The Business of F1: How Teams Make (and Spend) Money

Picture: Lydia Harper/ Formula 1 & Getty Images  

Formula 1 stands as the pinnacle of motorsport, captivating a global audience with its high-speed races and cutting-edge technology. Beyond the thrilling overtakes and strategic pit stops, a sophisticated financial structure underpins the operations of the ten competing teams. This report delves into the intricate world of F1 team finances, examining the diverse avenues through which these organizations generate revenue and the substantial expenditures incurred in their pursuit of championship glory. Understanding this financial ecosystem is crucial to appreciating the complexities and challenges faced by teams striving for success in this high-stakes environment.

The Revenue Engine: How F1 Teams Generate Income

The financial viability of Formula 1 teams relies on a multitude of income streams, each playing a vital role in funding their operations and ambitions.

Sponsorship and Partnerships: The Power of Branding

A cornerstone of Formula 1 revenue and expenses for teams is the income derived from sponsorships and partnerships. The sport’s unique blend of glamour, global visibility, and technological innovation makes it an attractive platform for a wide array of international brands seeking high-impact marketing opportunities. These sponsorships can come in various forms, including prominent branding on the cars, team apparel, and other materials, as well as more integrated partnerships involving technology sharing or joint marketing campaigns.  

Major sponsorship deals can be incredibly lucrative, with top teams securing agreements worth tens, and even hundreds, of millions of dollars annually. For instance, Red Bull Racing boasts a significant partnership with Oracle, reportedly valued at $90 million, while Ferrari enjoys a similar arrangement with HP. Other notable sponsors across the sport include Aramco’s substantial backing of Aston Martin, and long-standing relationships such as Petronas’ sponsorship of Mercedes. The types of industries investing in F1 are diverse, ranging from technology and energy companies to luxury goods manufacturers and increasingly, entities within the cryptocurrency and digital economy sectors. The value of these sponsorships is not guaranteed, with a team’s on-track performance and overall brand appeal significantly influencing the financial terms they can command. Stronger, more successful teams tend to attract higher-value deals, creating a competitive landscape not just on the track, but also in the pursuit of sponsorship revenue.  

Prize money: Rewarding Performance on the Track

Another significant source of income for F1 teams is the prize money distributed by Formula One Management (FOM). This prize money is allocated based on a team’s finishing position in the Constructors’ Championship at the end of each season. The total prize pot typically comprises around 45% of Formula 1’s commercial profits, which includes revenue from race hosting fees, sponsorship deals, and television rights. In 2022, this prize pot was estimated to be approximately $1.15 billion.  

The distribution of this substantial sum is tiered, with teams that achieve higher positions in the championship standings receiving a larger share. For example, in 2022, the top-performing team reportedly received 14% of the total prize money, while the team finishing last received around 6%. This system creates a direct financial link between a team’s on-track success and its financial rewards, incentivizing continuous improvement and investment in performance. Furthermore, teams that have consistently participated in the championship for a certain period often receive a base “participation token,” providing a foundational level of financial support, particularly beneficial for smaller teams. The current trend in prize money distribution aims to be more equitable than in the past, seeking to reduce the financial gap between the larger and smaller teams, thereby fostering a more competitive environment across the grid.  

Broadcasting Revenue: Sharing the Global Stage

Formula One Management generates substantial revenue through the sale of broadcasting rights to media companies across the globe. These lucrative agreements with major networks like Sky Sports and ESPN constitute the largest single revenue stream for Formula 1, accounting for approximately 32.8% of its total annual income. The overall financial health of the sport is significantly bolstered by this revenue, which reached $3.65 billion in 2024, with media rights playing a crucial role in this figure.  

While the direct distribution of broadcasting revenue to individual teams isn’t explicitly detailed in the snippets, the substantial income generated by FOM from these rights forms a significant portion of the commercial profits that are then redistributed to the teams through prize money and other mechanisms . The increasing global viewership of Formula 1, coupled with the expansion of media deals, continues to drive growth in this crucial revenue sector. The sheer scale of the broadcasting revenue underscores the immense global appeal and commercial value of Formula 1 as a premier international sporting spectacle. 

