How Formula 1 Teams Make Money: Sponsorships, Prize Money, and TV Rights
Formula 1 is one of the most expensive sports in the world, with teams spending hundreds of millions of dollars every season to develop and race their cars. Despite these massive expenses, F1 teams have several revenue streams that allow them to remain competitive and financially viable. Let’s take a closer look at how Formula 1 teams make money through sponsorships, prize money, TV rights, and other sources.
1. Sponsorships – The Biggest Revenue Stream
Sponsorships are the primary source of income for most Formula 1 teams. Companies pay millions of dollars to have their logos displayed on cars, team apparel, and merchandise, as well as to be associated with the prestige of F1. Sponsorship deals vary in size, with title sponsors contributing the most. For example, Red Bull Racing is heavily funded by Red Bull, and Mercedes has had long-term partnerships with Petronas.
Other sponsorship categories include:
- Title Sponsors: Brands that name the team, such as Oracle Red Bull Racing or Mercedes-AMG Petronas.
- Primary Sponsors: Large companies with prominent branding on the car and team gear.
- Technical Partners: Companies that provide technology, software, or engineering expertise (e.g., Microsoft, AWS, or Qualcomm).
- Affiliate Sponsors: Smaller brands that have limited visibility but still contribute to the team’s finances.
2. Prize Money – Performance-Based Earnings
Formula 1 teams earn a significant portion of their revenue from prize money, which is distributed by Formula One Management (FOM). The distribution of funds is based on several factors:
- Championship Standings: A large portion of the prize money is allocated based on where a team finishes in the Constructors’ Championship. The higher the finish, the more money a team receives.
- Historical Performance: Longstanding teams with a rich history, such as Ferrari, often receive additional payments due to their historical contribution to the sport.
- Special Agreements: Some teams have negotiated special commercial arrangements with F1, such as Ferrari’s unique financial deal known as the “Ferrari bonus.”
3. TV Rights and Revenue Sharing
Formula 1 generates billions of dollars from broadcasting rights, and a portion of this revenue is distributed to teams. Liberty Media, the commercial rights holder of F1, sells broadcasting rights to TV networks worldwide. These deals bring in massive revenue, which is then shared among the teams based on a pre-determined agreement.
While top teams receive more money, even lower-ranked teams benefit from this system, ensuring financial stability across the grid.
4. Merchandise and Licensing
Formula 1 teams also make money through merchandise sales and licensing agreements. Fans worldwide purchase team-branded clothing, caps, accessories, and collectibles. Online stores, official team shops, and F1 events provide multiple channels for selling these products. Additionally, teams enter licensing agreements with gaming companies, allowing them to earn royalties from video games like the official F1 game by EA Sports.
5. Pay Drivers and Sponsorship-Backed Drivers
Some teams receive financial backing from drivers who bring their own sponsors. This is particularly common in smaller teams that need additional funding. Drivers like Lance Stroll and Nikita Mazepin entered F1 with significant financial support from family businesses or sponsors, which helped secure their race seats.
6. Manufacturer Support and Technical Partnerships
Many F1 teams have partnerships with major automotive manufacturers that provide funding and technical expertise. For example:
- Mercedes-AMG, Ferrari, and Alpine: These teams are backed by their respective car manufacturers, ensuring financial support and R&D investment.
- Engine Supplier Agreements: Some teams receive financial incentives from manufacturers in exchange for using their engines, such as Red Bull’s former partnership with Honda.
7. Hosting and Exhibition Events
Teams also participate in non-championship events, show runs, and private exhibitions that bring in additional revenue. These events allow teams to showcase their technology and attract sponsors while engaging with fans worldwide.
Conclusion
Formula 1 teams generate revenue through a combination of sponsorships, prize money, TV rights, merchandise sales, pay drivers, manufacturer support, and exhibition events. While sponsorships and prize money form the bulk of a team’s income, strategic financial management and partnerships play a crucial role in keeping teams competitive in this high-cost sport.
With increasing investment from major corporations and growing global interest in F1, the business side of the sport continues to evolve, ensuring that teams remain financially sustainable while pushing the limits of innovation on the track.
To learn more about Formula 1, visit our F1 Explained page.