Formula 1 is heading towards golden times with the budget cap and more competition on the racetrack. McLaren boss Zak Brown believes the teams could soon be worth billions. Mercedes slipped into the profit zone in the first year of the budget cap.
There was a time when teams fought tooth and nail against a cost cap. Especially the big ones like Mercedes, Ferrari and Red Bull. The tide has now turned in the opposite direction, although the top teams are still fighting for relief in some cases. For example, when it comes to accidental damage that reduces the development budget.
But the bottom line is that even the last doubters have realized that a budget cap helps every single team and Formula 1 overall. Because the premier class is no longer a money-burning machine, but transformed into a sustainable business. Because a certain communism in finance leads to more competition. And that in turn leads to increased interest. More interest equals more fans, equals more sponsors, equals more investors - a positive spiral.
Mercedes with chassis department profitable
Actually, the upper budget limit should have been 175 million US dollars. Because of Corona, it fell to below 150 million for 2021. Luckily, I have to say. That is the maximum amount of money that the teams have to drive the 22 races, to further develop the car and to pay the staff. With a few exceptions, such as marketing, the salaries of the drivers and the three most expensive employees. Engine development will be billed separately again.
With the budget cap, Mercedes has already slipped into the profit zone. "We are solidly in the black," reports team manager Toto Wolff. So Mercedes takes in more than the just under 150 million that the chassis department spends at most this season. The generated advertising value thus pays one-to-one to the company.
A big team fighting for victories and world championships automatically attracts many sponsors and partners. And more money is paid out to the rights holders. Red Bull is also well on the way to doing even bigger business with Formula 1.
Sports director Helmut Marko calculates. "It's a bit different with us. We have the big Red Bull logos on it. That's advertising space that we would otherwise sell. If you include that, we're on the way to making a real business case out of it. If we sold this advertising space, we would also be profitable. You can see the interest. The race in the USA was incredible. We have a lot of inquiries from US companies."
McLaren on the right track
Corona was a drag in 2020, but in the meantime Formula 1 has shifted into higher gears again.Fans are back at the circuit, VIPs are back at the Paddock Club. Sponsors who wanted to renegotiate contracts with some teams last year because certain contractual clauses such as access to the race track or factory tours could not be met are more positive again. "We have 30 million more income because of new sponsors," reveals Red Bull team boss Christian Horner.
Circuits are again paying full price for honoring the premier class. More and more countries and promoters are registering their interest. More than there are vacancies on the racing calendar. Because of these circumstances, Liberty Media expects revenues like 2019 – i.e. around two billion US dollars. About half of that goes to the teams.
In midfield and in the table basement, they haven't penetrated into the green zone yet - despite the budget cap. "We're not far away. Maybe we'll make it next year, but in two or three years at the latest," says Aston Martin's team boss Otmar Szafnauer. "McLaren will soon be a profitable team," reports CEO Zak Brown. In 2022, the upper limit will drop to 140 million US dollars, in 2023 to 135 million. So she continues to meet the teams. "The difficult thing is keeping the budget cap, not generating the income," says Horner. In other words, the top teams have to save even more, redeploy staff, streamline work processes and become more efficient.
Distribution as an important pillar
The further down you go, the further away the teams are from break-even - i.e. the point of earning more money than spending - even though the budget cap is not exhausted in full. This is because sponsors pay less for the space on the car. And the income from the marketing of Formula 1. "If you finish sixth or seventh, you automatically come closer to break-even," says Haas team boss Guenther Steiner.
With a payout of around one billion US dollars (as in 2019), the sixth in the world championship will receive around 85 million. The seventh about 77, the eighth under 70, the ninth just over 60 and the tenth just over 50 million dollars - bonus payments excluded. Nevertheless: With the budget cap and the restart in 2022, it should be easier for small teams to annoy the big ones. Getting into midfield.
A booming business will inevitably mean that every racing team increases in value. Because Formula 1 is currently a closed club. Each new entrant has to shell out $200 million. Bad for accommodating youngsters in the racing series. Good for the value of an individual company. "Formula 1 teams can be worth billions, like teams in the NFL or NBA," Brown believes. So in football and basketball.
Mercedes team boss Toto Wolff also predicts a profitable future for the small teams."It's going to accelerate a lot for them too, and pay off with the budget cap." It doesn't matter whether it's fifth, seventh or tenth, because business and the market should give it up.
