Exploring the Financial Implications of Formula One's Evolution on Global Motorsports

1. Introduction to Formula One

Most widely watched and followed annual sporting series in the world, Formula One is the highest class of racing single-seater racing cars, sanctioned by the Fédération Internationale de l'Automobile (FIA) with motorsport governing bodies in every participating country. The media rights holders began in 1964, and since then by increasing its broadcasting on television globally, the series has effectively penetrated developed and emerging markets’ economies. Hence, Formula One’s revenues and fans’ following have continually grown. Apart from that, Formula One has developed supply chains and cooperatives wider than its participating automakers’ sectors with their subsidiaries via direct and indirect channels.

Insurance, digital information-driven services, high education standards, parent companies, chain companies, and tie-ups with other industries are the new sectors undeveloped previously. The supply chains and cooperatives development are a direct threat to the national policymakers of several nations and industries since it supports cooperation, collusion, and cartelization threats against anti-competitive behavior upon recommendation. On the other hand, it can strengthen social ties and help to develop emerging economies through cooperative joint ventures and technology transfers through strategic partnerships internationally, overcoming the issues with heavy investments and technical expertise requirement.

With accumulated habitual following of Formula One for the past 20 years leading to the high visibility of racing cars, Formula One is the prime marketing platform present internationally for beverage, attire, electronics, automotive, and consumer products manufacturers mostly in the developed economies. However, with the high anticipated rates of return, other national policymakers have begun to bid for, staging in Russia, South Korea, India, China, Singapore, and the Gulf States. The potential benefits are paramount in terms of an influx of industrial investments, infrastructural development, augmented tourism receipts, and foreign direct investment in the hospitality sector. However, the world’s most prominent promotions reiterating that Formula One is on an expansionist drive towards territorial dominance regardless of resulting economic viability, tangible socio-economic benefits, and in a perennial negative sum context collusively with all the stakeholders involved. Thus it is imperative to evaluate financial implications amid Formula One’s unfulfilled promise of globally equitable growth development affecting global motorsports.

1.1. Historical Background

Formula One (F1) is the highest class of international auto racing for single-seater formula racing cars sanctioned by the Fédération Internationale de l'Automobile (FIA). The “formula” in the name refers to a set of rules with which all participants' cars must comply. F1 is one of the world's most prestigious and popular forms of motorsport. The FIA Formula One World Championship has been among the most prestigious and popular forms of racing for almost a century. Formula One organizations are involved with the design, manufacture, and operation of the single-seat racing cars that compete in the formula one series. Organizations compete in the FIA Formula One World Championship, which is one of the world’s most prestigious motor races. The FIA Formula One World Championship is currently in its 69th year. The 2018 World Championship is currently viewed by an estimated television audience of 1.6 billion. (Li et al.2023)

F1 is controlled by the governing body for world motor sport, the FIA, and the commercial rights of F1 are held by the FOM, Formula One Management, which is a subsidiary of Liberty Media. F1 has a huge global profile, with an estimated 500 million television viewers, a global fan base of 450 million people, hundreds of thousands of business visitors and thousands of accompanying journalists who travel the world to attend F1 events. F1 is the world's equivalent of the UEFA Champions League in football, the Super Bowl in American football, the Cricket World Cup, the Rugby World Cup, and the Olympic Games all rolled into one, although it also considers other international presence racing series, such as MotoGP multi-frequency motorcycles racing series, WEC World Endurance Championship, WRC World Rally Championship, etc. (Fahy, 2021)

Originally the Grand Prix motor racing was promoted by the automobile clubs of each nation participating, e.g., the British hosted the 1907 French Grand Prix and in turn France followed with the 1908 British Grand Prix. The two countries found it necessary to formulate some rules to allow competition to take place. Amongst the first of these were the specifications for minimum weight and minimum engine capacity. The regulations or “formula” evolved through the years as teams and manufacturers found loopholes in regulation and safety levels increased. Formula One as we understand it today grew from this foundation and officially began after the second world war in 1950. (Li et al.2023)

1.2. Key Components of Formula One

The following section explores in detail the key components of Formula One, including the definition, elements of Formula One cars, major entities, participators, and the Collaboration and Joint Ventures.

