Million Dollar Racing-Machines: The Business Side of Formula 1

Cars going around in circles at over 300 km/h. Circuits-Iconic and New-Age in over 20 countries and 5 continents. 20 drivers; 10 teams all chasing individual and team glory. Speed, strategy and pure chaos- welcome to the world of Formula 1 (F1).

F1 is more than a sport- it is a global business empire. As much is decided in boardrooms and marketing deals as on the track, making it one of the most expensive and strategic sports in the world.

How does the F1 business model work; is it sustainable; how it has evolved and how will it evolve in the future- lets take a closer look.

F1’s Revenue Model in a Nutshell

Formula 1 might look like a sport purely of speed and skill, but under the hood its powered by a finely tuned business engine. The revenue model behind F1 is multi-layered, global, and built for scale- with money flowing from variety of sources including:

• Broadcasting Rights -the largest revenue stream for Formula 1 generating over $1.2 billion USD annually. Major Partners include Sky Sports (UK); ESPN (USA); F1 TV (Globally). Fancode broadcasts the races in India by purchasing the rights from Sky and F1 TV.

• Race Hosting Fees – A typical Formula 1 race weekend (Friday – Practice, Saturday – Qualifying, and Sunday – Race) draws on an average 270,000 spectators over the entire weekend. The host cities and countries eager to bring the spectacle (and tourism) to their streets pay a Race Hosting Fee which can go as high as $50 Million per race.

• Sponsorship and Advertising – If you have ever noticed a Formula 1 car or an outfit wore by the Formula 1 drivers (called overalls), you would notice a large number of brands on them. This could include title sponsors like Red Bull and Ferrari, team specific partners like Petronas for Mercedes, and official F1 Partners like Rolex, DHL, Louis Vuitton, Pirelli etc. These are also visible across the track. These brands pay pour money into the sport for global visibility in deals which could be worth up to $100 Million per year.

• Merchandise and Licensing – From team caps to official F1 gear, Formula 1’s global merchandise and licensing market is worth approximately $200 Million. There has been a rapid e-commerce surge with F1’s official online retail partner, Fanatics reporting a year-over-year jump of over 1,000% since 2018. Ferrari’s move for Lewis Hamilton sparked a 400% surge in merchandise sale.

• Digital and F1 TV – In 2017, Formula 1 Group has been acquired by Liberty Media Corporation, a US-based mass media company in a deal worth approximately $4.6 Billion. Liberty Media’s leadership has rebranded Formula 1 as a global entertainment product and not just a racing series – Launching F1 TV (streaming platform), Created content like “Drive to Survive” (Netflix) and more recently the F1 – Movie.

This revenue gets distributed – part goes to the teams, based on performance and historical ranking, while the rest stays with F1’s owners (Liberty Media) The balance between sport and spectacle, investment, and return, is what keeps F1 running like a well-oiled machine.

Is the F1 paddock low-key a business playground?

The F1 paddock is a VIP stand present at every race weekend on the calendar. It also doubles up as a boardroom- since it is a meeting ground for CEO’s, investors, celebrities, and brand executives. There are many sponsorship deals which are often negotiated and advanced during race weekends especially in the big-ticket races of the Formula 1 calendar in Monaco, Miami, Vegas, Singapore etc. Rumors do have it that Audi’s entry into F1 was discussed over multiple race weekends leading to their prospective entry in 2026.

The Formula 1 Budget Cap- is it really making the sport more competitive?

The budget cap is a spending limit imposed on all the Formula 1 teams to level the playing field, reduce excessive costs, and promote closer racing. It was introduced in 2021 and stood at per team $145 million, which since been reduced to $140 million in 2022 and $135 million in 2023 which continues to stand, adjusted for inflation.

The budget cap includes most performance-related costs such as Car Development and spare parts, Engineering staff salaries, Testing and R&D cost etc. There are however some costs which are excluded from the budget cap, which include driver and top team personnel salaries, marketing and commercial expenses, costs related to crash damage etc.

