How do Formula 1 Teams Make Money?

we all know the saying money makes the world go round well in formula one the story is no different most sports like football rugby or basketball are much easier to have success in without needing lots of money but formula one and motorsport as a whole is completely the opposite while other sports could be seen as pay to win formula 1 is instead pay to play or compete in the first place this means when looking at the balance sheets of formula 1 there are a lot of zeros in 2019 formula one made a revenue of 2.02 billion dollars while the highest paid drivers cash in up to 40 million pounds a year putting them up there with some of the highest paid athletes in the world and this trend is not slowing down with karting now costing six figures in many cases and this is reflected by the amount of paid drivers that have entered the sport in recent years but enough complaining about pay drivers for now this video is about the teams so formula one isn't just a business it is a massive billion dollar industry that employs tens of thousands of people and the teams are the businesses within the industry that keep the sport going much like google and apple are to the tech industry and so like any business the aim is to make profit apart from charities and other non-profits but that's irrelevant so how do formula one teams make money and do they even make a profit at all stick around for the next 10 minutes or so as i dive into exactly that just a little disclaimer all figures i'll be using in this video are from 2019 because the official figures from 2020 haven't been published yet and because of the pandemic those figures wouldn't really be representative anyway well like any business to talk about profits you've got to talk about the costs and revenues for that business costs being how much the business spends and revenue being how much the business earns and so to make profit you need to be earning more than you spend or in other words your revenue needs to be higher than your costs and with formula one teams there are lots of different things that go into the costs and revenues some you probably didn't even know about so to begin with let's dive into the costs of a formula one team what they spend their money on well the costs can be split into four main categories research and development salaries production and operations so research and development or otherwise known as r d consists of things like wind tunnel testing track testing and other forms of testing components to make sure they perform their function salaries are pretty self-explanatory they consist of paying the team staff like the marketing team for example paying the drivers so you know lewis hamilton's 40 million quid paycheck and paying team directors like toto wolff christian horner etc etc production costs for the team involve all the manufacturing of new parts the purchasing of new components and either the building or buying of the engine which can cost upwards of 10 million pounds by itself and then the final part is the operations which concerns things like logistics and travel entertainment for clients moving everything by freight to long-distance races like singapore i.t and tech costs costs of running the factory professional services like marketing or things like that and funnily enough the cost of fuel surprisingly adds up over a season two and so if i add various figures to these areas we can start to see how much the average team spends over a season in this hypothetical example the team spends 158 million pounds over the length of a season now remember that number because it's kind of important right so with that 158 million pounds in mind let's flip the coin and have a look at how an f1 team earns money and generates a revenue now quick disclaimer this isn't as standard for all teams meaning some teams make money in different ways to others but i'll explain well just like the costs the revenue can be split into three or four categories depending on the team firstly there's fom payments sponsors investment and finally driver links income let's begin with the most significant one fom payments for those that don't know fom stands for formula one management to explain how f1 teams are paid by f1 i gotta really split it into five columns so the first column is 36 million quid to every team that has been classified for over two seasons this is known as the column one payment and every single team receives this then in the second column is the prize money based on where the team finished the season before so for example mercedes received 61 million dollars for winning the title while williams received just 13 million dollars for coming last everything up till now seems pretty fair right well we aren't done yet the third column is known as the lst or long-standing team basically known as the ferrari budget because it's only given to them and it's a whopping 68 million dollars more than mercedes received for winning the title on top of this is the ccb or constructors championship bonus which is a 35 million dollar payment to ferrari mercedes red bull and mclaren for basically winning a load of titles and finally there are a couple of other payments such as 10 million to williams as a heritage payment similar to ferrari 35 million to red bull for signing the concord agreement first and 35 million to mercedes for living up to their promise of winning two titles and breathe pretty messed up system huh well for those interested