How Formula 1 (F1) Makes Money?!
In addressing the topic of the sport's popularity and growth in 2022, F1 CEO Stefano Domenicali emphasized various key points. He pointed out that in the year 2022, Formula 1 witnessed record-breaking attendance at its races, illustrating a clear surge in fan interest and engagement. Additionally, Domenicali highlighted the sport's remarkable success on social media platforms, emerging as the fastest-growing major sport in terms of online following and engagement.
Moreover, F1's efforts to enhance fan interaction and participation were underscored by Domenicali mention of the high-quality broadcast, the introduction of enriched content on platforms like F1 TV and social media channels, as well as innovative offerings such as the F1 Arcade and F1 Exhibition products. These initiatives were designed to provide fans with new, immersive experiences that further solidify their connection to the sport.
Another significant aspect highlighted by Domenicali was the global relevance and sustainability efforts of Formula 1, which have not only attracted widespread attention but have also enticed premier Original Equipment Manufacturers (OEMs) like Audi and Ford to consider entering the sport in 2026. Domenicali expressed confidence that the participation of such esteemed automotive brands would bring substantial value to Formula 1, further solidifying its position as a leading entity in the world of sports and entertainment.
Now, let's delve into the financial dynamics of Formula 1, exploring how F1 teams make money and how the Formula 1 Organization itself generates revenue.
Do F1 teams make money?
F1 teams make money, but they reinvest so much back into car development because if you ain't first, you're last, as Ricky Bobby says. While racing is expensive, manufacturers see it as a marketing exercise to sell more cars. According to Nielsen, F1 had a global TV audience of 1,922M in 2021 (Brazil, Germany, Italy, UK, and Netherlands were the top viewing markets). Europe has 66.7% of TV audiences, followed by Central and South America at 22.1%, Asia Pacific (5.1%), North America (3.4%), and Africa and the Middle East (2.8%). The average F1 viewer is 38, 62% men, 38% women, and has 0.44 kids. F1 has a younger demographic than sports like football or tennis, so sponsors are eager to get on board as the sport takes off in the US, reaching more and more people.
Therefore, the real answer to whether F1 teams make money is "it depends". The big hitters like Red Bull and Mercedes made $10-20 million in profit in 2021, while the rest of the eight teams broke even or came close. Considering top dog budgets in 2021 were around $450 million, you might wonder where all that money went. Due to F1 being an elite level of motorsport, it attracts the best drivers, administrators, and engineers. Plus, the logistics of getting to every race, plus research and development costs. The 2021 F1 calendar had 22 races, and 2022 had 23 races. Costs add up fast.
How do F1 teams make money?
F1 team budgets are derived from several key areas:
Formula 1 Payments: Formula 1 payments are the second most lucrative way F1 teams make money. A team in the championship receives around $36 million in prize money from TV rights and circuit sponsorships. In addition, teams get paid based on where they finish in the constructors' championship. Mercedes won the 2021 championship with $61 million USD, while Williams came in last with $13 million USD. Ferrari is the only team to receive an additional $68 million USD just for being Ferrari.
Car Manufacturers: In essence, F1 is a marketing tool for car manufacturers. A successful team will entice people to buy a car from the same manufacturer if they want to be connected to the success. People who support Red Bull might prefer a Honda over a Mercedes or Alpine. Mercedes parent company, Daimler, put $80 million into the team's coffers in 2019 to help support their Constructors Championship bid. Also, constructors sell engines to other teams. As an example, Mercedes sells engines to McLaren, Aston Martin, and Williams, while Ferrari sells engines to Alfa Romeo and Haas.
Sponsorships: Sponsorships are the most lucrative way for F1 teams to make money. F1 sponsors can contribute anything from €500k to €50M a season in what's a bit of a catch-22. A successful team can ask for more sponsorship, but to be successful, they have to be able to pay to play at the top. You can sponsor a team in F1 for as little as €500k a year, but you won't have any branding on the car or driver. For €1M a year, you could get your logo on a midfield car, whereas it would cost €3-5M for a Ferrari, Mercedes, or Red Bull. Depending on the team's strength and pedigree, title sponsorships range from $20-50M a year. Mercedes, for example, got almost 20% of all TV coverage during the 2021 season, which they can factor into their rates. It's rumored Cognizant paid €35M for its Cognizant-Aston Martin deal, while Petronas paid €42M for its Petronas-Mercedes deal. There's a $300 million five-year sponsorship deal between Oracle and Red Bull Racing.
What is a pay driver in F1?
It's someone who pays for their seat through sponsors instead of getting paid. Pay drivers have been around as long as motorsport, but they get more criticism than most. Lance Stroll is bankrolled by his dad Lawrence Stroll, Nicolas Latifi gets a ride at Williams because Lavazza Coffee and Sofina Foods bring tons of cash. It was his dad who funded Lando Norris' McLaren seat. Nikita Mazepin, son of Uralkali's CEO, raced in the championship in 2021 thanks to Uralkali's sponsorship. Mazepin lost his seat when Haas dropped Uralkali as a sponsor after Russia invaded Ukraine.
How does the Formula 1 (F1) Organization make money?
Since Liberty Media is trying to crack the US market and get more eyeballs watching races through initiatives like Drive to Survive, most of F1's money comes from selling TV rights around the world. In 2020, global TV contracts contributed $587 million to Liberty Media's bank account, and that number is expected to rise. Formula 1 sells a Global Feed, which rights holders then add to their subscription services, with prices varying wildly by country. Fans in Indonesia, for example, pay 20 GBP for a whole year of Sky coverage, whereas in the UK it costs 30 GBP per month. Race-sanctioning fees paid by event promoters are F1's second biggest revenue source. A F1 race costs an average of $31 million USD, but historic venues like Monaco pay much less. Qatar and Saudi Arabia pay more than average, so the skeptics adapted the 'we race as one' phrase to 'we race for money'. Ticket sales and on-track sponsorship from brands like Pirelli and Rolex are F1's third biggest sources of income.
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