The Economics of Everyday Things - 110. Formula 1 Teams

Episode Date: October 13, 2025

In a sport that generates more than $3.5 billion a year, teams compete in cars that cost $70 million to develop and build — and a split-second to crash. Zachary Crockett assesses the damage. SOURCES:Steve Cripps, chief financial officer at Williams Racing. RESOURCES:"Everything you need to know about F1 – Drivers, teams, cars, circuits and more," (Formula 1, 2025)."How Williams, F1’s ultimate underdog, found success — and might again," by Madeline Coleman (New York Times, 2025)."How fast do F1 cars go?" by Amanda Clark (Red Bull, 2024)."Aerodynamics in Formula 1 | F1 Explained," (Formula 1 Youtube, 2024), "Williams Racing," (Formula One History).  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

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Okay, on with the show. A Formula One motorsport race always starts the same way. 20 cars line up in pairs. Here come the lights for the Monaco Grand Prix. As the engines rumble at the starting line, five red lights will turn on, one by one. Three, four, five red lights. When the lights switch off, the race begins. In two-tenths of a second, all 20 drivers release the clutch,

press the throttle, and accelerate. And Formula One goes racing on the streets of Monaco. Formula One is the pinnacle of global motorsport. It's got the fastest, most sophisticated cars and the best drivers. That's Steve Cripps, the chief financial officer at Williams Racing, one of the oldest and most successful Formula One team. In the past few years, Formula One's audience has grown to more than 820 million fans worldwide. That's largely thanks to the hit Netflix show Drive to Survive, and this past summer's F-1 The Movie, starring Brad Pitt.

The sport itself generated over $3.5 billion in revenue in 2024. At the heart of the sport are 10 teams, each responsible for designing, engineering, manufacturing, and delivering. two cars to compete in every race. We race at 24 races around the world in 21 different countries, five continents. The cars reach speeds in excess of 200 miles per hour. Each car is made up of 20,000 individual components, most of which are bespoke to Formula One and in most cases bespoke to each individual team. Combined, these 10 F1 teams are reportedly worth $15 billion.

And the faster a car is on the track, the better the finances look for a team like Williams. Almost every decision we make is based on how do we add performance to the car. For the Freakonomics Radio Network, this is the economics of everyday things. I'm Zachary Crackett. Today, Formula One Teams. Steve Cripps has worked in Formula One for 16 years on three different teams. In 2017, he joined Williams Racing, based in Oxfordshire in the UK. Williams was founded in 1977 by Frank Williams and Patrick Head.

Over those past 48 years, the team has won 114 races, nine constructors championships and seven driver's championships. It owes this success to several of the sports most famous drivers. Nigel Mansell, Alan Prost, Nelson P.K. Damon Hill. If you've heard of one historic Formula One driver, it's probably Ayrton Senna from Brazil. In 1994, he died when the Williams car he was driving crashed. The team still won the 1994 championship, called the Constructors Championship. Williams was very, very successful and dominated the sport in the 90s, but from 2010 onwards

started to suffer a bit, and poor on-track performance can reduce your revenues. He then started to struggle to invest in the team, which ultimately ended up in the team being sold in early 2020. Private equity firm Doralton Capital bought Williams for about $200 million in 2020. That's when Steve Cripps became CFO. For the past five years, we've been executing on a pretty major turnaround for the team. Williams has now grown to over 1,000 people to put two cars on tracks, and that's very typical of the teams that are running at the top of the championship,

in some cases, even higher than 1,000 people. For the past 30 years, the sport has been dominated by four teams, Red Bull, McLaren, Mercedes, and Ferrari. They're recognizable brands, whose main business activities lie, outside of Formula One. Williams is quite unique in that we're the only truly independently owned F1 team that goes racing as its core activity. Other teams, some are parts of an automotive company like Ferrari or Mercedes

who have an F1 team as part of promoting their own brand. There are also other companies such as Red Bull who are promoting their fizzy drinks. So Williams is quite different. We go racing for the sake of going racing. Formula One is the high. highest class of international racing for single-seed cars. The modern era of the sport started with a seven-race season in 1950. Today, there are 24 races in a season, which typically last around 90 minutes each. Some of these races take place on specially built tracks,

