The Price Tag of Formula 1: A Complete Breakdown
R. Daffa Favian D. A.
MSc Financial Technology Graduate from Imperial College London | Product Manager
Netflix’s Drive to Survive season 6 airs this Friday, which means F1 2024 is around the corner. Buckle up because it’s almost time to watch rich men go broom-broom in fast cars all weekend! ???
But did you know that F1 is one of the most expensive, or perhaps the most expensive, sport? ????
Here's everything I've learned over the past 5 years, blending insights from my perspective as a sports enthusiast with my background in economics and finance.
The Costly Journey to Formula 1: Money, Dedication, Talent, and More Money
Interested in turning your child into the next Lewis Hamilton? Ever wondered how much it'll cost to get started?
Well, becoming a Formula 1 driver involves a lengthy and expensive journey. Here’s the breakdown according to Louis Pretorius (2022) and Enzo Mucci (2023);
Yep, for my Indonesian fellow, that's about Rp157,000,000,000 to make it to Formula 1. And even then, there's no guarantee you'll snag an F1 seat ??
Throughout this extensive journey, drivers must uphold an unwavering commitment, develop racing skills, foster relationships with teams and sponsors, and undergo rigorous physical and mental training (not to mention the intense neck exercises to endure high G-forces).
Furthermore, drivers must consistently excel each season to obtain the points necessary for securing the mandatory FIA super license. A minimum of 40 super license points is required before drivers can compete in Formula 1. The number of points awarded varies across categories and is also influenced by championship standings.
However, gaining entry into Formula 1 often requires drivers to either be selected by teams or financially secure their position — in the extreme case, some may even refer to this practice as “buying their seat”.
The Mandatory FIA Super License Fee
So what is the FIA super license? They are already considered the best among the best. Why would they need another license?
The FIA super license is a mandatory credential required for drivers to compete in Formula 1 where it serves several important purposes such as ensuring competence, maintaining safety, and protecting the integrity of the sport so that only the most talented and deserving drivers have the opportunity to compete at the highest level.
So even if you make it to F1, you still have to pay ??
Technically, every F1 driver is required to pay an annual super license fee, which is a fixed cost for the privilege of participating in the sport. In 2023, the basic registration fee per driver is $11,047, plus an extra $2,230 per point from the previous season. Here is a breakdown of what each driver will pay to compete in the upcoming 2024 season (Mee, 2023);
Thankfully, some contracts do offer a bonus per point scored to help subsidize this cost. But still, it’s a lot of money.
The Economics of Talent: Sponsorships and Financial Barriers in Formula 1
The journey to Formula 1 demands substantial talent and financial backing. Drivers like Fernando Alonso and Lewis Hamilton navigated this path with the support of sponsorships from companies eager to invest in promising talent.
Brands sponsor drivers in lower motorsport categories, covering their expenses and promoting their logos as the drivers progress. This sponsorship model enables drivers from various financial backgrounds to advance to Formula 1, as seen with Alonso's backing from Telefónica and Hamilton's sponsorship from Mobil1 and McLaren from their pre- and early careers (Pretorius, 2022).
However, sponsorship deals or financial backing from wealthy families often determine driver selection, sometimes prioritizing money over talent.
This practice allows drivers to 'buy' their seats by offering lucrative deals to teams, particularly those with limited budgets. Consequently, criticism arises because not all drivers racing in F1 necessarily represent the top talent worldwide, but rather those who can afford a seat. For instance, while Lance Stroll is talented enough, some argue that he secured his position through his family's wealth acting as sponsors, serving as an example of this scenario.
Conversely, many skilled drivers, such as our own Rio Haryanto, find themselves without seats due to insufficient funding. Despite his talent, Haryanto's tenure with Manor ended prematurely when sponsorship funds ran out after 12 races, leading to his replacement by Esteban Ocon in 2016.
The Multimillion-Dollar World of F1 Cars
Ever wondered why “Formula 1” is called “Formula 1”?
According to Formula 1 in 2023, the word “Formula” refers to the set of rules and regulations the teams have to build their machines to, while the numeral “one” represents the highest level of international motorsport competition.
But to build the cars and machinery, teams have to dig deep into their pockets. While it's hard to pin down the exact cost of a current F1 car, Jessner (2022) suggests that teams might spend around $15 million to build one. Here’s a breakdown of some major components and their estimated costs according to Tafa in 2023;
You might think, "Oh, those tires aren't that expensive," but consider this: each team has 20 sets every weekend, totalling about $40,000 per weekend. Multiply that by all races throughout the year, and suddenly we're approaching around $1,000,000. However, teams do not pay Pirelli for tire usage each Grand Prix. Rather, the FIA organizes annual package deals, supplying the same tires to each team.
So, How Do F1 Teams and Drivers Make Billions?
Formula 1
According to a 2023 Forbes report, Formula 1 made a whopping $2.57 billion in revenue in 2022, a big jump from the $2.136 billion in 2021.
The profits also shot up dramatically. Despite losing $66 million in business, Formula 1's operating income (kind of like its profit) hit $173 million, (or 333%) a massive increase from the $40 million earned in 2021.
