Editing Formula One (section)

==Revenue and profits==
{{Update|part=section|date=October 2024|reason=Needs update to account for the ban in private testing.}}
[[File:F1 team budget split.svg|thumb|right|Estimated budget split of a Formula One team based on the {{F1|2006}} season|413x413px]]
In March 2007, ''[[F1 Racing]]'' published its annual estimates of spending by Formula One teams.<ref>{{cite web |title=Budgets and Expenses in Formula1 |url=http://www.f1scarlet.com/budgets&expenses_f1.html |url-status=dead |archive-url=https://web.archive.org/web/20200228063816/http://www.f1scarlet.com/budgets&expenses_f1.html |access-date=30 August 2015 |website=F1scarlet.com|archive-date=28 February 2020 }}</ref> The total spending of all eleven teams in 2006 was estimated at $2.9&nbsp;billion US. This was broken down as follows: Toyota $418.5&nbsp;million, Ferrari $406.5&nbsp;m, McLaren $402&nbsp;m, Honda $380.5&nbsp;m, BMW Sauber $355&nbsp;m, Renault $324&nbsp;m, Red Bull $252&nbsp;m, Williams $195.5&nbsp;m, [[Midland F1 Racing|Midland F1/Spyker-MF1]] $120&nbsp;m, [[Toro Rosso]] $75&nbsp;m, and [[Super Aguri]] $57&nbsp;million.

Costs vary greatly from team to team. Honda, Toyota, McLaren-Mercedes, and Ferrari were estimated to have spent approximately $200&nbsp;million on engines in 2006, Renault spent approximately $125&nbsp;million and Cosworth's 2006 V8 was developed for $15&nbsp;million.<ref>"The real cost of F1" ''F1 Racing'' (March 2007) Haymarket Publishing</ref> In contrast to the 2006 season on which these figures are based, the 2007 sporting regulations banned all performance-related engine development.<ref>{{cite web|url=http://www.mclaren.com/f1season/regulations.php|title= 2007 FIA Regulations|access-date=23 May 2007|publisher=McLaren |archive-url = https://web.archive.org/web/20070520021421/http://www.mclaren.com/f1season/regulations.php |archive-date = 20 May 2007|url-status=dead}}</ref>

Formula One teams pay entry fees of $500,000, plus $5,000 per point scored the previous year or $6,000 per point for the winner of the Constructors' Championship. Formula One drivers pay a [[FIA Super Licence]] fee, which in 2013 was €10,000 plus €1,000 per point.<ref name=aw>{{cite journal|last=Sylt|first=Christian|title=The Price of Power|journal=[[Autoweek]]|date=28 October 2013|pages=64–66}}</ref>

There have been controversies with the way profits are shared among the teams. The smaller teams have complained that the profits are unevenly shared, favouring established top teams. In September 2015, [[Force India]] and [[Sauber]] officially lodged a complaint with the [[European Union]] against Formula One questioning the governance and stating that the system of dividing revenues and determining the rules is unfair and unlawful.<ref>{{cite news|url=https://www.theguardian.com/sport/2015/sep/29/formula-one-possible-investigation-european-union-force-india-sauber|title=F1 faces possible investigation from the European Union|date=29 September 2015|work=The Guardian|agency=Press Association|access-date=14 December 2016|archive-date=5 March 2017|archive-url=https://web.archive.org/web/20170305012755/https://www.theguardian.com/sport/2015/sep/29/formula-one-possible-investigation-european-union-force-india-sauber|url-status=live}}</ref>

The cost of building a brand-new permanent circuit can be up to hundreds of millions of dollars, while the cost of converting a public road, such as [[Albert Park Circuit|Albert Park]], into a temporary circuit is much less. Permanent circuits, however, can generate revenue all year round from leasing the track for private races and other races, such as [[MotoGP]]. The [[Shanghai International Circuit]] cost over $300&nbsp;million<ref>{{cite news |last=Benson |first=Andrew |url=http://news.bbc.co.uk/sport2/hi/motorsport/formula_one/3692888.stm |title=High price takes shine off F1 |work=BBC News |date=27 September 2004 |access-date=30 August 2009 |archive-date=2 December 2010 |archive-url=https://web.archive.org/web/20101202022406/http://news.bbc.co.uk/sport2/hi/motorsport/formula_one/3692888.stm |url-status=live }}</ref> and the [[Istanbul Park]] circuit cost $150&nbsp;million to build.<ref>{{cite web |url=http://www.pioneer-investors.com/news2.asp?newsid=2785 |title=Pioneer Investors |publisher=Pioneer Investors |date=7 February 2006 |access-date=30 August 2009 |url-status=dead |archive-url=https://web.archive.org/web/20090823025428/http://www.pioneer-investors.com/news2.asp?newsid=2785 |archive-date=23 August 2009 }}</ref>

