✍️ Rohit Singh

🗓️ June 27, 2024

Formula 1 is one of the most expensive sports on the planet, where millions of dollars are spent on research and development to create the fastest car on the track. But if the F1 teams are actually making money, stay tuned with the article to know how this F1 ecosystem runs and what the different sources of income available to teams are.

Revenue generation methods can be split into different categories: 

1. FOM payments
2. Sponsorships
3. Investments
4. ‘Pay to play’ or Driver-Linked income

FOM Payments (Formula One Management)

The FOM pays a significant amount to the F1 teams who take part in the season. Since some of the data is not made public, there’s a lot of fluctuation in the FOM payments.

• C1 payments (Column 1 payments)are the guaranteed amounts paid by the F1 management to every team that participates evenly in the season for 2 years.
• C2 payments (Constructors Championships)are based on the team’s performance and finishing position. In 2023, Red Bull topped the table and received prize money of $140 million, followed by Mercedes with $131 million.
• LST payments (Long Standing Team) are given to teams that have consistently been part of F1. Currently, this is only offered to Ferrari, with $68 million.
• Constructor championship Bonus is offered to the teams that are top performers or consistently finish in the top 3 in the season. In 2021, the top 3 teams each got a bonus of $35 million.
• Lastly, there are some heritage payments that are offered to the team. Like, $35 million paid to the Red Bull for signing the Concorde agreement first.

Sponsorships

F1 sponsorships are the biggest way through which F1 teams make money. Let us understand how it works.

For example, if a company like Petronas approaches a brand like Mercedes and says, “I want to be displayed on your car to advertise ourselves,” and Mercedes answers, “Great, that’ll be $75 million” (or some other amount they choose). Similarly, Oracle has a five-year $500 million deal with Red Bull.

Based on performance and pedigree, a team can ask for more because they get more airtime on TV and thus are more marketable.

According to Sportsboom, from 2010-2018, F1 sponsors invested a staggering amount of $17.8 billion into the sport, with Ferrari holding the largest share at 11.8%.

Investments

Big car manufacturers like Ferrari, Mercedes, McLaren, Alpine, etc., invest millions in F1 teams to support them. In return, they get global reach that helps promote their brand. This eventually expands their business and increases customer reach.

‘Pay to Play’ or Driver-Linked Income

This is also one of the key methods through which F1 generates revenue. In this model, the driver pays a certain amount of money to the team to drive the car for a season. For example, Lance Stroll paid a hefty amount of $30 million to the Williams team in 2017. However, this method of revenue collection is typically used by lower-tier teams who receive less payout from prize money and sponsorships.

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