Beyond the Checkered Flag: The Business of Formula 1

Written by Nancy Javkhlan on Monday, 04 December 2023. Posted in Business Analytics

Photo by Wes Tindel on Unsplash  

As the checkered flag descends, signaling not just the end of the Abu Dhabi Grand Prix, but also marking the culmination of a thrilling 2023 Formula 1 Season. In the world of Formula 1, where precision meets speed, the pursuit of victory is not just a quest for glory on the track but also a multimillion-dollar endeavor

The way in which Formula 1 works is a point-scoring system, with two separate championships for the teams and the drivers. For each Grand Prix, the champion gets 25 points, with fewer and fewer points until reaching 10th place which receives 1 point. The team’s performance is scored by adding the points of their two drivers to win the Constructor’s Cup. 

According to Sportico, the 10 F1 teams combined are worth $15.3 billion dollars, and as they compete in the most expensive sport in the world, its crucial these teams receive a profit. In fact, throughout their commitment to Formula 1, we can recognize three impacts on their success: marketing, sponsorships, and prize money.

We’ve all seen cans of Red Bull stacked in the front of grocery store aisles, gas stations refrigerators, and within vending machines. But if you’re new to Formula 1, you may be surprised to know that they have their very own racing team. Officially named Oracle Red Bull Racing, its drivers Max Verstappen and Sergio Perez, have gone 1-2 in the Driver’s Standings and 1st in the Constructors Standing, absolutely dominating the 2023 season. With such a well-known brand name across the world, the business of Formula 1 isn’t just limited within cars, but what they’re able to market to their global audience. The constant marketing of Red Bull and it’s correlation with success further pushes their audience and fans to choose Red Bull as their source of caffeine and energy rather than any other competitor on the market. 

Similarly, teams such as Mercedes AMG Petronas and McLaren both are correlated with established car brands, and encourage fans and viewers to associate high speed Formula 1 cars with the cars available at their luxury dealerships. Yet this isn’t too far from the truth, as several developments within Formula 1 are passed down to commercial cars such as active suspension, allowing the car to better adapt to different roads and increase traction. 

As Formula 1 teams and corporations work together to grow that bottom line, many teams also receive money and support through sponsorships. Relationships between McLaren and Google Chrome, Red Bull and Honda, Mercedes and Puma, and even Alpine and celebrities such as Ryan Reynolds, help fund those hefty up-front costs of building new cars and supporting the team throughout the season.

As teams race across the world, sponsoring a F1 team not only supports the team and its success, but increases brand awareness, enhanced customer loyalty, and improved corporate image for sponsors. Similar to Red Bulls’ marketing within F1, consistently seeing Google Chrome on the Las Vegas Sphere alongside the McLaren F1 car or Mercedes x Puma events, pushes fans to continue their loyalty through sponsorship brands. With unique marketing opportunities through pop up events, fan apparel, merchandise, labels on cars, and exclusive hospitality, the relationship between teams and their sponsors not only pads their pockets, but a prolific relationships as well. 

And finally, the prize money. Although the exact payouts are still unknown to the public, teams and drivers typically receive a general payout from the earnings of Formula 1 events such as races as well as the content involved, which we may know as Drive To Survive. 

From the prize pot of F1, which is about 50% of Formula 1’s earnings, Ferrari is known to receive an extra payment by around 5% due to its historical significance and record for competing in every Formula 1 season since 1950. From there, the money is split between the teams based on performance dictated by the Drivers and Constructors Standings. This years estimate for Red Bull is around $140 million, which exceeds the 2023 F1 cost cap, the amount of money teams are permitted to spend in order to increase fairness. 

For teams that didn’t score well this season, such as Haas in 10th place, will struggle to fund future seasons and reach success because of this. Receiving $60 million, its crucial for teams that are financially limited to find funding from other resources such as sponsorships and brand deals. 

Overall, the relationships between Formula 1 and money is an intricate and hidden process from the public, yet isn’t always as profitable as perceived to be, especially for teams that lack points. However, it’s clear that racing isn’t just about making money on the grid, but outside the grid as well, through its numerous sponsorships, personal marketing strategies, and prize money.

About the Author

Nancy Javkhlan

Nancy Javkhlan

Nancy is a Business Analytics Writer at Girls For Business.

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