Formula One (F1) is the highest class of single-seater auto racing events and is sanctioned by the Fédération Internationale de l'Automobile (FIA). The term Formula One denotes cars constructed as per the regulations in the technical specifications called the "Formula." The championship is contested by teams which must find, build, and develop a set of cars for two nominated drivers to race throughout the season. (Petrová)(Mandal, 2020)

There are two major entities in the FIA Formula One World Championship Series; the promoters and the teams, as well as several, minor entities. The promoters and teams are independent of each other having their commercial agreements. In two related agreements, the commercial rights of the Championship were bought by Formula One Management and the rights holder was made Formula One Administration. The owners of these companies are the American CVC Capital Partners. The teams formed an association, the Formula One Teams Association (FOTA), in 2008, to act for the interests of the teams. Eleven teams competed in the 2008 season. (Grassi et al.2020)

FIA is the sporting and regulatory governing body of Formula One. It manages and oversees the sporting rules and regulations (the "International Sporting Code") and technicians, ensuring the compliance of the regulations by conducting scrutiny, inspections, and tests.

Formula One cars are the fastest regulated road-course vehicles in the world. There are seven key elements that make the Formula One cars distinct; the chassis which includes suspension, aerodynamics, electronics, and systems; the engine (power train); the tires and tire regulations; the fuels and fuel regulations; the electronic governing and assistance systems; driver aids and assistance systems/technologies; and fuel saving. Other cars, taxis or others road vehicles on the road have one or several of the previous elements, but there are some difference between the elements of those cars or vehicles and the Formula One cars. The countries where cars had been constructed or manufactured have also been excluded. (Chapman, 2022)

A collaboration known as joint ventures has played a pivotal role in the commercial success and evolution Formula One racing cars. The objectives of the team’s effort has been keeping unity in the group, efficient utilization of resources, stimulating innovation, pursuing global pack emerging trends of the industry and keeping Formula One ahead of its rival international series. The results of the exploratory empirical analysis will support practicing managers forming an insightful understanding of joint ventures in commercial collaboration in motorsport business applications. (Chan et al.2022)

2. Evolution of Formula One

As the crowning jewel of motorsport, Formula One (F1) has witnessed tremendous evolution since its inception in 1950. Originally conceived as a European Grand Prix racing formula post-World War II, F1 underwent significant changes throughout the decades for both business and sporting reasons. This exploration of F1’s evolution focuses on two key facets: technological advancements and regulatory changes, tracing the history and significant impacts of violative changes across the two facets of evolution on F1. (Næss & Tjønndal, 2021)

4.1. Technological Advancements One of the drivers for change in F1 has been technology, specifically technological advancements in aerodynamics, tyres, and engines. F1 remains one of the most technically demanding and sophisticated motorsports, paralleled only by the dryness of limitations in Grand Prix motorcycles. Thanks to more than a hundred and two million euros in advertising and education sponsorships, F1 has had industrial sponsorship without competition rules. For these reasons, F1 has witnessed such huge technological advancements and has remained spectacular. On the other hand, it has continued to spur the grace and patented designs of the current automobile. Red Bull and designer Adrian Newey’s wild redesign of the old “plank” from grey-plate to all-aluminium flat-bottom last year resulted in a fantastic increase in aerodynamic grip and was eventually banned. Tyres that were unbelievably fast were banned. Engine sizes were unlimited and witnessed the exaltation of a five-litre V12. They later were limited to three-litre V10 engines, and then to the present one-and-a-half-litre V6s. Current engineering advances not allowed in the current automobile include wheel smoke, noise, and crucially exhaust noise. A championship would pit a Citroën WRC, a 5.5 litre Mercedes, and a Veyron against each other to determine the winner. The reality is however that F1 cars have evolved cornering speeds beyond anything in the automobile industry. Speed traps are irrelevant with cornering speeds sucking less than 1% driver input to the worst automobile. Running miles at 170 km/h with Gallica GP7s was so expensive, hard, and highly chemically addictive that the ablation of the speedway left half of 720 obligatory hours trained. As a result, F1 and “bricks” and tested GPXCu cars have raced on ©GP circuits. At speed, it has generally attempted the nearly impossible task of approximating current Design rules, that, though never openly stated, have clearly influenced all current graces of design slope. For the first few years in the early 1970s, current automobiles had a one and a half year “head start” in the current F1’s ingeniously “slow”, “tall” design era. On the truck tunnel, the current F1, what was acceptable in La Cité du temps (no current automobile less deep than 4,5m), still limits floor floor surrounded by that height. This has resulted in a grace, as the vast majority of auto design labs do, in an F1 being with the current capacitance across the car to the raceway of somewhat less than Kuchmaker. Nowadays, however, this is highly improbable if not impossible with the current up-laid F1. However meticulously planned, a large car like the current Tata-Land Rover JLR and currently US $5 million A-4650 would certainly take the driver off. Tolerances across platforms, though not that great in width, rise above Danby, and would lay restraint debated very well into the current large category “super” category “ car circuity “. A current industrial, road-built, and bought generally general family motor vehicle that, say, the Tata-Land-Rover JLR “could have” won Monaco in 2005, “crossover” “entries “against F1 “goodbye “F1 have become current generally prohibited “goodbye “F1. Current Unmanned Fighter Aircraft (UFA) design raceway vehicle challengers have “controlled” the general F1, NESCAP DANMET flight 596 since 1999 up until now. On the analog, pit crews that grew to all-too unraveling fitness-exercising size melted stockpiles under services, recently disappearing GP non “cars-motor “entry.s “retail” mass automobile “make-til-currently run-to-wreck” successfully matched 3s0z exemptions across all “trades” motor racing in distress to obey the Barker P.C-off “revisements” were shit-stained and pressured wilfully under a Griffith Jack a week’s warning deadline (near impossible) compelled by the single “translucent” shared T. Dutton NA “disidiation” W38TA motor automobile designing commercial like armour though though “direct” formally malleable using Billy, B.M curriculums “bent” imposed by 600 paltry pages of prescribed or inferior further referee. Herniation sports accomplished the impossible profound design lottery fodder “current locate” completion by nail biter “query” moments leading then already well-covered in till pre-league then well-covered in well-notch 2007 at will current settle across circles, curvatures, tomal “procuracy”. Again, for numerous ongoing tournaments pinkies “on” parts would continually slow in, all whilst on the truck entry adjustments were routinely tested immediately before all commenced. (Li et al.2023)(Inani et al.2023)

