In Formula 1, Formula1

As mentioned several times within this blog, Formula 1but the same goes for other major motorsport series such as MotoGP and Formula E– represents an extraordinary mobile marketing platform for all sponsor companies and brands connected to them.

Not so often, however, have we emphasized another, crucial role of the world’s top four-wheeled championship, namely that of serving as an exceptional R&D laboratory for the manufacturers, i.e., the automakers and OEMs that go on to materially make up the Circus grid.

These two themes, marketing and R&D, constitute the “reason why” for which the big brands in the automotive industry take to the track on alternate Sundays and decide to engage in titanic competitive efforts to take part in the Championship. Formula 1, even for already excellent brands such as Mercedes, Pirelli, Aston Martin, and Brembo, is not only the way to be seen to be winning and exciting, but also the test bed on which to develop the technologies of tomorrow. Brakes, tires, hybrid engines and thousands of other components designed for racing will, in the years to come, be fitted to our everyday cars to make them better performing, safer, smarter.

This exceptional effort-ranging from design to implementation, management to logistics-has equally mammoth costs. In 2019, before the introduction of the budget cap, the World Champion Mercedes team spent a total of $484 Million to take part in the season [1] , a figure higher-albeit by a small amount-than Ferrari ‘s 463 Million and Red Bull Racing‘s 445 Million.

For this very reason, from the season 2021, the FIA introduced the budget cap, an operating economic ceiling (pilot and top management salaries, for example, remain excluded) set at $145 M for all and set to drop by $5 M per year for at least the next 4 seasons[2]. Despite this important financial tool, desired by governing bodies to increase competitiveness and provide opportunities for growth for teams at the bottom of the grid, staggering figures remain.

How, then, does a Formula 1 team earn the money it needs to get on the track? And where do F1 teams make, in essence, money?

How does a Formula 1 team make money

It is necessary to begin by saying that “gain” is not the correct term and that perhaps “derive” might be a more correct word. Said an old adage, which never fails to crack a few smiles but makes the point well, that “Formula 1 is a sport for billionaires who want to be millionaires.”

The revenues of a Formula 1 team, wanting to generalize, can be divided into 4 building blocks:

  • Sponsorships
  • FOM dividends
  • The investments of manufacturers and OEMs
  • The “pay to play” drivers

Ferrari fans at Monza

Sponsorships in Formula 1

In these pages, the topic of sponsorship in Formula 1 has already been abundantly covered. The world’s biggest companies, which are banking on the incredible visibility and the mighty value juxtaposition of the top four-wheel series, are continuously investing in the circus.

The figures, which vary widely, start from one million euros to large contracts such as the Petronas – Mercedes contract worth 42 Million euros per year, or the one between Oracle and Red Bull Racing estimated at 300 Million over the next five years[3]..

The latest big trend, in this sense, is sponsorships in cryptocurrencies, exchanges, NFTs and the digital economy in general and everything that underlies it.

FOM dividends

FOM, Formula One Management, divides among the participating teams part of the proceeds from television rights and other revenues. The division of these monies is complex and has created quite a few discussions in the years since, especially between the Cavallino and other stables. Let’s try to simplify.

For starters, each team that has been ranked for the past two seasons receives $36 MILLION [4] as a participation token to field two cars on the grid. This figure is the same for all and is the base of operations for many of the smaller teams.

A second tranche of FOM funding is divided among the teams according to the previous year’s performance, with larger shares awarded to the winners and declining according to ranking. In 2019 Mercedes has, according to this rule, received $61 Million for winning the World Championship. Only 13 came to last-place Williams.

Other, more debated quotas are awarded to the Long Standing Team, i.e., Ferrari, for having taken part in all world championships to date, and to the CCDs, i.e., the teams that have won the most world championships (Ferrari, McLaren, Mercedes, Red Bull). This area of funding, which as mentioned is a more gray area and has been long debated, has deep roots in the so-called Pact of Concord, named after the Place de La Concorde in Paris where the International Automobile Federation is headquartered.

