The Business of Formula 1: Sponsorships, Team Budgets, and Revenue Distribution

Formula 1 is a sport that requires a lot of investment even to break the entry barrier. The ceiling for maintaining and competing year after year is very high, but still the high-octane sport is a lucrative business that generates huge profits.

In fact, the annual sponsorship revenue from F1 in the 2023 season is estimated to be over $360m. So let’s break down what it is all about and take a deep dive in to the business model Formula 1, and it’s biggest revenue makers:

Broadcasting

Formula 1’s has 17 key broadcasting partners including the likes of ESPN, Fox Sports, Sky, DAZN, and BeIN Sports. Behind venue hosting fee’s, broadcasting is the biggest revenue generator.

Many sports have offered ‘behind the scenes’ series, including the All or Nothing series on Amazon Prime which has now covered numerous American Football teams, Football teams, and Rugby teams. So, when Formula 1 considered a similar approach, it decided to align itself with Netflix for its ‘Drive to Survive’ series has been an incredible hit among fans. Giving them unseen footage and deeper insights to how the sport works.

Broadcasting partners, and TV series aside, F1’s strategy has been to expand its reach and to fulfil this, they have also struck deals in various of their key markets focusing on pay-tv to increase its broadcasting revenue.

Sponsorships

Another huge revenue creator for F1 is through its sponsorships, with over 20 key sponsors including Heineken, Qatar Airways, Rolex, and DHL. Of all of them, the biggest spender is the Dutch beer brand, Heineken. They’ve enjoyed unrivalled visibility across the championship for years, having secured the title naming rights at multiple events, as well as significant pouring rights across various venues.

The next closest spenders both sit in the Middle East – Qatar Airways, and Saudi Aramco. These are both relatively new sponsors to F1, as they are each trying to establish a presence in sports globally. It’s a great way for them to enhance their national reputation and expand its global economy.

Corporate hospitality

Often as part of your sponsorship, corporate hospitality will be included however if you’re not fortunate enough to be one of the key sponsors, you can also invest a good chunk of your money on corporate hospitality – this is often to help build brand loyalty between say the brand and its clients/potential clients.

Experiences like corporate hospitality are unique experiences. They’re a great opportunity to often meet past and present drivers. Through all the thrills of the top speeds and exhilarating races, there is also business being conducted. A win-win for all involved.

Merchandise

Merchandise is another area that helps bring in a huge chunk of revenue. To be at the Formula 1 is such a moment that many want to get something to help remember it by. And over time, as fans have become loyal to particular drivers or to teams themselves, the teams, and the F1 have been able to create branded merchandise for all. From hats, scarves, t-shirts, hoodies, and jackets, there is literally something for everyone. In fact, most now even have women-specific and child-specific ranges.

Venue hosts

Formula 1 earns a major portion of its revenue from ticket sales and hosting fees that are paid by the circuit themselves. Each country that holds the world-famous Grand Prix actually has to pay the F1 in order to be the host circuit. Surprising right? But it brings a lot of revenue to that circuit during that period and boosts the economy of the local area. Of course, these fees vary by the location, popularity of the race, and the historical significance of the circuit including its prestige among the loyalists of Formula 1.

Team budget caps and driver fees

Teams are funded based on how well they score in the prior season. And as you’d expect those with bigger budgets perform better and tend to shut out teams with the smaller budgets. To help make things fairer, the F1 implemented a spend limit to level the playing field. As of 2023, the F1 has team budget caps at $135m per team.

The more successful a driver you are, the higher the fees you have to pay to register yourself to race. You’re looking at approximately £11,000 for basic registration, and an extra £2,230 per point from the previous season. 2022 Formula 1 Champion Max Verstappen had to pay over £1m just to enter the 2023 season.

We talked about team budget caps, and luckily for the drivers, their pay isn’t part of this. They get a base salary, and then earn bonuses based on their performance, as well as earn money from their own sponsorship and endorsements. Salaries currently range from £1-£55m depending on the driver.

Let’s look at Max again, in 2022 he made a total of £60m from F1, earning a £40m salary, £20m in bonuses. Lewis Hamilton, who came in second last season, earned £55m in salary from Mercedes.

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