A Guide to Formula 1 Prize Money: How F1 Prize Money works

Everything you need to know about F1 prize money and how it is distributed

Away from the on-track excitement, Formula 1 boasts a complex set of financial regulations, but how does F1 prize money work?

F1 - Big money but is all prize money shared equally? Read on to find out more

Each team is bound by the Concorde Agreement with the sport, securing their place on the grid and determining terms and conditions of entry.

The most intricate element of this agreement is the distribution of prize money.

Each agreement, which runs from 2021 to the end of 2025 in its current form, is confidential and so the exact details are not fully known.

There are, however, three main elements that dictate prize money distribution

F1 Prize Money: Part 1 - Marketing Revenue 

The F1’s economy has boomed in recent years and the teams share in the revenue F1 makes

Epitomised by Netflix’s ‘Drive to Survive’ series, Liberty Media have overseen a huge increase in demand for F1 across the world.

Such appetite has enabled F1 to capitalise on all sorts of commercial avenues, increasing ticket and merchandise sales, and exploring new ventures.

This includes the ‘F1 Manager’ game and the F1 Arcade that has recently opened in central London.

Each of the 10 teams receives an initial, equal split of this revenue - around $35 million.

This figure varies year on year and it is only likely to increase over time.

F1 Prize Money: Part 2 - Championship Position 

Whilst any team would rather win the driver’s title, the second element of prize money is distributed to the teams based on their final position in the constructor’s championship.

In 2021, Mercedes took the most money as the highest finishing constructor (despite Max Verstappen and Red Bull clinching the driver’s crown), pocketing earnings in the region of $65 million.

These payments are all staggered based on championship position, with the 10th and last team earning around $18-20 million.

Payments have historically only been made to the top 10 constructors.

This means that, when there were more teams, a titanic battle between minnows such as Marussia and Caterham in the mid-2010s could be the difference between making it to the grid the following year, or not.

Prize money is far more equally distributed than in the past, in an attempt to close up the competitiveness of the entire field.

F1 Prize Money: Part 3 - Miscellaneous Payments  

Thus far the distribution between teams appears uncontroversial, with an equal marketing revenue split and payouts based on performance across each season.

This is where it gets more complicated.

Certain teams receive bonus payments that are entirely at the discretion of Formula 1 (but established within the Concorde Agreement).

Ferrari receives a sizeable payment each year - rumoured to be 2.5% of all prize money - as a ‘heritage’ payment.

They are the only team that has taken part in every F1 season since 1950, and as such their presence is of huge value.

Some teams - Mercedes, Ferrari, Red Bull and McLaren - receive bonuses for recent performances (winning championships within the past decade or so), whilst the Williams team has recently received $10 million due to its historic success.

It’s hard to imagine many other sports following suit - remember the backlash that football’s attempted ‘super league’ got - but the confidentiality and complexity allow F1 to just about get away with it.

Do Formula 1 Teams Actually Make Money?

Teams are restricted in their expenditure by a cost cap, which is intended to level the playing field.

It’s no surprise that the sport has been dominated by manufacturers (Mercedes, Ferrari) or conglomerates (Red Bull) that have been able to pour resources in during the 21st century.

This has left historic teams such as Williams and McLaren languishing behind in infrastructure and, in turn, performance.

In response, the cost cap was brought in at $145 million for 2021, falling to $140 for 2022 and now $135 million moving forward.

The cap covers the vast majority of operational costs, including resource and development, and staff salaries.

The exceptions are marketing costs, travel, driver salaries and the wages of the three highest-paid members of the team.

Almost all the teams will spend the full amount, although a few of the current back markers (such as Williams and Haas) may fall slightly short.

The top-performing teams can earn around $200 million from prize money alone.

Sponsorship and advertising opportunities - managed directly between the teams and prospective partners - also allows for further increased income.

Some teams also use pay drivers, who bring their own financial backing, predominantly from a family business or from a wealthy company from their homeland.

Manufacturers also sell engines, gearboxes and other elements to independent teams, generating further income.

For a team like Mercedes, who pay in the region of $30-40 million to Lewis Hamilton, the F1 entry is a shrewd investment from revenue alone, without even considering the marketing benefits.

For smaller teams, money is not necessarily recouped, but with the cost cap firmly in place and ever-increasing revenues, F1 appears a good place to be for repetitional gain and a relatively safe investment.

The Wider Implications of F1 Prize Money

The distribution structure of F1’s prize money also results in wider sporting consequences.

Each team is eager to protect its share of the revenue, and so there are strict rules around a new team entering the fray.

A $200 million entry fee is required by any new team - plus they have to convince F1 that they would add enough marketing appeal that they would add to each team’s share of the revenue, rather than decrease it.

This is a far cry from the chaotic pre-qualifying era of the late 1980s when the rich gentry would purchase cheap engines and chassis, and chance their arm trying to qualify for the race weekend.

Over the last 2 years, the Andretti family - US motorsport giants through 1978 F1 world champion, Mario, and his Indycar champion son, Michael - have unsuccessfully tried to force their way onto the grid.

If one of the most famous names in the US can’t make its way onto the grid, especially at a time when appealing to the American market is one of F1’s top priorities, then perhaps the only way new teams can enter is by buying into an existing team.

Regardless, the sport has gone to great measures to safeguard its current entrants and it remains to be seen whether F1 will expand beyond its 10 current teams.