Why such a big jump?
Well, a few reasons. In 2022, there were no attendance limits due to the pandemic, which boosted ticket sales. Plus, sponsorships and hospitality sectors brought in more money. But, costs also went up because of things like increased freight expenses for team transportation, rising driver salaries, elevated hospitality expenditures, and general administrative costs, particularly associated with planning and promoting the inaugural Las Vegas night race.
Globally, Formula 1 had an average of 70 million viewers per race in 2022. According to a 2023 report by Seaport Research Partners, F1's media rights worldwide are predicted to exceed $1 billion this year and reach $1.4 billion by 2029.
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Estimated Growth in Formula 1 Media Rights (2019-2029)
F1 Teams
F1 teams make money based on how well they perform each season. Although the exact details of how F1 distributes its prize money are kept secret, we can still estimate how much each position is worth using information available to the public. Here's a breakdown of the earnings for teams in the 2023 season, according to Hardy (2023);
Every Point Counts - In the 2023 construction championship table above, there's a 3-point gap between Mercedes at P2 and Ferrari at P3. This difference translates to nearly $10 million in estimated earnings.
So, can teams like Red Bull, Mercedes, and Ferrari always make faster cars with bigger budgets? ??
They used to, but not anymore. Budget caps were introduced in 2021 to level the playing field, regulating how much teams can spend on developing and building their race cars. The cap was initially set at $145 million and reduced to $135 million in 2023.
Historically, Ferrari, Mercedes, and Red Bull have had the largest budgets, but thanks to the budget cap, smaller teams like Haas, Williams, and AlphaTauri can now compete with the giants.
Furthermore, F1 teams also earn money from sponsorships and investments from car manufacturers. Sponsorships are the primary income stream for F1 teams, where the cost of team sponsorship varies widely but generally falls in the range of $1 million to $50 million per year (Venturoli, 2023). That is the reason why F1 cars have lots of stickers from various brands.
F1 Drivers
Each team has two drivers, who are paid separately from the team budget cap. Driver salaries range from $1 million to $55 million, with bonuses tied to performance and additional earnings from sponsorships and endorsements.
Below is the table of the 10 highest-paid Formula 1 drivers from the 2023 season excluding sponsorships and endorsements according to Forbes (2023);
F1 Grand Prix Tickets in 2023
F1 Grand Prix tickets are notoriously expensive. According to Balfour in 2023, the average cost of a 3-day Formula 1 ticket that year was $500, showing a 56% increase from 2019.
Among the more affordable races are Hungary (average $184), Japan (average $231), Bahrain (average $265), Australia (average $276), and Canada (average $297). Additionally, Austria, Spain, Japan, and Italy (Monza) also have relatively inexpensive tickets.
On the other hand, the most expensive tickets in 2023 were found in Las Vegas (average $1,667), followed by Miami (average $1,113).
Average Cost of 3-Day Tickets in 2023
I spent ￡219 on a grand admission, race day ticket for the British GP, which gave me this view.
To put it in perspective on how expensive that was, last season I bought three football tickets from a reseller market and the total was ￡204, still less than a single grand admission ticket.
But don't get me wrong, the experience was completely worth the price.
Why don't we have the Mandalika F1 GP if it brings in so much money?
We know that F1 brings in a lot of money. With MotoGP and WorldSBK's success, there's talk of Mandalika hosting an F1 Grand Prix. Lombok's stunning scenery adds to the attraction. But Priandhi Satria, CEO of the Mandalika Grand Prix Association (MGPA), says hosting an F1 event means major prep. It's not just about the track; they need enough grandstands, airport space, and places to stay. So, it's going to cost a fortune.
Priandhi (2023) mentioned that Mandalika Circuit aims to get grade 3 certification from the FIA for car races. To meet grade 3, they need to tweak security setups. While F1 events need grade 1 certification.
According to F1 Speed Indonesia in 2023, Mandalika's straight stretch is too short for F1, possibly leading to boring races. It's not comparable to Monaco, which is an exception for F1 due to its unique situation. Mandalika was indeed made for motorbikes. Plus, its kerbs, like those in Qatar, could trouble F1 tires. The fan base for F1 in Indonesia is not as large as that for MotoGP. With the Mandalika circuit located outside of Java and accommodation costs being high — not to mention ticket prices — it's pessimistic to expect a large turnout of spectators.
Final Remarks
Formula 1 will forever be the pinnacle of motorsport, captivating audiences with its high-octane drama, heart-stopping excitement, and everything in between.
It continues to push the boundaries of speed and technology, thrilling fans with each race. And for enthusiasts like myself, delving into Formula 1's numbers adds another layer of excitement to the experience.
S/O to F1 Speed Indonesia for giving me knowledge and updates regarding F1 these past few years. Make sure to follow them on X and Instagram.
If you found this information valuable, consider sharing it with a friend or colleague interested in Formula 1! ??
Moreover, should there be any openings for product management positions within your company, I am enthusiastic about the prospect of discussing potential opportunities to contribute and grow within your team. Feel free to connect for further discussions! ??
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