The 10 biggest team budgets in the history of Formula One auto racing came to a staggering total of $3 billion, according to new research.
The turbocharged income required to run an F1 team raced into the spotlight last month when the Force India outfit crashed into Chapter 11 bankruptcy despite having revenue of £86.8 million ($110.8 million at today’s rates) according to its latest financial statements. As the table below shows, it is a drop in the ocean compared to F1’s biggest-ever budgets.
To put it in perspective, the total tally could buy almost 10 F-22 Raptor fighter jets and comes to more than the combined annual GDP of Antigua, Barbuda, St. Kitts and Nevis.
The table is based on the results of teams that are located in Britain and file publicly available financial statements. That currently covers seven of the 10 outfits, with the exceptions being Swiss-based Sauber, Italy's Toro Rosso and Ferrari. Our estimates suggest that the latter has the most high-octane budget in F1 with revenue of around $470 million. However, this is hard to verify as the team is just a division of the luxury auto maker so doesn't file separate results.
The more an F1 team spends, the greater its chances of success are and there’s a simple reason for this. Tucked inside each car is around 1.25 kilometers of wiring and around 200 sensors, some of which give readings up to 1,000 times per second. The cars are at the forefront of technology so increased investment can drive developments which make a difference on track. The table above shows the impact of this as six of the top ten won the championship in the year that got them the place on the list of F1’s biggest earners.
It is crowned by reigning champions Mercedes which had a budget of $369.6 million (£289.4 million) to build the car that Britain’s Lewis Hamilton steered to the F1 title last year. The vast majority of the investment is made the year before the car makes its début on track and it generally comes from three sources.
The first is sponsorship and this is fueled by F1’s television audience which came to 352.3 million last year. In this field money usually talks and the higher the cost, the greater the exposure on the car. The more successful the team, the more attractive it is to big-spending sponsors with Mercedes’ roster including oil giant Petronas and tech company Qualcomm.
Sponsorship comprises around a third of the teams’ revenue on average with another third split between drivers who pay to race and funding from team owners. Daimler, the auto maker which owns Mercedes, is understood to be pumping in slightly less than the average with its contribution coming to around 10% of its team’s revenue.
The final component is prize money and Mercedes earned an estimated $150 million for winning the championship last year. It helped to drive its total revenue to $369.6 million but this was soon burned up by the high-octane cost of competing in F1.
As we have reported, Mercedes’ costs accelerated by 10.7% to $351.3 million (£275.1 million) in 2016. That year it had a $19.6 million (£15.9 million) tax bill leaving it with a $4.7 million (£3.8 million) net loss which is far from abnormal.
The teams’ total net losses came to $111.8 million (£90.9 million) in 2016 as this report revealed. Unlike most businesses, profit is not the barometer of success for F1 teams. Instead they judge their performance on racing results and tend to spend all of their income on this in a bid for victory. Some even pump in more than they make in revenue with the additional funds usually coming from the owners’ pockets or debt. The theory is that it is better to win on track and make no profit than make money and finish low down the standings.
Victory on track increases a team’s ability to bring in more money from sponsorship and owners can get a financial return from selling it in the long run. They can also profit in the meantime.
If the owner is a private individual they can take an annual salary. However, if the owner of a team is a company which sells products, such as Mercedes, the benefit they get whilst the team makes a loss is the television exposure of their logos on the cars.
The biggest teams have the deepest pockets so can sustain losses and outspend their rivals in a bid for victory. It goes to explain why Mercedes has won the championship for the past four years running with its closest competitor being Ferrari.
F1’s owner Liberty Media wants to give this dominance the red light by introducing a cap on budgets in 2021 when the teams’ contracts expire. F1 has failed every time that it has tried to implement a cap in the past so time will tell whether Liberty can get it to the finish line. If not, the size of a team’s budget will continue to be a decisive factor and the biggest spenders are likely to stay in pole position.