Merchandise and Licensing: Engaging the Fanbase

Beyond the primary revenue streams, teams and FOM also generate income through the sale of official merchandise and licensing agreements. This includes a wide range of branded apparel, accessories, and collectibles that allow fans to express their loyalty and engage with their favorite teams and drivers. The strategic importance of merchandising and digital service offerings is growing within Formula 1’s overall financial strategy. The increased popularity of the sport, partly fueled by initiatives like the “Drive to Survive” docuseries on Netflix, has likely contributed to a rise in merchandise sales.  

Furthermore, FOM generates revenue through licensing agreements for various digital products, such as official Formula 1 games and virtual experiences. These ventures provide an additional avenue for income generation by capitalizing on the global fanbase and their desire for deeper engagement with the sport beyond the race weekends. 

Driver Academies and Talent Development

While not always a direct and immediate revenue generator, the operation of driver academies by some of the larger Formula 1 teams represents a long-term investment with potential financial benefits. These academies nurture young driving talent, often securing sponsorship for these drivers as they progress through the junior racing categories. In some instances, teams might receive fees from drivers or their sponsors for the training and development programs provided within the academy structure.  

Moreover, the presence of “pay drivers” who bring personal sponsorship to a team can also be considered a form of revenue, although it functions more as a direct sponsorship arrangement for the racing team itself. Additionally, FOM’s revenue from racing series like FIA Formula 2, FIA Formula 3, and the F1 ACADEMY suggests that teams involved in developing drivers for these categories might indirectly benefit through increased visibility and potential future talent acquisition. 

The Cost of Competition: Where F1 Teams Allocate Their Finances

Competing at the pinnacle of motorsport demands significant financial resources, with teams allocating their budgets across various crucial areas to ensure both on-track performance and operational efficiency.

Car Development and Manufacturing: Engineering Excellence

A substantial portion of a Formula 1 team’s expenditure is dedicated to the intricate process of designing, developing, and manufacturing the highly complex racing cars. This encompasses the costs associated with every single component of the car, from the sophisticated steering wheel to the smallest wheel nuts. The engine stands out as one of the most expensive individual elements, with each power unit costing upwards of $10 million.  

Beyond the engine, the chassis, gearbox, and various aerodynamic components also represent significant financial investments. The advanced materials, high level engineering, and demanding manufacturing processes involved in producing these parts contribute to their high costs. Before the introduction of budget caps, the top-spending teams could allocate as much as $400 million per season to car development in their pursuit of performance gains. The sheer complexity and technological sophistication of modern Formula 1 cars make their development and production an exceptionally expensive undertaking, requiring continuous financial commitment to remain competitive. 

Driver and Staff Salaries: Investing in Expertise

Formula 1 teams employ a large and highly skilled workforce, including engineers, mechanics, aerodynamicists, strategists, and support personnel, in addition to their two race drivers. The salaries and benefits for these individuals constitute a significant portion of a team’s overall expenses. Driver salaries, in particular, can reach staggering figures, ranging from $1 million to over $50 million annually for the sport’s top talents. For instance, Max Verstappen’s salary in 2022 was reported to be $40 million, supplemented by $20 million in performance-based bonuses.  

While the majority of team personnel salaries are now included under the financial regulations of the budget cap, the salaries of the two race drivers and the three highest-paid staff members remain exempt. This exemption acknowledges the unique value and impact of these key individuals on a team’s performance and marketability. The salaries for engineers and other specialized technical roles within a Formula 1 team can also be substantial, reflecting the high level of expertise and experience required in this demanding industry. Attracting and retaining top talent across all levels of the organization necessitates a significant and ongoing financial investment in compensation packages.  

Travel and Logistics: A Global Operation

Picture: Evalueserve

The Formula 1 World Championship spans the globe, with races held on circuits across multiple continents. This international nature of the sport results in considerable travel and logistics costs for each team . Teams must transport their personnel, race cars, spare parts, essential equipment, and hospitality units to each of the race venues throughout the season. The complexity of this logistical undertaking is immense, requiring meticulous planning and significant financial outlay.  