others on city streets like the Monaco Grand Prix. Each one is a unique combination of long straights and sharp turns. And that calls for a specially built car that's really fast and really expensive. An F1 car is a feat of aerodynamics. As the car speeds along, the air moving over its body pushes the car into the track. At top speeds, the car generates an amount of downward force that's five times the weight of the car itself. It's the opposite of an airplane wing. On an aeroplane, the aerodynamics are lifting the aeroplane into the air, then F1 car is an upside-down wing, and it's pushing the car down into the ground. When you're going around a corner, it means you can go around a lot quicker than you might do in your road car

because your roadcar will just slide off of the surface. But the downward force that gives cars grip for high-speed turns can slow them on straightaways, where teams want to achieve top speeds of 220 miles per hour. So that's the big challenge that engineers have is to find the right balance to allow the car to go around corners as quickly as possible, but to be quick enough down the straight as well. Like fighter pilots and astronauts, drivers have to go through extensive training to cope with the immense physical strain of racing. Some tracks are so physically taxing that drivers can lose 5% of their body weight through sweat during a race. Going around a fast corner in Formula One, a drive might experience up to 5G on their head. So you can often see towards end of a race a driver leading their head on the side of the cockpit

because their neck has been under so much strain during the race that they've just got tired. The race's outcome depends on the driver's performance, the speed of the pit crews, tire choices, and decisions made by race strategists. But the biggest factor is the cars themselves. Each team designs and builds its own car, and every little tweak to the process is significant. Drivers aside, the difference in pure car performance between the fastest team and the slowest team is less than one second. A Formula One team is an R&D company, so I'd argue that almost all of our costs are related to R&D itself. The life cycle of a car really starts over a year before it goes onto the track.

From about the middle of the year, most of your engineering resource will be focused on next year's cars. If you compare that to a road car program, they would spend three to five. years developing a car. So we do move pretty quickly. Then in about February of each year, we'll do our first track testing. It's the first time the car will hit the track. We'll have about three days a track like Barcelona or Bahrain, where all the teams will go. So there's very, very limited time that we have to find out, have we done a good job in designing and engineering the car? And you never know how good a job you've really done until you're up against your competitors. Historically, there was no limit to what F-1 teams could spend on cars each year.

Some teams like Ferrari could outspend teams like Williams' threefold. But starting in 2021, the sports owner, Liberty Media, capped spending limits to make a more equal playing field. Prior to 2020, the sport is littered with teams coming and going, largely because they ran out of money or the team wasn't commercially viable. The cost cap has really helped to improve that. It also has attracted lots of investment into the sport, both in terms of sponsors and partners, but also team ownership. The first cost cap was set at $145 million. This year, it's around $170 million. Anything that is spent on designing the car, developing the car, building the car and running it at the racetrack is captured within the cap.

But teams spend between 200 and over 400 million pounds. Costs like marketing and administration are exempt from the spending limit. The big exclusion is that the cost of the driver themselves is not included in the cap. The 20 driver's salaries vary from half a million to $80 million a year. It's reported that the Williams drivers make around $8 to $10 million. But what is one of these cars? cost. About five million pounds.

That's just to build one car with one set of parts for one season. Each team has two cars, and spare parts for one driver's crash. The teams can completely rebuild a car overnight. That's coming up. Like most other sports, Formula One is physically combative. In a typical season, there are dozens of collisions, both minor and major. Any amount of damage can ruin a race, so drivers do their best to avoid harming the car. But 2024 was a difficult year for Williams racing.

Their drivers crashed a lot. Here's team principal James Vowles, speaking during a press conference in a clip from Drive to Survive. If we go through the damage record we've had, it's three front wings, three row wings, three floor. two and a half cars, that's a suspension, three gear boxes destroyed, and then some miscellaneous bits. That's normally what you would expect to get through in 24 races, not two. Steve Cripps says the team was fearful of breaking the cost cap due to the amount they had to spend each weekend to fix the cars. A front wing is about £150,000. So if you're watching TV and you see cars go off and a front wing ends up in the barriers, that's £150,000 on its own.

if they've done a very good job and hit the bearers hard, a set of front suspension is 200,000 pounds, a floor, 150,000 pounds. All in all, the budget for cars is much higher than 5 million pounds a year. Each team brings spare car parts to every race. In most cases, there's three, four or five of most spares. The cost of the car parts themselves, that's about 55 million pounds a year. That's about 75 million U.S. dollars, and it's a recurring cost because each car is only used for one season before it's retired.

