatest F1 driver ever, and one of the most successful, is reputed to have a $1 billion fortune.
How Much Does It Cost To Win?
In 2020 Mercedes was reputed to have spent $459 million to win the Championship, an incredible figure. The advantage to winning is the obvious increase in revenue, which will have offset a great deal of this cost, especially through sponsorships.
Financial clout goes a long way to make a winning team in Formula 1, although the costs involved in winning will have to be readdressed, if not in the 2022 season, then in the near future at least. The spending cap should make winning an F1 Championship less of a guarantee for the top teams, at least in theory, and allow poorer teams the chance to close the gap with the big boys.
How The Budget Cap Affects F1 Team Spending
The main areas that are affected by the F1 budget cap are research and development, race operations, and manufacturing, which will drastically reduce the amount the wealthier F1 teams have for finding that extra edge, which year on year seems to make all the difference.
There are certain aspects of team spending that are not relevant to the budget cap, including the costs of paying drivers, which could allow the larger teams to poach the best drivers and offer them the most lucrative salaries. In line with the new regulations, the spending cap will drop a further $5 million for the 2023 season, meaning teams will have to tighten their belts even further.
Is The Budget Cap Fair?
The budget cap is fair in that it means every team spends the same amount on developing their car for racing. This stops teams with much more money from dominating the sport with superior technology. However, the richer teams may feel that it is considerably less fair than the poorer ones.
A team at the bottom of the F1 ladder will probably welcome the cap, their revenue will undoubtedly go up while their costs are predictable, the chances of podiums and points will increase, and in theory, at least the 10 teams will be a lot closer in quality.
On the flip side of that coin are the wealthier teams, who through previous financial clout got the chance to win Championships now hindered by an inability to spend their cash reserves. A team such as Red Bull, who had to play catch up with Mercedes for years before finally winning the Championship, now find themselves hamstrung by regulations after finally bridging the gap at the top.
For the fans of F1, the budget cap could well usher in a new era of more competitive racing, teams battling it out over skill and daring rather than check books and balance sheets. The budget cap was introduced for this reason, amongst others, and it is hoped (although by no means guaranteed) that a fairer chance for the historically poorer teams will make F1 all the better.
Final Thoughts
F1 teams make money from prize money, sponsorships, and merchandise. By far the most money an F1 team makes comes from sponsorships, which can be in the hundreds of millions of dollars. However, prize money also makes up a significant portion of an F1 team’s total revenue.
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