Formula One Information Guide Part 2: Money, Money, Money (Making a Profit)
This is the second installment of F1 Info Guide, Money, Money, Money. We have looked at Team budgets, and spending, but how does a Formula One team make money, and how much, if any at all?
We saw last week that budgets range from £220 million with Toyota, down to just £42 million with Torro Rosso. So where does this money come from?
Sponsorship is the most obvious source of revenue for a Formula One team. We are constantly forced to see Vodafone, Shell, Petronas, and Red Bull to name but a few.
It's obvious that sponsorship costs more depending on how well the team does. Ferrari costs much more to sponsor than Force India for example. These cars often get more exposure, have bigger fan bases, resulting in more merchandise sales with sponsor logos emblazoned across them.
Sponsorship of sports teams began with Formula One in 1968 when Team Lotus F1 took to the circuit in the colours of Imperial Tobacco’s Gold Leaf brand, instead of the usual livery which usually related to the team or driver's nationality. Today, sponsorship of F1 is no different to a car having four wheels. They go hand-in-hand.
Your average Formula One team has about 25 sponsors who fit into various categories. The Title sponsor is most likely the most predominant, and will pay the highest sponsor fee.
Let's take a look at the team's title sponsorship deals;
Ferrari: Marlboro (Tobacco) [estimated at £80 million per year]
McLaren: Vodafone (Mobile Telecommunications) [estimated at £40 million per year]
BMW Sauber: Petronas (Oil and Gas producer) [unknown]
Red Bull: Red Bull (Energy Drink, owned by Team Boss) [N/A]
Toyota: Panasonic (Electrical Manufacturer) [unknown]
Williams: AT&T (Telecommunications) [unknown]
Honda: No title sponsor. [N/A]
Torro Rosso: Red Bull (Energy Drink, Owned by Team Boss) [N/A]
Force India: KingFisher (Airline, owned by Team Boss) [N/A]
In the case of McLaren Mercedes, you have Vodafone. This sponsor deal was estimated to be worth £40 million a year. This fee accounts for almost 20 percent of McLaren Mercedes annual budget.
There are a few teams who are privately owned, and do not have title sponsors such as Red Bull, Torro Rosso, Honda and Force India. These four teams still rely on sponsorship money to fund their teams, but the owners of the teams, are also the owners of the companies which are their title sponsors. Honda is the only exception. Honda is 100 percent funded by the Honda car manufacturer, and therefore doesn't make a penny.
Next is the Technology partners who will supply a team with various components, such as Bridgestone (tyre supplier), Mobil 1 (oil supplier) and Sap (software provider). These companies don’t often pay to have their logos on a car; however, they do supply the team with goods which cuts costs for the team.
Corporate partners supply a team with goods which are used within the team and at team events, such as product launches, charitable events and parties. McLaren have seven corporate partners, ranging from Johnnie Walker, Santander, Boss and TAG Heur.
I'm sure we have all seen Lewis clicking his TAG watch into place before he climbs the podium. This is a condition in his contract, that he must be seen with a TAG watch at any public event. These sponsorship deals are worth between £10 million to £15 million per season.
Finally, we have minor sponsors, who get small logo positioning on the car, usually around the sides of the spoiler or nosecone. These can cost between £1 million-£3 million. McLaren have 16 minor sponsors, ranging from Nescafe to FedEx.
All this adds up. So far Vodafone have paid £40 million, Johnnie Walker, Santander, Hugo Boss, TAG, Aigo, Schuco, and Hilton have all paid in the region of £12 million, then minor sponsors have paid around £2 million each which equals about £160 million from sponsorship alone. This is 75 percent of Vodafone McLaren Mercedes annual budget made up from sponsorship deals.
Merchandise is another huge revenue stream. There are no official figures released on merchandise sales; however, Ferrari were speculated to have made around the £8 million mark in 2006. This is much lower than estimates from the Schumacher era, when sales were hugely boosted in Germany due to his popularity.
All of the teams sell merchandise through online stores and promotional tents at races. These can be important revenue streams for small teams. However, these smaller teams have fewer fans, which accounts for less sales.
Formula One Administration
The Formula One Administration, who raise over £1 billion through track fees, and Driver Super-licenses, then a further £1 billion is raised through commercial TV rights, which cost broadcasters huge amounts.
The BBC have paid £240 million for a three-year contract. This is multiplied all over the globe, in over 200 countries, and 40 individual broadcasters.
The FOA reward teams with a Prize Fund. Almost 50 percent of the £2 billion raised through various sources is shared between the teams, depending on Qualifying, Race WDC and WCC results.
Due to the nature of F1, an exact figure can’t be published, but looking at all revenue sources, a team like Ferrari and McLaren will raise £160 million through sponsorship, £10 million through merchandise, and £90 million through FOA-distributed profits. This totals an estimated £260 million. So after all, it looks as though a front-running Formula One team does make a profit, with mid-field teams breaking even.
The next and final installment of F1 Info Guide (Part 3) Money, Money, Money will take a look at the cost of an F1 car itself. Ever wondered how much a steering wheel costs?
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