Estimates suggest that the logistics costs for a single team can exceed $8 million per season, with some reports indicating that teams spent as much as $100 million on travel alone in 2023. Teams utilize a combination of air, road, and sea freight to move their extensive infrastructure around the world, with the choice of transport method often depending on the urgency and the distance involved. The sheer scale and global reach of the Formula 1 calendar make travel and logistics a major and unavoidable expense for all participating teams. 

Research and Development: The Edge of Innovation

To gain a competitive edge in the tightly contested world of Formula 1, teams invest heavily in continuous research and development. This includes extensive work in aerodynamics, chassis development, engine optimization, and the exploration of other technological advancements aimed at improving car performance. These efforts involve utilizing sophisticated tools and techniques such as wind tunnel testing, computational fluid dynamics (CFD) simulations, and in-depth data analysis .  

The pursuit of even marginal gains in performance necessitates a significant and ongoing financial commitment to research and development activities. Teams constantly strive to innovate and push the boundaries of automotive technology to extract every possible advantage on the track. This relentless drive for innovation makes research and development a critical and costly aspect of running a successful Formula 1 team.

Marketing and Operational Expenditures

Beyond the core technical and personnel costs, Formula 1 teams also incur various marketing and operational expenditures. Marketing activities are essential for maintaining a strong brand image, attracting and retaining sponsors, and engaging with the global fanbase. These costs can include creating team merchandise, organizing hospitality suites and events at race weekends for sponsors and VIP guests, and managing public relations and media activities.  

Operational expenditures cover the day-to-day running of the team, including the maintenance and upkeep of garage equipment, the procurement of spare parts, fuel costs for the cars, and the general administrative expenses associated with managing a large and complex organization. These seemingly less glamorous but equally essential costs contribute significantly to the overall financial burden of competing in Formula 1.  

Financial Fair Play: The Impact of Budget Caps in Formula 1

In an effort to promote financial sustainability and create a more level playing field among the teams, the Fédération Internationale de l’Automobile (FIA) introduced budget caps to Formula 1 in 2021. The initial budget cap was set at $145 million for the 2021 season and was subsequently reduced to $140 million in 2022 and $135 million in 2023. Adjustments for inflation and additional races have been made, and the cap is scheduled to increase to $215 million in 2026 to accommodate new regulations.  

The budget cap encompasses the majority of expenses related to the performance of the car, including the costs of all car components, necessary elements for operating the car, most team personnel salaries, garage equipment, spare parts, and transportation costs. However, several significant expenditure areas remain exempt from the cap, notably including driver salaries, the compensation of the three highest-paid staff members, travel expenses, marketing expenditures, and various other operational and legal costs.  

Breaching the budget cap can result in a range of penalties, depending on the severity of the overspend, from financial fines and limitations on wind tunnel testing to points deductions and even exclusion from the championship. Red Bull Racing faced penalties in 2021 for a minor overspend, highlighting the FIA’s commitment to enforcing these financial regulations. The introduction of the budget cap has fundamentally changed how Formula 1 teams manage their finances, requiring greater efficiency and strategic allocation of resources. While it aims to level the playing field, the exemptions for key personnel and other areas mean that financial disparities between teams can still persist.

Conclusion: Balancing the Books in the High-Speed World of F1

The financial landscape of Formula 1 is as dynamic and competitive as the racing itself. Teams navigate a complex ecosystem of revenue generation, relying heavily on sponsorships, prize money, and their share of the sport’s substantial broadcasting income. Additional revenue streams from merchandise, licensing, and driver development initiatives further contribute to their financial health. However, the costs associated with competing at this elite level are equally significant, with substantial expenditures in car development, manufacturing, driver and staff salaries, global logistics, and continuous research and development.

The introduction of financial regulations, most notably the budget cap, has brought about a significant shift in how teams manage their finances, compelling them to adopt more efficient and strategic approaches to spending. While the budget cap aims to foster greater competitive parity and financial sustainability, the exemptions for key areas ensure that financial advantages can still exist. Ultimately, the ability of Formula 1 teams to effectively balance their income and expenses is crucial for their long-term success and their ability to compete at the pinnacle of motorsport. The ongoing financial dynamics will continue to shape the competitive landscape of Formula 1, influencing team strategies and the future of the sport.