The seventh race of the F1 Championship took place yesterday in France, with Max Verstappen’s aggressive and tenacious Red Bull triumphing ahead of Lewis Hamilton and the teammate Sergio Perez; a certainly positive weekend for the two Red Bull that took home the first step of the podium for the third consecutive time; never happened before.
We can undoubtedly say that the championship this year seems to be more fun and perhaps a little less predictable than usual, until the very last lap. Fans should be happy for that.
While we were watching the race and commenting on it, one friend asked me an interesting question that often those who do not deal directly with the world of motorsports have in mind and don’t know the right answer.
How does Formula 1 make money? How exactly does the business work?
That is right; how does Formula 1 have always been one of the most profitable and richest sporting events in the panorama of sports disciplines? Have you ever thought about that?
The answers are apparently simple even if the racing world is quite a complex matter. If we want to go straight to the point, we can say that there are 3 main sources of income for the most followed and famous motor racing circus in the world:
1. Television rights
2. Fees paid by the circuits
3. Sponsorships
Tv rights
Formula 1, as many other sports, owns the television rights; or better what is called the World Feed, or global feed, which is the main channel that contains most of the F1 television coverage during the official sessions, and is the feed that all the world broadcasters will comment on while the session is in progress. To use and comment on it, broadcasters must buy it and then pay Formula 1 what is called broadcasting rights, the price of which is very high.
To give you an idea, it is said that when SKY bought the Formula 1 broadcasting rights for the UK in 2019, it signed a contract worth 200 million a year. If we think that there are dozens of television networks in the world that broadcast the races of the queen of 4 wheels, it is easy to understand that the main part of the business comes from there.
Here is the list:
Fee paid by the circuits.
Every circuit in the world, from the longest-running and prestigious to the youngest and most recent, must pay a fee in order to host a Formula 1 race and therefore be included in the official calendar. It has always been almost impossible to know the exact figures of the agreements with each individual circuits. It is said that Mr. Bernie Ecclestone managed the contracts personally and that they had very strict confidentiality clauses. Some sources mentioned a range that starts from 60 million for Abu Dhabi up to 5 for Monaco, passing through 25 of Monza, to 45 in Austria, China and Russia. We cannot say with certainty that these are the correct figures, but it will certainly be tens of millions for each single circuit and if you consider that there are 22 circuits in the calendar, it is easy to do the math on this too.
For their part, the circuits have always believed that the investment was worth it; few other sporting events in the world bring such a large number of fans to the stands. In fact, in covid-free times, individual circuits have always been able to count on the proceeds from the sale of hundreds of thousands of tickets that people bought o attend the race. This has always been the main source of revenues for circuits and we hope it will be back soon.
Formula 1 also has the rights on a percentage on tickets sold and therefore this adds a share of its revenues.
And then there are the sponsors.
Last but certainly not least, we have the funding that comes from companies that use Formula 1 as a marketing and communication tool.
The numbers of Formula 1 have always been and still are so good that many of the largest and most important companies in the world have joined the circus to gain international visibility, exploiting the marketing rights deriving from sponsorship packages.
As a sports marketing company, we are often asked why sponsoring F1 and my answer always starts with the numbers. In fact, let us make a brief recap of the 2020 season:
four fewer races than in 2019, 17 instead of 21, with an average audience of 87.4 million spectators per Grand Prix. Slightly down, -4.5% compared to 2019, but if we look at the average of previous years, things did not go badly considering the pandemic: 87 million in 2016, 2017 and 2018, 80 million in 2015 and 83 million in the 2014 and therefore the 2020 performance was very much in line with the average of the last seven years. The season took place only in Europe and in the Gulf and not in a series of continents that usually follow the races assiduously and the start time of the races resulted in the absence of an audience of a whole part of crucial markets.
Despite everything, however, excellent results were recorded in a number of very important markets: + 71% year-on-year in Russia, + 43% in China, + 28% year-on-year in the Netherlands, + 10% in the United Kingdom and + 5% in Germany. The US also saw a slight + 1% increase considering there were no local time zone races and no US Grand Prix that would clearly have benefited from ABC’s audience presence.
The unique spectators of the 2020 season were 433 million (-8% on an annual basis).
The cumulative 2020 television audience was 1.5 billion, slightly lower than the 1.9 billion in 2019; the reduction, as already specified, was probably influenced by the 17 races of last season compared to 21 in 2019. *
A unique audience and equally strong values make F1 a perfect platform for investing.
In addition to the numbers, which must always be consulted in any sports sponsorship, there are also all the values related to the discipline that a company must try to make its own and then exploit in the activation of sponsorship and in all related communication activities. Formula 1 has a vast list of values to choose from: technology, innovation, speed, pursuit of performance and perfection, precision, team spirit, passion, glamor, dynamism, internationality … so we must be inspired by these values to build the contents to share with your audience. As a brand licensing company, we cannot ignore the values linked to the sporting discipline; they are essential for creating strong and lasting partnerships.
I hope this article has answered some questions that you may have asked yourself over time, if you have other doubts or curiosities, do not hesitate to contact us.