How Do Formula1 Teams Make Money?

It is not a hidden fact that Motorsport is extremely expensive. The tiny, streamlined racing cars, running at speeds of 300kmph, need investment to develop and funding troupes of 400+ people to run a Formula1 team is not cheap. Money is required to not just win in Motorsport, but to simply compete in it. 

Over 50,000 people are employed in the F1 industry, and the top F1 Drivers and Team Principals are paid salaries eclipsing 10 Million USD. Lewis Hamilton is rumoured to have a contract of 40 Million USD every year. Mercedes spent almost 500 Million Dollars on their Formula1 2019 season, and teams routinely spend more than 100 Million USD annually.

After seeing the expenditure of the 10 Formula1 teams each year, it is only natural to wonder where they secure their funding from. The revenue structure of Formula1 teams is not as straightforward, but the main sources of revenue can be boiled down to sponsorships, investment from the parent company, driver-linked income and funds from Formula One Management (FOM).

 

Different Sources of Revenue For F1 Teams:

Formula One Management Payments

One of the most significant sources of payment for the Formula1 teams is from the governing body of F1 itself. The way FOM payments work is a bit complicated (and unfair), but can be condensed as follows:

Firstly, each of the 10 F1 teams (after they have been classified for 2 seasons, all current teams qualify) receive 36 Million USD as a “Division One” Payment. Then, each team is awarded prize money according to their standings in the previous Constructor’s Cup. The winner (Mercedes) received 61 million USD whereas the tenth (and last) place Williams received 13 million USD.

Thirdly, Ferrari receives an additional 68 Million Dollar check as remuneration for being the “Long-Standing Team (LST)”. This payment is nicknamed the Ferrari Budget and is widely considered to be unnecessary and unfair.

Constructor Championship Bonus (CCB) worth $35 Million is doled out to RedBull, Mercedes, Ferrari and McLaren. The payment is basically used to honour the amount of Constructor Cups the teams have previously won.

FOM payments also issue miscellaneous payments to specific other teams, such as $10 million to Williams as a heritage payment or $35 Million to Mercedes for completing the contract of winning two Constructor Cups. The structure of the FOM payments is pretty complicated.

Sponsorships

This stream of revenue is pretty self-explanatory. Brands and Companies would pay the Formula1 teams (and drivers) to put their company’s logo on different parts of the racing car, the paddock and to help the brands in shooting commercials or social media content.

Formula1 teams have, on average, 15 to 25 sponsors at any given time. Teams and drivers who are fairing better on the grid, or have a better historic or current reputation, tend to find more lucrative deals.

Traditionally, teams would have Title Sponsors, who would have signed deals as huge as $50 million to be associated with the Formula 1 team. There has been a recent trend where teams, such as McLaren, don’t like relying heavily on one single sponsor and continue to host a series of smaller partners to increase this source of income.

Investment

The parent company, or the owning shareholders, tend to annually invest back into their Formula1 teams. The amount of investment each team receives from this source varies significantly, with Mercedes getting upwards of 80 Million dollars, while some teams get a third of that.

Driver-Linked Income

Being able to race in the elite Formula1 is a huge privilege, and certain drivers would pay their teams for securing one of the driver seats. This form of income is much more prevalent in the teams at the back of the grid, and most top teams don’t require this source of revenue.

Lance Stroll (or more accurately his father, the billionaire Lance Stroll) paid Williams Racing a mammoth 30 million dollars to race in 2017. These drivers are called ‘pay drivers’ and are generally unpopular as people believe that their wealth, as opposed to their achievements and talent, helped secure them a seat, taking the opportunity away from a “better” driver.

How Profitable Are The Formula1 Teams?

Despite their gigantic revenue, most Formula 1 teams barely make even, while some go on to lose a couple of million dollars a year. While the revenue generated by the teams is huge, the costs associated with the F1 team are often as huge, if not even more enormous.

Most teams prefer to utilize the complete budget at hand to prepare for the Formula1 Racing Season, as opposed to taking out profits. The owners and the parent company don’t mind continuing to invest in the “loss-making” F1 teams as doing well in the Championship results in invaluable marketing and advertising for all shareholders.

Written By: Arushi Bajoria

Edited By: Nidhi Jha