Where the money goes in F1

Bernie Eccestone is at the centre of all things financial in F1

Bernie Eccestone is at the centre of all things financial in F1

A fearsome battle is brewing in F1 between Bernie Ecclestone – the man who has the biggest say in where money goes in the sport – and the teams, who want a bigger slice of F1’s revenues.

Money is always a hot topic in F1 as too little of the enormous revenues the sport generated are used to sustain the involvement of teams, drivers and circuits in the championship. Here’s a brief guide to where money goes in Formula 1.

Where the money goes in F1 (click to enlarge)

Where the money goes in F1 (click to enlarge)

This diagram shows how money is exchanged between the major interests in F1. Here’s a basic explanation of each:

Fans

This one is pretty straightforward. We don’t make money out of F1, but it gets revenue from us in the form of ticket sales (circuits) and merchandise (drivers and teams).

Drivers

Depending on a driver’s status, he may be paid to race for a team or pay them to run him. The latter is increasingly rare in F1 these days, but it is common for a driver to bring sponsors to a team that may directly or indirectly finance his place in the squad.

And of course, the driver pay money to the FIA, in the form of those contentious superlicences. The FIA increased its revenue from superlicences fivefold by putting up the fees last year.

Teams

Where the teams get their money from – and how much of it they need – is central to one of the biggest debates in F1 at the moment, that being cost-cutting.

Some teams are blessed with manuacturer backing – but as car sales plunge the commitment of those manufacturers is being called into question. Others get money from wealthy benefactors, such as Red Bull’s Dietrich Mateschitz, or Force India’s Vijay Mallya.

Sponsorship is another crucial part of teams’ revenues – as Honda found out to their cost by not having enough.

The teams also receive money from Bernie Ecclestone. Although exactly how much they get is a closely guarded secret it is believed to be based on how long they have been in F1, and how successful they have been. A memorandum of understanding agreed last year arranged for 50% of the sport’s revenues to go to the teams, though this is far less than what is seen in many other professional sports.

Circuits

The circuits’ income sources are complicated and some of them are represented by dotted lines here because not all circuits get their funding from the same places.

It is increasingly common for circuits to receive some amount of money from their governments, national or local. Although this is not just limited to Asian venues, circuits in the east generally get more state backing than their western counterparts. In 2007 the Bahraini government put ??35.7 (??32.1 / $45m) into its race (according to the Financial Times), the European Grand Prix at the Nurburgring got around a third of that amount, and the British race none at all.

The Monaco Grand Prix is the only event on the calendar where the income from trackside signage during the event goes to the race promoters – otherwise it goes to Ecclestone’s pockets. Some tracks also get support from car manufacturers such as Fuji (Toyota) and Suzuka (Honda).

FIA

As well as getting money from the drivers in the form of licences, the FIA also receives fines. The same goes for teams and circuits but, as this is not a regular source of income for the governing body, I haven’t included it on the diagram.

The FIA also made money by selling the commercial rights to Formula 1 to Bernie Ecclestone. In 2000 it sold a 100-year lease on the rights for ??250 (??225m / $315m). But given the huge amounts of money F1 generates (Formula One Management has made over $1bn over the past two years), and the length of the lease, the price seems extremely low.

Bernie Ecclestone and CVC

This brings us to the centre of F1 finance – Bernie Ecclestone. He may only own a minority shareholding in F1 these days, since CVC Capital Partners (a private equity firm) having acquired over 70% of the operation since March 2006, but at 78 Ecclestone is still the man in charge.

He is responsible for ensuring F1 continues to deliver sufficient revenues to CVC to justify their purchase of the sport. That’swhy he’s not willing to offer more money to the teams, and has let the axe fall on races that are failing to deliver enough money (such as Montreal).

But is CVC’s ownership and Ecclestone’s management of F1 the best interests of the sport? On the face of it you have to question the wisdom of allowing so much money to flow away from those without which there would be no F1 – the teams and the circuits. This had led the likes of Mateschitz to suggest that F1 should be owned not by private equity but by the teams themselves.

To confirm how accurate that impression is I’m going to continue adding to and refining this model, bringing in details of how much money goes to which different party. If you want to contribute you can download an editable copy of the Money in F1 diagram from the F1 Fanatic drop.io.

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