here is how it all stacks up but this is only one piece of the puzzle when it comes to earnings the next is sponsors i'm sure most people understand how they work but basically a company like patronus goes to a team like mercedes and says i want to be on your car so we can advertise ourselves and mercedes say okay great that'll be 70 million dollars job done that's in very simple terms but on average a team has maybe 15 to 25 sponsors who all pay a sum of money to the team to place their logo on the car and obviously the better performing teams will have more sponsors because they get more airtime on tv and are more marketable and it's especially true the other way around if a team or driver has a terrible reputation sponsors won't go near them so the next form of earning for teams comes as investment from either a parent company or shareholders where basically let's say daimler want mercedes to do better in f1 so they give them 80 million dollars per season this is similar for every team but obviously some can afford to invest more than others so while in 2018 mercedes got 80 million dollars a year racing point only got 25 million and for many teams this takes up at least a quarter of all revenue the teams earn so it's easy to see why a team like williams are bound to struggle and finally the last form is driver linked income which is basically when a driver pays the team a sum of money to drive the car such as lance stroll who paid williams 30 million in 2017 to drive the car but obviously this only really takes place in teams lower down the grid who are desperate to get more revenue right so that's all the possible ways that a team can earn money so let's put it into our hypothetical example so let's say that our team gets 65 million pounds in fom payments 30 million pounds in investment 50 million pounds from sponsors and 20 million pounds from driverlink's income that comes out to 165 million pounds in total revenue so then in our hypothetical example the team would make a 7 million pound profit well that's basically how an f1 team makes money but why not look at the reigning champions mercedes and see how they stack up right so in 2019 mercedes spent around 425 million dollars through r d manufacturing testing lewis's paycheck and when looking at their income it's broken down as follows they received 180 million dollars from the fom an 80 million payment from daimler and a 160 million payment from sponsors and tech partners so doing the maths in 2019 mercedes actually made a loss of 5 million dollars approximately give or take a few hundred grand and looking at the grid as a whole it's actually very interesting every team bar 2 break even meaning the costs are the same as the revenue obviously these are rough estimates and expect a small loss or a small gain either way but the point is virtually every team uses all their resources to the max which does make a lot of sense and here's why formula one is used by car companies not necessarily to make profit but instead as a marketing platform to the world to show that their road cars are the best so for teams like mercedes renault ferrari etc formula one brings those companies enormous profits indirectly if someone that likes or watches f1 buys one of their cars so it really doesn't matter if they aren't making a profit at the end of the day and after all if you are making a profit it shows you have more potential resources to improve the performance of the car which after all is the most important thing but next season the whole financial landscape of formula one is going to change dramatically because of the budget cap i've spoken about this many times in other videos but basically what it is is a maximum amount the teams can spend which will be set at 145 million dollars so for any team that spends more than 145 million dollars now they will need to be much more efficient with how they spend their money this will no doubt affect teams like mercedes red bull and ferrari the most and the main aim is to create a more level playing field which i'm all for now you might be wondering every team's budget in 2019 was above 145 million dollars which is absolutely true but because of the effect of the pandemic many teams budgets have fallen quite a lot now i'm sure some teams will find loopholes around the regs but there is no doubt that it's a good thing for formula one so that's a short glimpse into how formula one teams make money and run as a business and it just shows how efficient some of the lower teams like alpha tari are and it just puts into context how incredible things like pierre gasly's win in monza was well if you enjoy this new style of video centered more around the financial side of things like this video and drop a comment below and as always make sure to like subscribe and smash that notification bell to be reminded of any new videos [Music] you

Channel: The Racing Pilot

Views: 793,679

Rating: 4.9314265 out of 5

Keywords: how do formula 1 teams make money, formula 1 money, money formula 1, formula 1 teams, f1 money, money f1, f1 teams, how do f1 teams make money, formula 1, mercedes f1 money, f1 finances, ferrari f1 money, f1 budget cap, 2021 budget cap, formula 1 budget, team budgets, f1 team budgets, mercedes f1 budget, money, formula 1 budget money, f1 revenue, formula one, formula 1 2021, f1 team payments, formula 1 drive to survive, f1 prize money, lewis hamilton, f1 news

Id: OzwEzIWRvsw

Length: 11min 37sec (697 seconds)

Published: Thu Mar 04 2021