If a team breaches the cap, it is penalized depending on the level of breach (i.e., % over the cap) as under:

• Minor Breach (<5%) – Fines, point deductions.

• Major Breach (>5%) – Heavier sanctions, including race bans.

Although there are still loopholes which can be exploited by the top teams, the budget cap introduction has brought about more competitive racing, with teams like McLaren now able to compete with the top 3 teams (Mercedes, Ferrari, Red Bull) and smaller teams also have a clearer path to competitiveness.

Is Formula 1 financially viable for all drivers and teams?

The short answer is not entirely – While top teams and drivers thrive and make money even outside racing through brand endorsements and sponsorships, the lower rung of drivers and teams do often struggle to keep up with the increasing demands of the sport, either financially, competitively, or otherwise.

While the big teams (Ferrari, Red Bull, Mercedes) have massive sponsor backing, brand value, fan base leading to increased merchandise revenue and competitive performance, there are smaller teams like Haas, Sauber and Williams which operate on tighter margins, even with the budget cap rules and rely heavily on a concept known as driver linked funding. The bigger teams generally have a drivers academy program where they invest in junior drivers and promote them over the different levels of racing (Formula 3, Formula 2, etc.)

Driver-linked funding in Formula 1 is a situation where money or sponsorships is brought to a Formula 1 team by a driver either through personal sponsors, family wealth or backing from corporations. In return, the driver secures a seat in Formula 1 and gets a chance to prove himself. This is a quite common route for young or less established drivers especially with smaller or struggling teams. A recent example of this case was that of Russian Driver, Nikita Mazepin with Haas who in 2021 brought funding to the team from his father’s company, Uralkali in return for a seat. However, both his seat and the sponsorship deal for Haas was cancelled after Russia’s 2022 Invasion of Ukraine.

Similar instances exist with Sergio Perez - brought major backing from Mexican telecom giant Telmex to secure his early seats at Sauber and Force India and Lance Stroll - whose father purchased the Racing Point team (now Aston Martin) from Force India due to the bankruptcy of Vijay Mallya.

New Venues enter F1, but What Happened to the Indian Grand Prix?

During the last few years, the Formula 1 has introduced new races in the calendar with the total amount of races increasing from twenty in the 2010’s to currently 24. A couple of big new additions are Miami, Vegas, and Jeddah.

The races in Miami and Vegas were a calculated move by Liberty Media Group, the owners of Formula 1 to increase the popularity of the sport in the American Market. From racing around the Hard Rock stadium in Miami, to the dash down the Vegas strip, where Liberty itself became the promoter of the Vegas Grand Prix, the goal was to put Formula 1 on the American sporting map. F1 paddock passes in Vegas range from $10,000 to $25,000 with suites selling for $45,000 for the weekend in Vegas.

The Saudi Arabian GP on the other hand falls into the long-term vision of Formula 1. Formula 1 had a 2030 Vision of economic diversification, and this aligns with the Saudi Arabia’s goal of shifting their positioning from an oil dependent nation. Saudi Arabia has invested over $6 Billion into Sports Sector since 2021

While F1 wants to increase its global footprint, the Indian market does not fall in these plans. While India successfully hosted 3 Formula 1 races between 2011 and 2013 in its newly constructed Buddh International Circuit (Noida, UP), it quickly ran into tax and bureaucratic hurdles. One of the main reasons was the Uttar Pradesh Government classified Formula 1 as entertainment and not a sport and levied much higher tax on ticketing and sponsorship revenue from Formula 1 in India. The circuit was used for MotoGP in 2023 but called off due to the hot and humid conditions in which the race was held.

As Formula 1 shifts gears towards a more sustainable and net-zero carbon 2030 strategy, its clear: the sport is not just selling speed-it is selling vision. And for sponsors, manufacturers, and cities ready to invest, the next lap could be the most lucrative yet.