With the beginning of the 2021 Formula One season and the immaculate release of the Netflix series on the same, it piqued my interest enough to dig into it — specifically the incentives that keep it going.
Formula 1, from what looks like a harmless way to challenge others in a motor race, has now become a behemoth of its own kind. It is an expensive sport. Relative to most other sports that I can think of, the monetary barrier to entry is high. This begs the question:
How it started and why is it still going?
As a sport, it has to have started with a group of passionate drivers and car manufacturers wanting to compete amongst themselves. As per the F1 history on ESPN, it started among a group of car manufacturers and individual entrants wanting to race. However a lot of the individual entrants later had to back out due to lack of funds to continue.
Entertainment: Formula One as a mode of entertainment is no different from other sports. Entertainment is not merely amusement — it elicits certain emotions and provides us with an emotional, cognitive experience when watching an event such as F1.
Business: Teams in F1 exist as a coalition of advertisers, drivers, wealthy team owners and viewers like us. Organizations and individuals enthusiastic about competing against others and demonstrating their driving skills would certainly provide good entertainment value to watchers. At the same time the sport is equally dangerous — driving those cars at speeds over 180 km/hr is no easy feat. That's where the business part comes in. Drivers need good cars and good cars need money, hence sponsors come into the picture. Sponsorships make up about 60% of the annual revenue for a team. The rest comes from off-site fan spending on tickets, merchandise, television and streaming rights, and the annual monies received from the FIA body itself.
Stakeholders
There are five primary stakeholders in Formula 1.
Hosts
These are the countries and cities hosting the racing event. How they stand to benefit from an event of this scale comes in the form of increased tourism of race attendees, consequently increased spending on the local economy — accommodation for guests, travel, shopping and all activities encourage spending in the host city during the event. The event is also broadcast to viewers all around the world, creating awareness about the place. Tax revenue generated from the event supports the host nation since these amounts are substantial. This also spurs local development in terms of constructing the race venue and people involved in organizing the entire event, thereby providing employment to locals. From a relevant motor sport event, a NASCAR report from the state of North Carolina noted that a racing event and all the relevant operations including manufacturing of equipment created over 24,000 jobs in 2003, giving the state economy a five billion dollar stimulus.
Team Owners
Team owners are wealthy businessmen or businesses passionate about the sport or having financial interests to invest in it. Given the high upfront costs to start a team, this cannot be considered just as another means of making money. A lot of the teams are owned by wealthy businessmen passionate for the sport or auto manufacturers themselves. An auto manufacturer benefits by having their brand promoted, while generating significant revenues.
Teams
The team itself is a group of people possessing skills who believe in the team and provide their services. The technicians and team principals are experts in their own ways to maintain and lead an F1 team.
Sponsors
Sponsors are like the bread and butter of Formula 1. In the current context, sponsors are firms willing to pay for the team, event or the FIA in general with the intention of promoting brand recognition and advertisement. However sponsorship deals don't come cheap — these run into millions of dollars. Concerned brands must be willing to be associated with the event and possible losses that may occur in events of the team not performing well, going bankrupt, or not receiving sufficient coverage. As long as advertisement as a business model continues to exist, brands will continue to promote themselves in every way possible, including plastering their names on cars.
Drivers
Win win for them? It's not that easy. Drivers succeed through a combination of personal skill and vehicle quality — operating at speeds exceeding 200 km/hr, two things matter above all else:
- Driver skills
- Quality of the car itself
No matter how skilled the driver, a car that cannot keep up with the competition will limit what's possible. It's a partnership between human and machine unlike most other sports.