Analysis of how money moves in F1 and sponsorship keeps teams afloat.
Formula 1 teams rely on two main revenue streams: prize money paid by commercial rights holder Liberty Media (trading as F1) and sponsorship income – the latter a fixture in F1 since 1968 after the FIA permitted commercial liveries and non-trade logos. There is also a third (indirect) stream: the ‘bartering’ of goods and services, usually where these are ‘trade’ products or used internally by the team.
The split between prize money – derived predominantly from race hosting fees and the sale of broadcast rights with some contributions from high-end hospitality and trackside advertising – and commercial income varies from team to team but, as a rough guide, pans out at approximately 50:50 across the full spectrum. Obviously, the more successful teams generate greater prize money and enjoy larger commercial income.
The overall business model is simple: teams provide a menu of benefits on offer and the expected exposure levels over a season to brands wishing to avail themselves of F1’s global platform. If returns on investment and synergies with a particular team ‘fit’ the brand’s requirements, a deal is done. These basics apply across the board, whether the brands are seeking title sponsorships or ‘mere’ hospitality or access deals.
It follows that the higher the sport’s visibility, the higher the rate card for specific benefits – the prices of which can vary considerably. Various factors such as the heritage and image of a team, its popularity in key markets – usually driven by domicile or driver nationality – plus its most recent performances, amount and location of car space, the access options and even primary livery colours combine to influence the rate card.
Ferrari, the oldest team with the longest heritage, races in a predominantly scarlet battle dress, making it attractive to multi-national brands that integrate with its colours. Throw in a driver of a particular nationality such as Spaniard Carlos Sainz and it is little wonder that Iberian financial services company Santander, whose flame-like logo is red, has a premium partner agreement with the Scuderia for which it pays top dollar.
How much would that be? While such information is classified, well-placed sources believe it to be in the region of $30 million (AUD$44.4m) for engine cover and front nose logos plus pre-determined access to the team’s hospitality and personnel – including driver(s). To put the number in perspective, consider: two-thirds of that delivers full livery and naming rights for Moneygram with Haas for a year in a deal announced during the US Grand Prix.
Then, 10th-placed Williams, despite being the third-oldest team, offers similar space and benefits to those acquired by Santander for around 20 per cent of Ferrari’s rate card. By contrast McLaren, currently in the upper midfield and younger than all except Ferrari, would charge around $10 million (AUD$14.8m). Gulf Oil, whose blue/orange colours blend perfectly with McLaren’s corporate papaya, pays $3 million (AUD$4.4m) for some small logos and access.
These numbers have, though, increased exponentially since 2017, when Liberty acquired F1’s commercial rights, subsequently striking the global ‘Drive to Survive’ Netflix deal, which brought F1 not only to new audiences but also, crucially, alerted US brands to the sport. Statistics show that the number of purely US brands to have struck deals with F1 teams has risen 50% from 100 deals to more than 150 since 2020.
However, such increases are not unique to US-based brands: Sauber, which just five years ago battled to muster a sponsor portfolio of 10 companies, today brags two linked sponsors (Alfa Romeo and Orlen) plus no fewer than 41 official partners and six (primarily technology) suppliers. Aston Martin, too, has two partners in its team title: Cognizant (naming) and Aramco (strategic).
True, F1 was the first global sport to return to competition during the Covid pandemic and was thus immensely attractive to technology and information data companies with nowhere else to spend advertising budgets, but the bottom line is that teams managed to retain their support once (semi-)normality returned.
Equally true, some agreements were worth a mere five or 10 million dollars back then but have since escalated to bigger deals. Oracle’s latest title partnership with Red Bull Racing now runs to eight times that! From small acorns…
While such large numbers apply to the top three teams – Red Bull, Ferrari and Mercedes – the last-named pulls $100m (AUD$147m) via its Petronas agreement while Alpine’s income from BWT for a title and (shocking) pink livery deal amounts to just a third that. McLaren’s F1 CEO, Zak Brown, believes the market has never been more buoyant despite a tightening global economy.
“We’re in the best state I’ve ever seen [F1] in because of how hot the sport now is. I think it’s also because the sport is now more ‘famous’ and fan focused,” Brown told Automotive Daily during the US Grand Prix, where his team’s hospitality unit was packed to the rafters throughout race weekend.
“You could say it’s more corporate friendly because of how Liberty have positioned the sport versus Bernie [Ecclestone], who did an awesome job getting it to where it is,” added the former middling racer who cut his first sponsorship deal to fund his own career before switching focus to full-time motorsport marketing 30 years ago.
Apart from Netflix, Brown credits Liberty’s pro-active attitude to sustainability, which stands marketeers in good stead when approaching prospects for F1’s boom times.
“I think there was a risk [companies would turn on F1] but I think the sport has collectively jumped on it,” Brown said. “If we were seen as big emissions violators, the corporate world would leave, saying, ‘It’s just not sustainable’. However, between hybrids and the biofuels coming [in 2026] we’re seen as leaders in sustainability, not just doing less bad. The sport is headed in that direction.”
Brown does, though, add a twist: “Even though the economy’s rough, we’re not feeling it here in Formula 1. I say ‘yet’ and I’m surprised we’ve not seen it yet….”
His McLaren predecessor, Ron Dennis, once opined that due to the length of contracts – usually three years with options – and various mutual obligation clauses, F1 was usually last into a recession but also last out as companies need to be confident about their immediate futures before committing large sums for extended contractual spells. Could the current economic situation mean a crunch is looming for F1?
If crypto markets are any guide, stormy waters seem to lie ahead: eight of F1’s 10 teams enjoy support from one or other of the crypto categories – which range from coins to exchanges – and already there is talk of Mercedes partner FTX breaching its covenants. Alpine sponsor Binance was linked to a buy-out of exchange but that has gone cold – causing ripples in the industry. Ferrari partner Velas lost 40 per cent of its value in a year.
However, team bosses are confident about F1’s commercial future despite such headwinds: Enforced reductions in spend under the FIA’s $145m (AUD$214.8m) budget cap, increased prize monies and sponsorship bonanzas – even without the cryptos – enable the teams to generate sufficient revenues to be profitable with no need to rely on the largesse of billionaire owners, as was previously the case.
The net effect of such factors is that the latest financial reports filed by Mercedes F1 record a 400 per cent year-on-year profit increase for 2020/21 – the latter year the first under the cap. Indeed, turnover increased by €40m (AUD$59.3m) while costs dropped by an equivalent amount, enabling the team to post 2021 profits of €80m (AUD$118.5m) versus €20m (AUD$29.6m). Thus, it can easily weather a potential €25m (AUD$37m) loss due to vagaries in the crypto sector.
During F1’s 73-year history, around 150 teams have entered the sport and of these but 10 exist at present – pointing to a mortality rate of over 90 per cent, or an average of two teams shutting shop per season. In the five years prior to Liberty’s acquisition of F1’s commercial rights, three teams evaporated and two were sold under distressed circumstances.
Since 2017, only a single team (Force India) plunged into administration but was immediately resurrected as Racing Point/Aston Martin while Williams was sold in a solvent state. Thus, commercially at least, Liberty has made all the right moves to boost revenues and stabilise the sport, with the FIA’s regulatory overhaul not only delivering a better show via closer racing but also simultaneously reducing costs via the budget cap.
It’s win-win all round for teams, sponsors and, above all, the growing fanbase.