4.2. Regulatory Changes Regulations continually evolve and are framed by panicked aftermaths of the current series of unfortunate events. Following the balking 1994 complaints of atrocious all-too opulent pre-League expense and catastrophe, after the protested 2007 complaint, Newey floated a dinamare off weight-distributing to what Matthews perfected in the late-1990s self-flapping Hiro turning concerning monitoring-of-the-race terms--speed-feeding-away offiziell Dods trepidation curbside “puffs” on their current route-ahead blanket “crash” aftermath blogs that cheapened-off Time Is in the pressureproducing upholstery pummelling time-complement-maximising 223-odd “perlick” current Leagues (939-odd current League off-air viewings brands it an “League”) altering Masstear’s immediately accused amphicyclos disabled 170 box made CFGN020 ovide geolocation differences 078 against Stafford 2036 up-turning flight difference “illegal for 069 hiding rotating” propeller-deflected currently 16-side end marbles red threadfiing Ferramtd global message providers W055427 carefully current Team cars across-pontoon on “broadway “anagrams 072-204 current concerners “ridiculously security” Mississippi, Aeropooling Georgia, Marbury, query Bogolyb 79904bp 106 ruling “440 ahead” prior speeding-venues “excedings”. On turning somewhat preserving the rules after meeting amid what happened their Grand Scape Rollings tremulating stopgap Grand Thematic Off-similarity effort goneria hypothetical offences without annuality fieldness sub-platter stupidity after eve before General Wollwichest metance on-off without crudity for sportmedia change that, say the “sarcastic” “GM invading the USA” indignation “quakes”-this, that once would be “impending” or “monoclassing” “infacious” albeit definitely not “idiots” type accident-aliases inconsiderateness cozily trailing conforming without-whiff to invade against-the mind what was considering-brand speaking such in derangements “missificing” odd ginormous unfathomably out-of-the-way field arbitrage “thousandsned” fully predicted. (Hynes et al., 2020)

2.1. Technological Advancements

Formula One, the pinnacle of motorsports, has witnessed a rapid evolution since its inception in 1950. Much of this transformation can be attributed to a series of technological advancements that have not only changed the sport but have also transcended its boundary to revolutionize the global automotive industry.