In addition to needing spare parts for car rebuilds, teams also upgrade components throughout the season. We never end the season with the same car that we started. With the current formula, the aerodynamics is one of the key areas of competition, so we're frequently changing the front wings, rear wings, the floor under the current regulations, is a key contributor to performance. So if we think about upgrading the car during the season, we were looking like, okay, this is going to cost us a million pounds for this upgrade package. How much time does that take off the car to get around the track?

And is it worth it? So we have a pounds per millisecond metric, which helps us on those short-term decisions. A key component of every race weekend is tires. Pirelli, an F-1 sponsor, supplies 20 sets to each driver every race weekend. and these aren't your run-of-the-mill tires. Each set reportedly runs around $2,700. During a race, drivers go through at least two sets each,

and a pit crew in top form can change all four tires in under 2.5 seconds. But not every part of the car is an equal playing field like tires. F1 teams have their own manufacturing and testing facilities to design, construct, and upgrade the components on their car. cars. Williams spends 10 million pounds a year to run its factory. It's where they make the car's carbon fiber body and metallic parts that add structural strength to the car. We also have a large physical R&D department, and that includes all sorts of rigs, which allow us to test parts to destruction so that we can find their limits. The chassis are put onto rigs and

squeeze with something like three double-decker buses worth of weight. And they have a special facility to test the car's aerodynamic performance. Where the real R&D is happening is when we're testing parts in a wind tunnel, and we also do a lot of computer simulations to understand what parts are going to work best before we incur the cost of making them. So the wind tunnel is probably the size of half of a football pitch, and it's a big building with a huge fan, maybe 15, 20 feet across. A model of the car, is fixed into position on a conveyor belt. A huge fan blows air over the car,

causing the wheels to spin as the conveyor belt moves. And then we have some very sophisticated tools that can then measure what happens to that air as it goes over the car, and also how much downforce is created when that air goes over the car. Williams doesn't design and develop all parts of the car. We buy our engine from Mercedes,

and the reason for that is that to develop a power unit, which is what we call the engines in Formula One, is a multiple billion dollar investment. The sport wouldn't necessarily survive if it needed all 10 teams to spend multiple billions on power units. So there are four or five power unit supplies on the grid. Currently, Williams also buys their gearbox and up until recently the rear suspension from Mercedes as well. Otherwise, most of the components we design them build ourselves. The other cost of all these parts, the car, spares,

computers, mechanics equipment, is shipping them from race to race. The logistics of a Formula One team is probably the most impressive thing that nobody sees when they're watching the sport. We race in Las Vegas one weekend, and then we're in the Middle East a week later. The Formula One calendar is punishing. From March to December, there are 24 races in 21 countries. Each team is allowed to have 58 employees. employees work on their cars at each race. And to do their jobs effectively, they need a lot of equipment.

We fly about 30 tons of equipment to each race. We'll spend about 30 million pounds a year just on moving our equipment from one race to the next. A normal race weekend starts on a Friday. There are three practice sessions, a qualifying session to determine start positions, and the Grand Prix on Sunday. The team pack up straight off the race, literally. the cars are going across the finish line, the team are packing up the garage, putting it into freight boxes, that goes on a plane on the Monday, flies over to the next destination, and has

been unpacked to the next circuit on Tuesday or Wednesday, ready to be used again on Friday. Equipment is shipped mostly by air or truck. DHL is an F1 sponsor and provides logistics support for the teams. Teams also get creative. If we have some equipment, which is relatively inexpensive to buy, but very heavy, we'll buy six sets of it and we put it into sea freight and at the start of the year we'll put it into six different ships and they'll go off around the world. So some of that equipment might only go to three races a year. But when we look at the economics of it all, it's just cheaper to do that

