Every Formula 1 introduction begins with, ‘It's a multi-million dollar sport’, but how did it come to be that?
Car racing as a sport existed before the second world war, however F1 came into being only in the 1950s. This single-seater racing event is regulated by the FIA (Fédération Internationale de l’Automobile). Initially, the cars used to be similar to the generic road cars, however, over time with automation and innovation, the engineers started using computer simulation and analytics to optimize performance through design. Today you can find some of the most advanced, sophisticated and agile land based vehicles at the Formula 1 championship.
Every F1 season begins in March and goes on till October, with almost 22 races in every season, each in a different venue and region. There are 10 teams that compete to win the highest points in every season. The operations to win these races are extremely high, roughly about 300 million dollars for each team. This means in order to be profitable, each team must have a revenue above 3 billion dollars.
Let’s start by seeing how the teams earn this revenue. If you look at a RedBull racing the car that is filled with logos of other companies, that’s one way of making money: commercial sponsorships. Something as small as the logo costs $1.2m to $3.5m for a sponsor, and each team has at least 10 sponsors, some bigger than the others. The competition is extreme and the top scoring teams have an advantage over the others, not only in terms of sponsorships but also through payments from FIA. There are payouts for the ranks at teams finishing in the Constructors Championship. While Mercedes received 66 million dollars for their performance in the 2022 season, Williams received merely 15 million dollars.
However, just like at school, where to motivate everyone to participate, participation certificates were given out, the FIA does something similar. They send out 35 million dollars to each team, like an incentive for participation, regardless of their performance. Ferrari is the oldest team in motorsport, therefore as a form of respect, the FIA gives additional payments to the team. There are a few other payments that the federation gives out every year.A modern way of minting money for each team is merchandise, however the top teams have an advantage in this as well; their merchandise is more popular than the rest.
These are the major sources of revenue for the Formula 1 teams, but the big question now would be how does the FIA get money?
The Netflix series, ‘Drive to Survive’, acted like a catalyst to spread the popularity of this sport worldwide. They received payments through selling TV rights across the world. Global television contracts contributed an eye-watering $774 million to Liberty Media’s bank account in 2022, with that figure set to rise in coming years.
Their second biggest source of revenue comes from race-sanctioning fees paid by promoters to host a race. The average cost for a venue to host an F1 race is 31 million dollars, although historic locations such as Monaco pay significantly less. Ironically new locations like Qatar and Saudi Arabia pay more than average. The sport has a slogan ‘we race as one’, however the skeptics have questioned the slogan ‘we race as one’, due to the questionable human rights records while allowing countries like Saudi Arabia to host these races.. Another thought pops up in your head could be, why would the governments be willing to pay so much for just one race. The economic idea of a multiplier plays an important role here. Simply put this investment would create jobs because multiple industries like construction, hospitality and catering would be involved. Additionally, the race would encourage tourism by inviting F1 fans from a variety of places. The track can be a tourist spot not only during the race, but after the race weekend as well as memorabilia.
Another form of revenue for the FIA would be the purchase of tickets and Formula one merchandise, this is not a major source of income but it still counts. Moreover the formula 1 motorsport has its own sponsors as well, like ‘Zoom’, ‘Rolex’ and ‘Pirelli’ and they earn significant revenues from these companies, which allows the sport to be what it is today. So coming back to my introduction, Is F1 a profitable sport? Formula 1 is a multi-million dollar sport, and it involves a number of different revenue streams. However, the key to its financial success lies in its ability to attract a huge global audience and generate revenue from race revenues, sponsorship deals, and TV rights. The continued growth and popularity of the sport, coupled with innovative marketing strategies and increasing investment from sponsors, make F1 one of the most lucrative and sustainable forms of motorsports. The future of F1 looks bright, and it will likely continue to dominate the motorsports industry as a leader in global entertainment and sports.