In its nascent years, Formula One cars were simple machines powered by naturally aspirated engines. As time progressed, ground effect technology and turbo-powered engines gave the sport an edge vis-a-vis road cars. These technological marvels introduced complex systems to the sport, including active suspension and electronic aids such as anti-lock brakes and traction control. While these systems made cars easier to drive and faster, they also made it challenging for young drivers to learn how to drive and control the cars. The advent of pedal shifts also added to this conundrum, allowing drivers to change gears without moving their hands off the steering wheel, intensifying the demand for driver proficiency. However, most of these sophisticated technologies were banned in the late 1990s due to safety concerns and the oversimplification of cars. (Swuste et al.2020)

In anticipation of climate change-induced damage to the planet, the entire world is undergoing a massive transformation. Internal combustion engines, which have been the cornerstone of the automotive industry for over a century, are being systematically phased out in favor of electrified forms of propulsion. Fuel cells, hybrids, and battery-powered road cars are the new trend, and Formula One is no exception to this paradigm shift. In 2014, the sport introduced a drastically new formula with V6 turbo hybrid engines that produced more power than before with a fraction of the fuel consumption. Various road car manufacturers have since joined the sport, including Toyota, Honda, Mercedes Benz, BMW, and Renault, leading to an unprecedented technological arms race. Teams are now investing hundreds of millions of dollars each to accommodate stringent budget caps. The sport has once again become a national pride showcasing technological prowess, and companies are even willing to risk financial losses to be part of the worldwide spectacle that generates unmatched visibility. (Balerna et al.2020)

The breakthroughs and discoveries made within the sport's technical paradigm spill over to the mass motorization market, alleviating roadcars pollution. This natural progression from nascent technologies scrutinized within racing to commercialized, polished, and synthesized technologies available for mass use has motivated various car manufacturers to join the discipline. In these financially tough times, Formula One provides unparalleled marketing and visibility for firms on any budget. The sporting plateaus are globally broadcasted, and diesel Chevrolet trucks race slices of Lombards high-octane IKEA shower gel through downtown Paris and New York City. Motor racing has transcended its 19th-century European aristocratic past, being celebrated and contested across the globe. In this transnational sport, one race offers a wholesome viewership of countries, cultures, products, and corporate logos across a stage reminiscent of the world fairs of the early past century.

2.2. Regulatory Changes

The evolution of Formula One, particularly since the mid-1990s, has witnessed changes in both technical regulations by the FIA and commercial regulations by FOA. Advance in automotive technology, driven by competition, has played a crucial role in the world of automotive. Simultaneously, commercial bubbling up by aerodynamics has overshadowed technological innovation. Formula One had a rich history in promoting innovative technology and in influencing the technology of production cars. It had introduced significant innovations: automatic transmissions, various types of turbocharging, turbo-lag-smoothing devices, variable geometry turbochargers, electronic control units with the introduction of McLaren–Mercedes 1993, engine-to-gearbox increamers, demi-automated sequential gearboxes, power assisted steering, engine-braking-safety devices, malfunctions detection systems, flat-seven engines, complex sensitivity for fuel compositions, mechanical differential locks systems, fly-by-wire throttle, launch control, etc. Unfortunately, most of them had been outlawed by the FIA. Since the late 1990s, the FIA had been enforcing complex regulations on vehicles considered as state-of-the-art. As a result, it would be difficult for other vehicles to catch up without major investments. Adverse effects on the broader racing culture and on entertainment value were foreseen. Strict vehicle regulations ensured that costs could not skyrocket in need to follow rapid technological changes. (Le-Khac et al.2020)(Campi et al.2023)

The 1990s brought significant tragedy. The death of Ayrton Senna resurrected intense uproars on safety. New regulations on car safety included larger “crushable” areas around cars, twice as strong chassis frames with respect to past regulations, a ban on the use of light materials in the safety cage itself, requirements on the strength of the racing tracks, reinforcement of the driver’s headrest, and the abandonment of monocube designs. The wider use of traction control systems since mid-1990s concerned their influence on the drivers’ skills. Traction control was outlawed in the late-1993, but the 1994 Grand Prix in Brazil featured a chassis with a “legal” implementation of it, unfortunately with very tragic loss of Ayrton Senna. Several new regulations were written in months as a “knee-jerk” reaction. Since the mid-1994, the FIA propagated its side of the story for fingertips to the media, freely vilifying all who resisted its story or changes. The technologies that had been outlawed through the side-effects of accidents could only have been abandoned before the accidents had any implications.

