The Economics of Everyday Things

110. Formula 1 Teams

October 13, 2025

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  • Formula 1 teams operate as high-speed Research & Development (R&D) companies, with the vast majority of costs tied to designing, engineering, and manufacturing cars that are constantly being upgraded. 
  • The introduction of a cost cap in 2021 has stabilized the sport by limiting spending on car development and running, attracting investment, though significant costs like driver salaries remain exempt. 
  • Team performance and financial success are tightly linked, as on-track results directly influence sponsorship revenue, prize money distribution, and overall team valuation. 

Segments

F1 Start and Team Overview
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(00:02:01)
  • Key Takeaway: Formula 1 is the pinnacle of global motorsport, generating over $3.5 billion in revenue in 2024, supported by 10 teams designing 20,000-component cars.
  • Summary: The start of a Formula 1 race involves 20 cars accelerating within two-tenths of a second of the lights switching off. The sport generated over $3.5 billion in revenue in 2024, with 10 teams responsible for designing and manufacturing two highly sophisticated cars each season. Each car comprises approximately 20,000 individual, often bespoke, components.
Williams Racing History and Turnaround
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(00:04:19)
  • Key Takeaway: Williams Racing, a historically dominant team, underwent a major financial turnaround after being sold to private equity in 2020, contrasting with manufacturer-backed teams.
  • Summary: Williams Racing, founded in 1977, won 114 races and multiple championships, but poor on-track performance from 2010 onwards led to its sale in 2020 to Doralton Capital for about $200 million. Williams is unique as the only independently owned F1 team whose core activity is racing, unlike teams like Ferrari or Mercedes which promote larger automotive brands. The team has since grown to over a thousand employees executing a major turnaround.
Car Aerodynamics and Driver Strain
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(00:07:18)
  • Key Takeaway: F1 car aerodynamics generate downward force five times the car’s weight, enabling high-speed cornering, while drivers endure extreme physical strain, including up to 5G forces on the head.
  • Summary: F1 cars utilize upside-down wings to push the car into the track, generating downward force five times the vehicle’s weight, which allows for much quicker cornering than road cars. Drivers face immense physical taxing, sometimes losing 5% of their body weight in sweat during a race. The challenge for engineers is balancing the downforce needed for corners against minimizing drag on straightaways.
R&D Cycle and Cost Cap Impact
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(00:09:07)
  • Key Takeaway: F1 teams function as R&D companies, developing next year’s cars starting mid-year, and the 2021 cost cap, now around $170 million, has improved financial stability.
  • Summary: The difference in pure car performance between the fastest and slowest teams is less than one second, highlighting the significance of R&D. Teams begin engineering the next year’s car around the middle of the current year, a much faster cycle than typical road car development. The cost cap, which started at $145 million and is now around $170 million, has helped prevent teams from running out of money, unlike the pre-2020 era.
Car Costs and Exclusions
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(00:11:27)
  • Key Takeaway: A single F1 car costs about 5 million pounds to build for one season, and while the cost cap covers design and running, driver salaries are a major excluded expense, varying up to $80 million annually.
  • Summary: Building one F1 car with a season’s worth of parts costs approximately 5 million pounds, and teams must maintain two cars plus spares. The cost cap excludes administrative costs, marketing, and crucially, the driver’s salary, which can range from half a million to $80 million per year. The cost of spare parts alone is estimated at about $75 million USD annually.
Factory Operations and Component Sourcing
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(00:17:50)
  • Key Takeaway: Teams maintain extensive in-house manufacturing and testing facilities, spending millions on factories and wind tunnels, but purchase complex power units from suppliers like Mercedes.
  • Summary: Williams spends 10 million pounds annually to run its factory, which produces carbon fiber and metallic structural parts, and includes specialized rigs for testing parts to destruction. Aerodynamic testing relies heavily on large wind tunnels and computer simulations before incurring manufacturing costs. Developing a power unit requires a multi-billion dollar investment, leading most teams to purchase engines from suppliers like Mercedes.
Logistics and Global Movement
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(00:20:02)
  • Key Takeaway: The logistics of moving 30 tons of equipment per race across 24 international venues costs teams about £30 million annually, often involving creative sea freight solutions for less time-sensitive items.
  • Summary: The logistics operation is massive, requiring teams to fly about 30 tons of equipment to each race, costing roughly £30 million per year for transport alone. Teams operate on a punishing schedule, packing up immediately after a race on Sunday for unpacking at the next destination by Tuesday or Wednesday. For inexpensive but heavy equipment, teams sometimes use sea freight across multiple ships to save on air freight costs.
Valuations and Prize Money
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(00:21:53)
  • Key Takeaway: Liberty Media’s commercial focus has doubled Formula One’s valuation since 2017, leading to team valuations soaring up to $3.2 billion, with prize money distribution favoring top constructors.
  • Summary: Liberty Media purchased the Formula One Group for $8 billion in 2017, and the entity is now reportedly worth twice that amount due to increased commercialization, including US race additions. Team valuations have risen significantly, with Aston Martin recently valued at $3.2 billion after a share sale. Of the $3.5 billion in revenue, $1.2 billion was shared as prize money, with Ferrari receiving a special entitlement separate from performance-based distribution.
Sponsorship and Driver Selection
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(00:23:59)
  • Key Takeaway: Sponsorship revenue correlates strongly with on-track success, commanding $60 to $80 million for prime placement on top cars, which has reduced the historical necessity of teams taking ‘pay drivers.’
  • Summary: F1 cars act as billboards, and a prominent logo on a top-performing car can generate $60 to $80 million for a sponsor, compared to $20 to $30 million for a back-of-the-grid team. Title sponsorship, like Atlassian’s deal with Williams Racing, involves integrated branding efforts, such as using the Duracell Bunny in TV adverts. The current financial health of the sport means teams are now selecting drivers based purely on merit rather than financial backing.
Future Regulations and Technology Spin-offs
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(00:26:13)
  • Key Takeaway: New regulations every five years force re-engineering, with the 2026 changes mandating power units that are 50% electrical and utilizing fully sustainable synthetic fuel.
  • Summary: A new set of regulations is released every five years, providing a competitive reset for all teams, with 2026 marking the next major shift. The 2026 power units will transition to being 50% electrical and 50% combustion engine. This regulatory change includes the adoption of fully sustainable and synthetic fuel, technology that can be deployed into normal road cars.