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Formula One teams. Diffrent streams.



Kirjoittanut: Hassan Chakir - tiimistä SYNTRE.

Esseen tyyppi: Yksilöessee / 2 esseepistettä.
Esseen arvioitu lukuaika on 4 minuuttia.

As known from various sports fans that every other sport is pay to win, or you can even make more money with just a little. That’s not the case in Formula 1, sins it’s a sport of pay to stay and compete. For instance, different people see the F1 teams in different ways. And as a fun of this sport, I might see these teams as competitive group of people who are trying to show their best on the track, or I can see F1 teams as a matter of money and finance, sins it looks like an expensive sport.

And here come two most relevant questions, how does Formula One make money? And where do the F1 teams spend their Money?

The matter of expenses looks more obvious and simpler than profits, for that reason we’ll first answer the question of where the money goes for F1 teams. The costs can be split into four main categories: salaries, operations, production then research and development.

Well, the salaries are self-explanatory. And in this field of F1, teams have various aspects to take care of, such as engineering people, marketing people as well as the drivers and directors by themselves (Average cost = 42M). Operations are all things needed to run business side of the team, it might vary and hold things like logistics for the car and team, entertainment for client, factory, fuel for racing and testing and this list might be a bit longer than other (Average cost = 36M). The production holds manufacturing and preparing the car for the race, it may include parts of the car (front/rear wing) and the engine by itself which can cost more than 10 million dollars (Average cost = 93M). Lastly, research & development consists of all scientific aspects that you can consider while driving a car, it presents all kinds of testing like wind tunnel testing, track testing and others. It’s important for improving performance and safety of the driver (Average cost = 41M).

Supposing that we have our own team for example and let’s name it AXE team. Hypothetically, our team will have total of cost of 158 million dollars (Verman 2022) if we sum up all the averages of the four main categories.

Now it’s time to flip the coin and see the other side meaning the revenue. But, before going in, we should keep in mind that the earnings of each team might differ from the other regarding the way of earning. To make this easier, the earnings might be divided by 4 sections which are FOM payments, Investments, driver linked income and Sponsors.

Starting with the most significant one, FOM payments or Formula One Management payment which the money that teams get from Formula 1 by itself, and it’s divided into five columns which are:

C1: is the same amount that all the participants get from the Formula One.

C2: is the amount that teams get regarding their points from the earlier season.

LST: or the long-standing team and it goes for Ferrari, sometimes it’s even called Ferrari budget

CCB: Constructor’s championship bonus for basically winning a load of titles.

And others such as 10M for Williams as heritage payment just like 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.

Furthermore, I’m sure that a lot of people know how the sponsors work in business life. But basically, a company like Petronas goes to Mercedes and ask to put their logo on the car, and Mercedes would ask for 70 million dollars in return. That’s in a simple term, but in average teams can have between 10 to 25 sponsors, and obviously the better performing team may have more sponsors than the others. In the other hand, if the team or just the driver has a bad reputation can decrease the number of sponsors for the season. However, teams can’t get sponsorship from any company, there are restrictions and rules from the formula organizer FIA, sins the companies should be ethical and moral to get accepted. But still, this is just a hence and more can be found in the video below:

(https://www.youtube.com/watch?v=H7M74iEonn0)

Another form of income can be Investments. It’s kind of a money that comes from the mother company or shareholders 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.

The last form is driver linked income which is when the driver pays money for a team to drive their car. For example, Lance Stroll wo paid Williams 30M in 2017.

If we go back to our hypothetical example AXE and use averages of the year 2019 in term of earnings, we will get something like: FOM payments= 65M, Sponsorships= 30m, Investments= 50M and driver linker income= 20M. Then we would be on 165 million dollars of revenue. Compared to the expenses (158M) that’s 7M of profit.

However, the reality is something else. Taking one of the outstanding teams “Mercedes” which had great success, they had revenue of 420M and expenses up to 425M, and obviously the team is in a loss of 5M in 2019. Looking at other teams we see that they use all their revenue to the Max which makes sense, because they want to show their best performance possible on tracks (Verman 2022).

 

In conclusion, Formula One teams are not built to make profits. Instead, a big part of it is built as a marketing for car companies to make sales for cars of their mother companies indirectly, that’s why we see a lot of other companies trying to run their ads on those supercars so they can market them as well. And that’s a big reason for F1 teams to spend all their money to make their cars as fast as possible and to get best drivers out there, and to get more money for the team in the upcoming seasons. Personally, I think F1 sports is more than just a marketing place it’s a place where multiple people in multiple teams can show their potentials and hard work during the days, through the designs, the power of the engine and the how far the driver can push that super machine. It’s the kind of sport that gets scientists and artists altogether to work with each other to offer us the unique show to enjoy at the end.

References:

https://startuptalky.com/formula-one-revenue-model/

https://www.linkedin.com/pulse/formula-1-business-models-how-f1-teams-make-money-stay-del-bello

https://the-race.com/formula-1/who-wins-from-f1s-new-concorde-deal-and-how-itll-work/

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