Formula One Teams Budgets And How The Business Makes Sense

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One accident can trim half a million dollars off a budget.

It is easy to find these figures today as most teams are based out of England and this becomes public knowledge for those that want to go and look. I think it is interesting to see how much teams are spending as it gives you an insight into the sport that we don't get to read about. Knowing how and where the money comes from and who is making a profit gives you a better understanding overall.

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Tires cost in the region of $2700 a set and if you add up practice sessions,qualifying and the race itself they could possibly use 6 sets a racing weekend or more. 22 races is around $400 000 alone for one car and they have two.

Librerty Media who took over Formula One want to reduce the winning payouts from 2021 and at the same time put a cap on what teams spend. This season they raised some of the costs which teams were not happy about as it puts strains on their financials. Liberty is a business and also needs to make profit and since taking over the reigns after spending $4.6 Billion for the sport has lost $105 Million. They are trying to break even it seems first and then start making profit.

The true cost of keeping all 10 teams going each year is $2.6 Billion. Liberty Media spent an extra $47 Million last year on marketing which reduced the size of the winnings pot to bring it down to under $1 Billion.

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The true spend for each year is hard to gauge as the cars that we see today have been developed over the last year and a half or so. This is why the 2016 finacials are more aligned to 2018. The development and technology spend is where the true costs are. Teams finances are split according to their different set ups around the world.

Mercedes who have the biggest budget and the deepest pockets do not want a budget restriction along with Ferrari. Liberty Media want to impose a budget cap of $150 Million in 2021 which would suit the smaller teams. Mercedes and Ferrari use this team as a development testing ground which will eventually end up in with their technology being found in their road cars.

Putting a cap on the spending will also help reduce the teams losses which was a combined $112 Million in 2016. Profit is not the driving force for the big teams though as this is a marketing tool that enhances their brands worldwide. Red Bull, Mercedes.Ferrari are gauged by what they do on the track and having their cars competing at the top is what they are only worried about.

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$50 000 for one steering wheel.

They feel it is better to be winning and making no profit than making a profit and not challenging for titles. The more they are winning the more they can charge sponsors as the visibility created is enormous. The big teams are part of a company and the exposure for them on the television cannot be calculated financially as it is part of the overall brand image.

Williams is different as it is a private business and they need to make profit in order to run. This has to be run differently and budgets have to be adhered to even when results aren't going your way. Williams has been struggling over the recent years, but they are still making profit. Ferrari on the other hand had a $82 Million loss which is the giant share of the total loss made from all the teams combined.

If you look at where the teams revenue comes from and where the benefits are this is like free advertising for these major companies. A team like Red Bull has their massive livery on the cars streamed into living rooms around the world and they still made a profit. the teams income is in three sections. Sponsors who pay about a third of the budget to have their brands on the cars, some teams have drivers pay for the rights for their seat and lastly prize winnings throughout the season.

Not all teams have drivers pay for driving though as some drivers bring benefits like an engine deal from a manufacturer. The top drivers don't need to pay and that is why they don't pay. Stroll and Perez would need to add to the financials as they are not at the same level as the top guys. Formula One looks as though it is in a bubble which is not sustainable and I expect to see some teams eventually fall away or drastically change the way they operate. Over the last 10 years the 7 teams in England have increased their operating staff by nearly 30 percent and this is where the change needs to happen.