How do F1 teams make money?

Amidst the rise in popularity of racing and Formula1 around the globe, with Max Verstappen virtually taking the torch from Lewis Hamilton over the last few years, and Red Bull leading every other constructor, like Mercedes and Aston Martin, by miles, let’s talk about how these teams make enough money to keep going every year.

Because make no mistake, this is a very expensive sport to be a part of. So much so, that, sometimes, teams on the bottom half of the constructors’ points table have to look for ways to get additional funds every few years.

Formula One Management Payments: This includes a payment which every single team receives as a participant in the F1 season, and it is equal for all of the 10 teams that qualify. The second payment is the winnings awarded to each team according to their position on the constructors’ championship table, and there is a wide gap between #1 and #10. So, every point matters for the teams.

There are other payments from F1 to some teams. For example, Ferrari receives a big payout due to them being the longest-standing team in F1, with them having been in Formula 1 since 1950. Also, teams like Mercedes, Ferrari, Red Bull and McLaren get an additional payout reportedly because of them having won a number of times. All of these factors are a plus for F1 as a whole too and that’s why these payments persist.

Sponsors: I’m sure you understand how sponsorships work, but just as an example, companies like Shell, would go to Ferrari and ask them to advertise the brand on the Ferrari cars, in return for some fees. And each team has a minimum of 10-12 sponsors. And obviously, the big and more successful teams get more sponsors in general.

Investments: This is basically when investors or a parent company wants to put money into the F1 division/team for them to be able to get better or improve. For example, Ferrari could put let’s say $50 million into their F1 division so that they can improve on their performances.

And how do these teams spend their money? The main costs would be R&D (testing, etc.), Salaries (payments to the drivers which are usually in the millions, team management and the thousands of people who work in the factories and the paddocks), Production (manufacturing parts and engines) and Operations (entertainment, travel, tech backup, fuel, etc.).

In the 2021 season, Mercedes won the Constructors’ Championship and were awarded prize money worth upwards of $60 million. Ferrari on the other hand, was given a $68 million bonus, as the payout for being there I mentioned earlier. In 2022, Ferrari got a total of $205 million while AlphaTauri earned just over $50 million.

Interestingly, since the difference between the top teams and the lower-ranked teams on the table is and has been vast, at least into the tens of millions, a budget cap on spending was put in by F1 in 2021. This was to level the playing field a little as the sport was also growing in popularity in the world. The limit set then was $135 million. So the big teams, which had budgets significantly higher than that number, have had to improve on their efficiencies to not break the rules, and that has changed the dynamics, well, a bit.

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