Formula 1 as a Business

Introduction

• Formula 1 (F1) is not just a sport; it's a complex business operation.
• Despite high costs and risks, there are economic incentives for owning and sponsoring an F1 team.

The 1996 Monaco Grand Prix

• Example of high stakes: chaos due to rain, with only 3 cars finishing the race.
• Demonstrates the financial risks involved in F1.

The Formula 1 Group

• Revenue Generation:
  • In 2024, F1 Group generated $3.65 billion in revenue.
  • Revenue sources:
    • Broadcasting: 33% ($1.2 billion)
    • Race Hosting Fees: 29%
    • Global Sponsorships: 15-20%
    • Others: Hospitality, merchandise, digital platforms.

Distribution of Revenue

• 38% of revenue is distributed to teams via the "Concorde Agreement."
• Distribution based on performance and history in F1, favoring teams like Ferrari and Mercedes.
• Budget caps introduced in 2021 to control spending.

Costs of Running an F1 Team

• Teams spend $400-$500 million annually.
• Major expenses:
  • Car development and power units ($15 million/year for engines).
  • Staffing: 800-1,200 people for top teams.
  • Logistics for global races.
  • Driver salaries ($500,000 to $60 million/year).

Budget Cap and Financial Strategy

• Budget cap introduced to level the playing field, starting at $145 million in 2021.
• Certain expenses are exempted, offering flexibility to spend beyond the cap.

Smaller Teams and Entry Barriers

• Example: HOS F1's strategy of buying components instead of building.
• Anti-dilution fee: $200 million to join F1.
• Additional costs: facilities, car development, staffing.

Sponsorships and Profitability

• Sponsorships are a major revenue source.
• Hospitality and networking contribute to revenue beyond racing.
• Some teams have achieved profitability due to budget cap and audience growth.

F1 Team Valuations

• Team valuations have increased significantly.
• Liberty Media's investment in F1 has seen substantial returns.
• Challenges for newcomers due to high entry costs and established teams.

Conclusion

• Formula 1 is a business venture with potential for high returns but also high risks.
• The sport has evolved into valuable franchises, making it difficult for new teams to enter.
• Understanding F1's business side enhances appreciation for the sport.