The Economics of Formula 1

Formula 1 is the top level of many different series of racing. The series start at Formula 3 and goes up to F1 and FE (Formula Electric). The racing series has been around since 1946 and have been constantly evolving and changing with different car designs, rules, and tracks. It takes place all over the globe; in 2016, races took place in over 21 countries. Over the last 15 seasons the F1 organization brought in $16.2 billion dollars, surpassing FIFA (soccer/football), the next largest sport organization. F1 brings in its revenue from vending and concessions at the tracks totaling $33.9 million in 2013, trackside advertising totaling $259 million, and fees for hosting and broadcasting totaling $1.3 billion in 2013. In totally, this is $1.7 Billion for F1’s largest shareholder Delta Topco who has a 35% stake in the racing series. F1 has grown exponentially over the last 15 years; back in 1999, the F1 was owned outright by Formula One Administration and that company only showed revenue of $341.5 million. Since then, F1 has climbed the ranks and today is the worlds most watched annual sports series and has over 425 million television viewers.

With all this overall data, what does it look like to be a F1 team? Each team is supported by a company, generally an auto manufacturer or a company that sponsors many sporting events such as Red Bull.  The top teams competing are Mercedes-Benzes, Red Bull, Ferrari, and McLaren-Honda, among others. Each team runs two cars throughout the series and thus has two drivers. Many of the drivers hold celebrity titles and are globally recognized. These drivers sign contracts similar to many other athletes, with a time requirement and worth a certain amount of money. The highest paid F1 driver is Sebastian Vettel who races for Ferrari and signed a 3-year deal worth $150 million. This makes him one of the highest paid athletes in the world. The second highest paid is Lewis-Hamilton who races for Mercedes and signed a 3-year deal worth $31 million with $10 million in bonuses. However, the average for an F1 driver ranges from $750,000 to $3.5 million. These salaries are paid by the sponsoring company, which will also pay for the support crew, car, and any other entry fees. According to data from 2015, the top companies will pay €414 million to €470 million or $450 million to $504.63. This is spent in hopes of bringing in more advertisement and helping the company to win the championship every year. Over all, in 2015 the 10 competing teams spent €2,600 million or $2.8 Billion.

F1 is a global sport and outside the US it is a huge event. Within the US, it is trying to compete with NASCAR and other small series; therefore, it’s harder to gain popularity. F1 however is struggling to keep its viewers. From 2009 to 2015, F1 has lost a total of 175 million annual viewers. With broadcasting rights being the largest source of income for F1 and its shareholders, this loss is frightening.  Many people blame the loss of interest on the regulation change on how the car is designed. This has made the car less appealing to the eye and new engine rules have made the car run with different sounds that some people don’t enjoy as much as the old V10’S or V12’s. Along with this, a change in the points system also has made it harder to watch and was scrapped after the 2014 season. 2008 was the peak viewership for F1, reaching 600 million viewers. It is hard to pin point a reason for the drop in viewers. There are more exciting conflicts and competition between drivers, more than in the last 10 years. Hamilton and Vettel have already made the start of the 2017 season extremely exciting. Accessibility for viewers has never been better with online streaming. The most obvious reason for the drop is the rise in “pay-per-view” contracts for F1. In 2013 the sport lost 50 million viewers, 46 million of which came from removing free viewing in China and France. However, in the US F1 viewership grew 10.1% in 2015, showing the second year of growth. Many of the viewer’s lost are due to pay pricing and not due to the popularity of the sport, which is understandable. But for F1 to continue to see total losses year after year is obviously not sustainable and the sport will have to  change something to retain viewers. The sport has sprung a cult following of super fans and with releases of movies like the 2013 movie RUSH that followed the competition between James Hunt and Niki Lauda. These help grow the fan base and will keep the sport alive.

F1 is responsible for many innovations that make it to the average driver’s car. More advanced Tires, carbon-fiber, disk brakes, rear-view mirrors, traction control, multi-function steering wheels, and paddle shifters are all technologies that have been developed from F1 and similar racing series. The amount of money that the sponsor companies pour into the R&D for the cars allow for new innovations and the development and improvement of current technologies. The sport is key to development of the automotive industry. With the new series of all electric Formula races, the electric car industry will benefit from the new innovations made by the racing teams.


Sources:

Bevis, Daniel. “Eight Driving Innovations Which Came from F1.” Presented by Gocompare.com. N.p., 13 Mar. 2013. Web. 20 Apr. 2017.

Smith, Luke, and Tony DiZinno. “As F1 TV Viewing Figures Continue to Fall Globally, Is There a Solution to the Problem?” MotorSportsTalk. N.p., 14 Feb. 2015. Web. 20 Apr. 2017.

Totalsportek2. “Formula 1 Driver Salaries In 2017 (Revealed).” TOTAL SPORTEK. N.p., 09 Feb. 2017. Web. 20 Apr. 2017.

Sylt, Christian. “F1 Revenue Accelerates Past FIFA’s To $16.2 Billion.” Forbes. Forbes Magazine, 01 June 2015. Web. 20 Apr. 2017.

Ltd., Crash Media Group. “F1 2015 Team Budgets Published.” Crash.net – F1, MotoGP & Motorsport News. Crash.net, 9 Aug. 2015. Web. 20 Apr. 2017.

Williamson, Martin. “A Brief History of Formula One.” ESPN UK. ESPN.co.uk, n.d. Web. 20 Apr. 2017.

Kreye, Sonja. “F1 Economics – Where Does the Money Go and Come From?” Isportconnect. N.p., n.d. Web. 20 Apr. 2017.

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