What do the latest F1 team finances reveal about the health of the series?

Financial talk has dominated the world of Formula One since the International Automobile Federation (FIA) approved Andretti’s entry into the series.

It is likely that even those that loosely follow the sport will have seen an impassioned speech from a team principal in recent weeks emphasising the sanctity of Formula One having ten teams. Whether it be Ferrari’s Frederic Vasseur claiming that a new entry must bring “massive added value” or James Vowles at Williams saying his organisation is “strongly against” an 11th team, there is clear concern in the paddock about having to share prize money with another outfit.

The bottom line has always dictated proceedings in Formula One, and a history of shaky finances means conservative attitudes are important, especially for the smaller outfits. The last team to go out of business was Force India in 2019, only to be saved by investment from Canadian billionaire Lawrence Stroll.

Since then, recent years have provided a certain level of comfort to the Formula One grid. The boost in popularity driven by Netflix docuseries Drive to Survive combined with the introduction of a budget cap has created a stable environment for teams, and the series recently revealed that all ten of its outfits operated within the US$140 million cost limit in 2022.

While the ‘closed-shop’ mentality being pushed by team bosses might appear greedy on the surface, it is informed by decades of turbulent financial history in the sport. But can we compare the spiralling costs of previous seasons to the financially regulated Formula One of today?

The latest available financial accounts have recently been released by six teams for the year ended 31st December 2022. Last season was the second year of the budget cap, so the results are a good indicator of the direction in which Formula One is heading, although they fall short of telling the whole story.

Leading from the front

While fans may have only enjoyed one season of on-track rivalry, Mercedes and Red Bull have been the dominant forces in Formula One in recent years.

Not since 2009 has a team not called Mercedes or Red Bull won the constructors’ championship and, even then, that year’s victors were Brawn GP, the outfit that became Mercedes the very next season.

Mercedes’ status as an automotive manufacturer provides a financial advantage, as does the fact the team generates income from supplying both McLaren and Williams with engines.

In 2022, Mercedes’ total turnover reached UK£474.5 million (US$577.7 million) compared to Red Bull Racing’s UK£278 million (US$338.5 million). This translated to profits of UK£89.7 million (US$109.2 million) and UK£2 million (US$2.4 million), respectively.

Mercedes and Red Bull can count on the most lucrative title sponsorship deals in the sport, with Petronas paying the former a reported US$75 million and the latter boasting a US$60 million-per-year deal with Orcale

These are two teams at very different points in their journey. Red Bull are investing heavily in an engine department that will see them produce their own engines for the first time. This saw parent company Red Bull Technology suffer a 5.3 per cent drop in profits year-over-year (YoY), despite delivering more revenue.

Plus, as these figures are for 2022, the benefit of the increased prize money from winning the constructors’ championship has not been fully realised. The Milton Keynes-based outfit has also now won two titles in a row.

There is also the small issue of Red Bull’s UK£6.2 million (US$7 million) fine paid to the FIA for a minor breach of the sport’s financial regulations, which resulted in an unusual rise in administrative costs for the season.

In short, these are not the teams that should be worried about a potential Andretti entry, especially when considering their shared history of uncurbed spending. Estimates put budgets at around UK£370 million (US$450 million) before the budget cap was implemented.