A number of Formula One drivers earn the highest salary of any drivers in auto racing. The highest-paid driver in 2021 is Lewis Hamilton, who received $55&nbsp;million in salary from Mercedes AMG Petronas F1 – a record for any driver.<ref name="Hamilton"/> The very top Formula One drivers get paid more than [[IndyCar]] or [[NASCAR]] drivers; however, the earnings immediately fall off after the top three F1 drivers, and the majority of NASCAR racers will make more money than their F1 counterparts.<ref>{{cite web|url=http://www.autoblog.com/2012/11/16/red-bull-infographic-compares-and-contrasts-nascar-and-f1/|title=Red Bull infographic compares and contrasts NASCAR and F1|first=Chris|last=Tutor|website=Autoblog|access-date=19 May 2017|archive-date=4 May 2017|archive-url=https://web.archive.org/web/20170504060325/http://www.autoblog.com/2012/11/16/red-bull-infographic-compares-and-contrasts-nascar-and-f1/|url-status=live}}</ref> Most top IndyCar drivers are paid around a tenth of their Formula One counterparts.<ref name="Hamilton">{{cite web|url=https://www.forbes.com/sites/brettknight/2021/07/22/formula-1-highest-paid-drivers-hamilton-verstappen/?sh=728e249f1182|access-date=9 October 2021|title=Hamilton|website=[[Forbes]]|archive-date=8 April 2022|archive-url=https://web.archive.org/web/20220408110203/https://www.forbes.com/sites/brettknight/2021/07/22/formula-1-highest-paid-drivers-hamilton-verstappen/?sh=728e249f1182|url-status=live}}</ref>

In the second quarter of 2020, Formula One reported a loss revenue of $122&nbsp;million and an income of $24&nbsp;million. This was a result of the delay of the racing championship start as a result of the [[COVID-19 pandemic]]. The company grossed revenues of $620&nbsp;million for the same quarter the previous year.<ref>{{Cite news|url=https://www.ft.com/content/67515b3a-9db9-49b0-9f56-130317ed3f08 |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/67515b3a-9db9-49b0-9f56-130317ed3f08 |archive-date=10 December 2022 |url-access=subscription|title= F1 revenues almost wiped out by pandemic halt to races |work=Financial Times|first=Samuel |last=Agini|date=10 August 2020|access-date=10 August 2020}}</ref>

=== Cost cap ===
Since the beginning of Formula 1 back in 1950, the sport's governing body has not had any regulations limiting the spending of a team. This has led to a pattern where teams with large budgets perform significantly better than their competitors and the gap has only continued to increase.<ref>{{Cite web |last=Beggs |first=Luke |date=11 March 2021 |title=Visualising F1 performance and budget |url=https://luke-beggs.medium.com/visualising-f1-performance-and-budget-f7ad71460ec |access-date=5 October 2024 |website=Medium |url-status=live |archive-date=30 July 2023 |archive-url=https://web.archive.org/web/20230730231412/https://luke-beggs.medium.com/visualising-f1-performance-and-budget-f7ad71460ec}}</ref>

For instance, in 2019, the richest teams such as Mercedes and Ferrari spent $420 million and $435 million respectively,<ref>{{Cite web |last=Rencken |first=Dieter |date=2 January 2020 |title=The cost of F1 2019 part two: What the top teams spent |url=https://www.racefans.net/2020/01/02/the-cost-of-f1-2019-part-two-what-the-top-teams-spent/ |access-date=5 October 2024 |website=RaceFans.net |language=en-GB}}</ref> whereas teams such as Williams or Haas, only spent $125 million and $150 million respectively.<ref>{{Cite web |last=Rencken |first=Dieter |date=27 December 2019 |title=The cost of F1 2019: Team budgets analysed – part one |url=https://www.racefans.net/2019/12/27/the-cost-of-f1-2019-team-budgets-analysed-part-one/ |access-date=5 October 2024 |website=RaceFans.net |language=en-GB}}</ref> This gap was widening by the season and disparities like this prompted the FIA to introduce a cost cap in February 2021.

