How Sponsorships and Prize Money Drive F1 Team Budgets?
- By Dr. AK Rana
In the world of F1 , where cutting edge engineering meets adrenaline pumping racing, there’s one thing as fiercely contested as the checkered flag, money.
But where does this money come from?
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Is a team’s budget simply a reward for winning races, or is there more to the financial fuel behind an F1 team?
Let’s take a closer look at the financial engine that drives the sport.
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Who Pays for an F1 Team?
Formula 1 teams generate their annual budget through a mix of sources, and no, it is not simply handed out by the FIA or Liberty Media based on championship standings.
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1. Sponsorships: The Lifeblood
Sponsorships form the primary source of funding for most teams. Companies pay tens of millions of dollars to place their logos on cars, overalls, and even the team’s water bottles.
Red Bull’s title sponsorship from Oracle alone , valued at over $50 million annually.
The better a team performs, the more visible they are, and the more valuable their sponsorship deals become.
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2. Prize Money from the Constructors’ Championship
While performance does matter, the prize money comes after the racing season ends.
Teams finishing higher in the Constructors’ Championship receive a larger share of the prize pot.
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The championship-winning team earns about 14 percent of the prize fund, which for 2025 is estimated at 140 to 160 million USD.
In contrast, the 10th placed team might receive less than half of that.
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Prize money is a reward,
not a fixed or upfront budget.
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What Decides a Team’s Budget?
The actual working budget of an F1 team, the money they can spend during the season, it comes mostly from sponsors and parent company backing.
Red Bull, Mercedes, Ferrari, and Aston Martin all benefit from strong financial support either through commercial partners or corporate owners.
Smaller teams like Williams or Haas often struggle because they have fewer sponsors or less powerful investors.
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That is where the cost cap comes in.
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The Cost Cap: Levelling the Grid
Introduced in 2021, the cost cap was designed to stop the financial arms race in Formula 1.
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Before this, top teams were spending over 400 million USD per season,
while backmarkers like Sauber or Haas barely managed a third of that.
The imbalance made it nearly impossible for smaller teams to compete.
Under the current system:
2025 cost cap is 135 million USD
It covers performance-related expenses: car development, race operations, and non-driver staff
It excludes driver salaries, top executive pay, marketing, and engine development
This means a team can only spend up to the cap on things that directly affect car performance, regardless of how rich they are.
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What’s New for 2026? A Bigger Cap for a Bigger Change
From 2026, the FIA will introduce a new cost cap of 215 million USD.
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This increase reflects the major changes coming to the sport:
New aerodynamic and power unit regulations
Focus on sustainable fuels and cleaner hybrid systems
Expansion of development areas covered by the cap
The goal is to offer predictable, competitive, and fair racing in a more technically advanced era.
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Does Finishing First Still Matter in F1 ?
Winning the Constructors’ Championship brings several advantages:
More prize money
Strategic garage position in the pit lane
Stronger sponsor attraction
Team morale and driver leverage
But… less aerodynamic testing time under the current rules
Yes, finishing first actually reduces a team’s wind tunnel and simulation time the next season.
The aim is to give lower ranked teams more opportunity to catch up.
For example, the winning team might get 70 percent of the base testing allowance, while the team finishing last gets up to 115 percent.
An F1 team’s budget is primarily decided by its sponsors and ownership, not its position in the Constructors’ Championship. However, performance influences how much a team can earn, especially through prize money and sponsor interest.
And thanks to the cost cap, even the richest teams cannot endlessly outspend the rest.
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