F1 is a glorious sport that involves a mammoth budget to take place. However, when it comes to F1 teams losing money, they lose a considerable deal of amount. Apart from earning a portion of funds and check they suffer a setback in the finance sector too.
Subsequently, the picture is quite humongous when it comes to racing and winning! F1 teams and their generous donors focus all their energy on being at the top. It is always better to be at the top of the table rather than making a profit.
Some may say that is absurd, but there are several other factors at play. We must remember that some teams have stakeholder ownerships while some are a part of giant holdings such as Mercedes, Ferrari. And the financial mechanisms between them vary drastically.
It is hard to pull the annual financial records of F1 teams because they are secret and not disclosed. For companies such as Ferrari, the F1 team is a subsidiary, and the finances get included in the whole budget report. All these factors make it difficult to predict finances accurately.
F1 teams prefer to win over making a profit because it fetches more sponsorship for the following season. Subsequently, the brand advertisements make up almost one-third of the money involved. As with all other sports, F1 also boasts a vast TV audience. An opportunity for brands to get more visibility and hence increase the sponsorship deals.
The COVID-19 situation has put a dent in brand sponsorships. Further, by estimation, it is known that constructors and owners have lost $2 million every Grand Prix missed. However, the situation has improved over the past few months after the races are back on track and aired on media platforms. Tickets for the stand make up a minuscule percentage of the complete finances too.
Drivers pay to race, and in return, they get entitled to a part of the total profit of the day. It is quite similar for team owners who fund the race expecting a profit. A huge bet!
The more prominent players in the industry, such as Mercedes, have bigger pockets that make it possible for them to win races. The technology that goes into developing an F1 car needs frequent updates. Bigger teams can afford all the research and engineering that makes the difference.
The low-level teams have struggled against this financial disparity for some time now. A limitation on the budget can help the cause and bridge this gap. Indeed, we might see this in 2021. The media owners of F1 and the FIA will be setting up a strict limit on the amount of money a team can spend in engineering the car.
Top teams enjoy the most significant share of the prize money—another problem arising from the financial differences. It is high time that this must end. Otherwise, the teams below have to back out on racing in the first place. The economic instability of F1 can be a hard pill to swallow, but it is the truth.
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