The FIA proposed the cost cap as a measure to reward engineering prowess over sheer expenditure. They did this in an effort to bridge the gap between the midfield teams and the teams challenging for the driver's and constructors' titles.

The cap was $175 million in 2021, although was reduced further to $145 million in response to economic turmoil due to the [[COVID-19 pandemic]]. For 2022, the cost cap was further reduced to $140 million and in 2023 it fell to $135 million where it will remain for the 2024 and 2025 seasons.<ref name="globalsportsadvocates.com">{{Cite web |title=What You Need to Know About the F1 Cost Cap |url=https://www.globalsportsadvocates.com/blog/understanding-the-f1-cost-cap.cfm |access-date=14 September 2024 |website=Global Sports Advocates, LLC |language=en |url-status=live |archive-date=3 November 2024 |archive-url=https://web.archive.org/web/20241103094545/https://www.globalsportsadvocates.com/blog/understanding-the-f1-cost-cap.cfm}}</ref><ref>{{Cite news |title=F1 2024: A guide to the season – including calendar, sprint races, teams and drivers |url=https://www.bbc.com/sport/formula1/67787837 |access-date=14 September 2024 |work=BBC Sport |language=en-GB |last=Chowdhury |first=Tasnim |date=23 February 2024 |url-status=live |archive-url=https://web.archive.org/web/20250117032143/https://www.bbc.com/sport/formula1/67787837 |archive-date=17 January 2025}}</ref>

The 2022 season served as a critical test for the effectiveness of the cost cap as it was the year the new regulations were introduced, allowing all teams to start from scratch and build a car that was independent of the previous years. Critics have argued that the cap might not be sufficient to close the gap in competition because it excluded certain expenses like driver salaries, compensation for the three highest paid-staff members, and marketing costs along with loopholes that allowed the likes of Adrian Newey's salary of Red Bull to be excluded from the cost cap.<ref name="globalsportsadvocates.com" /> They also contended that established teams could exploit existing infrastructures and resources accumulated over years, thus maintaining their competitive edge despite the spending limits.

However, an alternative perspective highlights that the cost cap encourages teams to maximise efficiency and foster innovation within their financial means. McLaren started the [[2023 Formula One World Championship|2023 season]] as the slowest car on the track, with their drivers finishing outside the points with [[Lando Norris]] at P17 and [[Oscar Piastri]] at P20. Seven months later, with the right upgrades, they managed to be the fastest car on the grid throughout qualifying and race pace. Facing budgetary constraints similar to their competitors, McLaren focused on strategic engineering upgrades and talent development. Their significant mid-season improvements led to notable on-track success, demonstrating that with clever resource management and engineering talent, teams can challenge the dominance of traditionally wealthier competitors.

McLaren CEO [[Zak Brown]] said that "the cap has been outstanding for the sport." He also went on to say that there is a feeling that at any point in the season, any team can challenge for a place it wasn't equipped to do so at the start of the season.<ref>{{Cite web |last=Noble |first=Jonathan |date=1 February 2024 |title=McLaren: Backmarker "threat" shows F1's cost cap is working |url=https://www.motorsport.com/f1/news/mclaren-backmarker-threat-shows-f1-cost-cap-working/10570752/ |website=Motorsport.com |url-status=live |archive-date=14 January 2025 |archive-url=https://web.archive.org/web/20250114131526/https://www.motorsport.com/f1/news/mclaren-backmarker-threat-shows-f1-cost-cap-working/10570752/}}</ref>

The critics have expressed that the impact of the cost cap suggests that engineering excellence and strategic ingenuity can indeed offset the advantages of larger budgets. By promoting a more balanced competitive environment, the cost cap has made Formula 1 more exciting for fans and more viable for teams.