The business of Formula 1

Revenues hit $3.4bn in 2024, a third coming from media rights and a little less from fees paid by race promoters, with around a fifth coming from sponsorship and the rest from merchandise, hospitality and licensing.

What I find most astonishing of all is how the teams’ fortunes have changed in just a few years. And I use the word ‘fortunes’ deliberately. Until the start of the Drive to Survive era – and it really is appropriate to timeline F1 that way – more than 100 Formula 1 teams had entered the sport, gone bust and disappeared for good. Only a handful endured. That’s because for decades those teams were loss-making, bankrolled by sponsors and wealthy individuals who were happy to take the hit, until they weren’t.

Post-DTS, though, and thanks in no small part to the cost cap that was introduced in 2021 that today limits spending to $170m per team per season (albeit with numerous costs such as driver salaries sitting outside of it), a midfield team like Haas or Alpine can break even, while a top team can do rather better than that. Take Mercedes, which in 2024 registered a $164m profit. Not so long ago, a big team would lose a multiple of that every single season.

Ferrari, McLaren and Red Bull have all become profitable too, and that’s before you consider the marketing value banked by the car makers or drinks brands that own them. Mercedes says the same exposure through advertising would cost $1bn.

These teams have become tremendously valuable. When Mercedes team principal and shareholder Toto Wolff sold a small stake to George Kurtz, CEO of cybersecurity firm CrowdStrike, for $300m in November, the team was valued at $6bn. Compare that to the $165m that same team was worth just 13 years ago when Wolff became a major shareholder. Factors like the Netflix show (I hesitate to use the word ‘documentary’), the cost cap, unprecedented success on the track and – to Wolff’s credit – his own brilliance have made him a billionaire.

Is this really the same Brackley outfit that sold for a single British pound when Ross Brawn acquired the team from Honda in 2009? Just 16 years to go from one quid to six billion bucks.

Even back-of-the-grid teams are valued in the billions these days. Their value comes not from their assets, the cash they generate or their IP, but their scarcity. Only 11 teams around the world are permitted to compete in Formula 1. The teams have become so valuable largely because they’re on the entry list. They’ve become franchises. Remarkably, the combined value of the teams has almost doubled in the last two years alone.

Their largest revenue streams are prize money and commercial sponsorship. In 2024, F1 distributed a $1.3bn prize fund to the teams. Part of the pot is divided evenly, another chunk is paid out based on the Constructors’ championship standings, while a third portion is paid as a bonus to a handful of long-standing teams in recognition of the value they bring to the sport. The precise split is unknown, but the highest paid team receives roughly twice as much as the lowest paid.

Meanwhile, title sponsorship agreements at the sharp end of the grid can be worth eye-watering sums – Oracle’s partnership with Red Bull Racing is costing the technology giant $500m over five years, according to reports. Income is also generated through merchandising, licensing and in the case of Ferrari, Mercedes and Red Bull, power unit supply to other teams.

With all of those revenue streams combined, Mercedes now generates $800m each year. Subtract that operating income of close to $200m and we can determine that the team is spending in the region of $600m per season. No more than $170m of that can be spent developing and running its cars, as mandated by the cost cap, which highlights how expensive driver and executive salaries, power unit manufacturing, marketing, and travel and accommodation can be.

Champagne corks are popping in the boardrooms as well as on the podium, but nothing lasts forever. If there is a bear case to be made around Formula 1 right now, it’s two-fold – the new regulations are coming in for more criticism from drivers, commentators and fans alike than any other F1 rules set; and F1 has built its palace on the shoulders of personalities who will not be around forever. Indeed three of its biggest stars may soon leave – Lewis Hamilton and Fernando Alonso will eventually tire of the Formula 1 circus, while Max Verstappen has made it clear he’ll walk and race elsewhere if he no longer finds F1 enjoyable. And he hardly looks like a nine-year-old at Disneyland just now.

If F1 purists become disillusioned by regulations that make the show less spectacular than it should be, and if casual fans begin to drift away when their favourite drivers leave, the fanbase will erode and the whole house of cards could start to fall. I’m not saying that will happen and as a lifelong F1 fan I truly hope it doesn’t, but the risk is far from immaterial.

Yes, F1 is booming right now. But there are very real threats that need to be managed with the same care and ingenuity that put the sport in this position in the first place.

If you want to know more about the business of F1, I can’t recommend the recent Acquired podcast episode highly enough