than buy one set and fly it via air freight. Doralton Capital's $200 million investment five years ago has proven wise. The sport has been booming. In 2017, Liberty Media bought Formula One Group, the commercial rights holder of the sport, for $8 billion. They're responsible for licensing the brand to Netflix and Apple Studios, and attracting an American audience, something the sport lacked for most of its history. Recent years have seen the addition of more U.S. races, Miami and Las Vegas. Today, Liberty Media claims the entity is worth twice what it paid. They've really invested in how the sport looks to the outside world and the commerciality of it,

which has attracted a lot more partners, sponsors, fans, all things that have improved the sporting spectacle. And the valuations of teams have skyrocketed. In terms of valuing a team, the best way to do that is to have a look at some of the transactions that have taken place over the last few years. So a couple of years ago, Alpine sold a share of their team which valued them at $900 million. More recently, Aston Martin sold a small share, which valued them at $3.2 billion. Formula One made over $3.5 billion last year from broadcasters, race promoters, and sponsors. About $2 billion of that was profit.

Part of that profit gets distributed to the teams in the form of prize money. And in 2024, Formula One kept 40% of those profits, and the team shared 60%, so about $1.2 billion. or shared as prize money to the teams. Now, how that is distributed across the teams is a closely guarded secret. While the specifics of prize money distribution are closely guarded, you can still get a sense of the big picture

from published reporting. Every team gets some money for competing, and the higher a team places in the Constructors' Championship the bigger its piece of the pie. And Ferrari, the oldest team in the sport, gets a special entitlement worth tens of millions. F1 teams also make money through sponsorships. Sponsorship is one of the key revenue sources for teams,

and there is a correlation between how successful a team is and the amount of revenue you can generate from sponsorship. F1 cars and their drivers essentially serve as billboards. Logos cover the driver's suit and helmet, and nearly every inch of the car's chassis. The better the team, the more eyeballs on the car during broadcasts. A prominent logo on a top-performing car will run a sponsor $60 to $80 million. The same spot for a team at the back of the grid?

20 to 30 million. Williams Racing's official title this season is Atlassian Williams Racing. Atlassian is an Australian-American software company that pays to be the team's title sponsor. Durracell is another major sponsor of Williams Racing. Just behind the driver's head, there's what we call the air intake of the airbox. And conveniently, it's shaped a bit like a battery. So we managed to put the visuals of a battery onto the car and gave it the Durisale branding. But also run TV adverts with the Duriselle Bunny and the Formula One car.

So you're mixing the two brands, just to make it ever more exciting and increase that brand awareness. Drivers themselves might have personal sponsors. Their contracts usually reserve the right to share real estate on the car, their helmet, or jumpsuit. Historically, teams needing to generate revenue would accept drivers who are willing to pay for a seat. The financial support could be family funding or a sponsor. Those drivers weren't always the best drivers out there. With the health of the sport today, one of the big improvements we've seen is teams aren't being forced to take drivers because they're able to bring revenue. teams take drivers because they're the best drivers in the world.

So far this season, Williams Racing has had its best performance in years. It's fifth in the championship, just behind the four dominant teams. That's a big step up from last year's ninth place finish. And next season, things could get even better for them. Every five years, a new set of regulations is released, challenging teams to re-engineer. their car to a different formula. 2026 is one of the years in which there is a whole new set of regulations. We have a bit of a reset.

It allows all the teams to start from the same position because we're changing both the rules around the power unit. So the power unit will be 50% electrical and 50% normal combustion engine. We'll also be running fully sustainable and synthetic fuel, which is new to the sport. And that's technology that can be deployed into normal road cars, which is one of the great spin-outs from Formula One. The hope remains the same as ever.

Build the fastest race car and be world champions, but also attract a lot of eyeballs. That's a lot of the focus here, just to make sure that we're delivering a great sport and spectacle to our fans, because that's the most important thing to us. Fans are what drives our sport. For the economics of everyday things, I'm Zachary Crackett. This episode was produced by Morgan Levy and Sarah Lilly, and mixed by Jeremy Johnston. We had help from Dalvin Abouaji. And it would help us so much if you could fill out our super short survey.

You can find it at Freakonomics.com slash Everyday Survey. We appreciate it so much. All right, until next week. I think you've relayed my fears that I can stop and start and screw up and it won't be broadcast of the world. The Freakonomics Radio Network, the hidden side of everything.