For most of the time that Formula 1 has existed, the teams that have had the most money are the ones that have achieved the most success in the sport. One of the main ways teams earn money is through sponsorships, with the bigger sponsors paying significantly more money to the teams than the small ones.
In this article, we're going to talk about sponsorship in Formula 1 and explain how much it actually costs to sponsor a Formula 1 team. We'll also talk about some of the other ways Formula 1 teams earn money and who the biggest sponsors in the sport currently are.
Cost of Sponsoring a Formula 1 Team
The actual amount of money companies pay to sponsor a Formula 1 team really depends on the size of the company itself and how invested they are in the sport. As a result, the cost of sponsoring a Formula 1 team can vary greatly.
On the lower end of the spectrum, smaller companies usually pay a minimum of $100,000 to sponsor a Formula 1 team. However, some of the bigger companies pay sponsorships of $100 million or more; the biggest sponsorship ever paid to a Formula 1 team was around $200 million.
As you can probably guess, this used to mean that whoever got the best sponsors would have the best shot at winning the championship, since the team with the best sponsors would also have the most money to work with. However, the FIA realized this could leave the bigger teams with a pretty unfair advantage over the smaller ones.
To rectify this, the FIA implemented a budget cap for all teams to help level the playing field. As of 2021, teams are only allowed to have a maximum budget of $145 million. Lowering the budget not only gives the smaller teams a better chance but also reduces the overall costs of a Formula 1 season.
While $145 million is still a pretty heft sum of money, this is down considerably from what the budgets of some of the teams used to be. For example, Ferrari's budget in 2019 was estimated to be over $450 million. Compare that to Haas, whose budget in 2019 was $173 million, and it's pretty clear that some balancing needed to be done.
Who Are the Biggest Sponsors in Formula 1?
There are also plenty of independent companies that have a pretty big stake in Formula 1. Some of the sport's most iconic sponsors over the years include Pirelli, Mobil 1, Rolex, Vodafone, Shell, Petronas, Marlboro, and too many others to count, frankly.
Interestingly, tobacco companies used to be among the sport's biggest sponsors, and some of the most iconic car liveries in Formula 1 are the result of tobacco company sponsorship (think the Marlboro Ferrari and the John Player Special Lotus). However, starting in 2001, tobacco companies were banned from advertising on Formula 1 cars.
There are a few industries that are barred from advertising on any Formula 1 car. Aside from tobacco manufacturers, these include companies that make drugs, weapons, and adult or political content.
How Else Do Formula 1 Teams Earn Money?
Sponsorships are one of the main sources of income for Formula 1 teams, but they're not the only way they make money. Teams also earn money from Formula 1 management, investors, and occasionally from drivers themselves. Let's break down how all of these forms of income work:
Formula 1 Management
A good chunk of each team's budget comes from the Formula 1 Group, which is a collection of companies responsible for promoting the World Championship. The group decides based on the performance of the teams in the previous year how much money each team is allocated.
For starters, the group gives $36 million to every team that has taken part in Formula 1 for over two seasons. Teams also receive an additional bonus based on how well they performed in the previous year.
There are also additional bonuses that only certain teams get. For example, Ferrari is the only team to receive the "Long-Standing Team" bonus, since they're by far the team that has been around in Formula 1 the longest.
Teams that have consistently won Constructor's Championships also get a bonus of $35 million. This bonus typically goes to Mercedes, Ferrari, McLaren and Red Bull, as these teams have won the Constructor's Championship the most times.
Finally, there are some other bonuses that teams receive for various other accomplishments.
Aside from receiving money from sponsors, teams also receive investments from the parent companies that support them. For example, the Red Bull Racing team receives investments from Red Bull, while the Mercedes Formula 1 team receives investments from Mercedes-Benz.
The bigger the parent company is, the more they're able to invest in their teams, which is partially why Mercedes, Ferrari, and Red Bull typically had much higher budgets than other teams before the implementation of budget caps.
Occasionally, a team will earn money by allowing a pay driver to drive on their team. If you're not familiar with the term "pay driver", this refers to a driver who offers to pay a team in exchange for a chance to drive on the team.
Some of the more recent examples of pay drivers include Lance Stroll, whose father Lawrence Stroll reportedly spent upwards of $80 million to get Lance into the Williams Formula 1 team, and Nikita Mazepin, who received similar backing from his own father Dmitry.
While this practice has generated a lot of criticism, the fact of the matter is that this money makes a pretty big difference to the teams, especially the smaller ones.
How Do the Drivers Earn Money?
It's a well-known fact that Formula 1 drivers are pretty wealthy, but how do they earn all that money? Is it just prize money from winning, or how does it work?
There are a few different ways drivers earn money. The first is through their salary; this is a lump sum payment made by the team, and this is the main way a Formula 1 driver makes a living.
Teams also award drivers bonuses based on how well they do during a season. Bonuses are typically awarded if a driver wins a championship, a race, or even if they just score some points.
Finally, drivers can earn money from their sponsorships. These are not paid by the team, but rather by the brand/company that is sponsoring the driver.