Manufacturers’ investments

Large manufacturers such as Mercedes, Ferrari and Aston Martin just to name a few, are often the primary financiers of their own racing teams, which are not coincidentally called “factories” precisely because they are on-track extensions of road car manufacturers.

In 2019, the AMG Mercedes F1 Team received from Daimler, the parent company of the German giant,the sum of 80 Million Euros to design and perfect the car that would take part in the championship [5]. For the same reason, 25 Million was invested by Aston Martin, at the time engaged in a return to the top series and in need of capital injections to develop the car.

These kinds of investments, as mentioned at the outset, are actually marketing and R&D investments for the manufacturers, who have every advantage in fielding performance and winning cars in the most prestigious automobile competition. Ingenious, for example, has been the return Mercedes itself has had in terms of road car sales since it began its success in the hybrid era of Formula 1 that ended in 2022.

Lando Norris - McLaren

The “pay drivers,” i.e.

It is no longer a secret that many drivers bring with them an important dowry to offer to the team that will put them behind the wheel.

This practice, which has raised more than one eyebrow in the past, has actually been cleared through customs in recent years, when the advent of the Mazepins, Latifs, and Strolls put the importance of family economies in the choice of this or that driver into the limelight.

Lando Norris himself has received extensive financial support from his father, founder of the brokerage firm Hargreaves Landsdown, which has invested in the young Briton and the McLaren stable through its subsidiary Horatio Investments to the tune of £12 M per year from 2017 to 2019[6].

It is important to understand here an issue that is crucial to the sporting significance of such operations. These boys, often from wealthy families, are nevertheless and above all extraordinary driving talents. No team, no matter how needy of money, would have any advantage in entrusting such cars to the hands of the latest, albeit very rich, arrival.

Consider, for example, Checo Perez, who has always been well financed by the Mexican TelCel that has followed him throughout his career and the excellent results he has brought to the track even quite recently for Red Bull Racing and before that for Racing Point and others.

Bottom line: the costs of Formula 1 and the meaning of the exercise

Formula 1 is an extremely complex and profound sport in every aspect. The“pinnacle of motorsport” is a patchwork of technology, research, talent, production effort, logistical commitment and organizational resources. Teams, often numerous in number, put prototypes that are engineering masterpieces on the track and compete for 10 months on five continents. The economic commitment such an exercise requires is equally impressive.

To cope, each team has multiple sources of income, from sponsorships to FOM dividends to support from manufacturers and private investors. Keeping such diverse and multifaceted economies at bay is an arduous task based on subtle and nuanced balances. Money has always meant development capacity, investment opportunities and, ultimately, performance.

Finding democratic and just ways, but ones that do not clip the wings of the sport’s and entertainment’s possibilities for growth, is a topic of discussion these months not only for Formula 1 but for all top sports leagues and series. The solution to this puzzle will, necessarily, shape the face of the sport in the years to come.

 



1]
https://www.essentiallysports.com/f1-news-what-are-the-budgets-for-f1-teams-including-mercedes-red-bull-ferrari/


[2]
https://www.motorsport.com/f1/news/alonso-questions-driver-salary-cap-when-f1-is-asking-more-from-us/10317358/#:~:text=F120introduced20a20budget20cap,inflation20and20increased20freight20costs.


[3]
https://f1chronicle.com/do-f1-teams-make-money/#:~:text=The20most20lucrative20way20for,Lance20Stroll20of20Nicholas20Latifi


[4]
https://onestopracing.com/how-do-f1-teams-earn-money/


[5]
https://onestopracing.com/how-do-f1-teams-earn-money/


[6]
https://f1chronicle.com/lando-norris-bucks-the-pay-driver-trend/

Emanuele Venturoli
Emanuele Venturoli
Communication Manager for RTR Sports Marketing. A degree in Communication at the University of Bologna and a passion for sport brought me where I'm today.
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