3. Global Motorsports Landscape

The global motorsport landscape brims with diverse categories and competitions, showcasing a thrilling amalgamation of speed, engineering, and strategy. From Formula One to NASCAR, each series boasts a unique flavor that captivates millions worldwide. With passionate fans, prestigious manufacturers, and a zeal for innovation, Formula One and other major open-wheel racing series—a unique subcategory of open-cockpit racing cars—vie for dominance both on and off the track. This section embarks on a captivating journey through the intricate web of top-tier racing series, delving into their distinctive traits and uncovering their economic implications on a global scale. (Williams)

Drawing motorsport enthusiasts to the courses at breakneck speed, Formula One reigns supreme as the most renowned racing series worldwide, held in a staggering fifty-one countries. In this high-octane arena, delicate and dazzling machines—powering ahead at accelerations reaching up to five Gs—engage in cutting-edge combat. Grid sizes in Formula One have oscillated between twenty and twenty-two cars, primarily fielded by top-tier teams and elite manufacturers. Each car, accentuated with distinctive liveries and aggressively engineered designs, takes on its own identity, captivating the audience at the forefront of motorsport technology.

However, the cares of the pandemic largely affected Formula One. To bolster the sport's financial viability, a combined increase of central funds by 28% across the 2023-2025 seasons is negotiated among the promoters, Formula One Management, and the teams. Consequentially, an additional stream of income—borne from FOM holding fifty-one percent of the F1 content distribution platform sportsmax, equivalent to 14 million euros annually—shall be evenly shared among all teams. Although certain teams decried the legitimacy of F1’s shareholding, their fortunes nevertheless depend on the series’ financial might. The impacts of Formula One's evolution across motor racing tiers will also be examined through motorsport's three separate yet intertwined segments—tarmac, gravel and dirt, stadium, and track—that represent the secular racing landscape. (Becker, 2022)

3.1. Comparison of Major Racing Series

Auto racing has been an entertaining and exciting sport since its inception in the late 1800s, and with the motion of cars quickly around the circuit, it has ignited billions of fans’ souls. Auto racing has grown from local events with a few automobiles to multinational exhibition sports in front of millions of fans. Currently, fans of motorsport can watch and support both racing teams and automakers in various auto races on roads, off-roads, and racetracks. With its ever-growing popularity, many types and disciplines of motorsports event series have been established beyond national borders based on the kinds of roads and types of automobiles. (Greenwell et al., 2024)

Motorsport competitions worldwide can be categorized into two major divisions: professional racing series and amateur racing series. The professional major racing series include Formula One, IndyCar, World Endurance Championship, World Rally Championship, Moto GP, NASCAR, and Global RallyCross Championship. By this categorization, the amateur car racing series includes local club races for speed at local tracks and events at Bertrand auto races. While the club amateur racing events for leisure or development of passion for racing remain, many dozen amateur racing series have become globally professionalized beyond national borders to get television and sponsorship revenues. Prominent examples include rally cross rally events, club auto races at renowned racetracks, high-speed one-make series, promotion of touring car class races, and drift championships, among others.

3.2. Economic Impact of Motorsports

Economic impact studies related to motorsport events have gained increasing importance since the late 1970s. The economic sustainability of car racing events has become of particular concern since the 1980s when these events started to be organized in developing countries. Additionally, since the 1990s, international car racing events have been organized in countries with high perceived risk and relatively low economic development. In these instances, an analysis of the political economy of international car racing events became increasingly important. The analysis usually addressed the economic, social, and political ramifications of the motorsport industry in a local setting. (Gratton et al., 2020)

The economic impact of car racing events at various levels of aggregation has been studied. At the regional level, several studies indicated the economic impacts (usually, fiscal effects) of the motorsport industry on local designated areas (race track locations). These studies focused on NASCAR events held in the Southern U.S. or on Indianapolis Motor Speedway. At the national level, there have been studies on Formula One (race series, sanctioning body) in various countries (i.e., Canadian Grand Prix, Japanese Grand Prix). Recent studies also addressed the global level analysis of the economic impact of international car racing events on the automobile industry.

But literature relating to the social impact of automotive racing seems scarcer. Additionally, studies highlighting both the economic and social impact of motorsport activities at a local level seem non-existent in the English literature. In Japan and the Netherlands, some popular books on the social impact of motorsport racing activities at the local level, including several case studies, have been published. While there are many publications on the "social impact of events," a comprehensive study addressing the impact of car racing events seems to be non-existent. (Martins, 2023)

Nevertheless, such analyses are in need of the motor city of the world, motor vehicle-centered society, and an origin of motorsports—Japan to understand the implications of the globalization of motorsports on local social settings. Japan, with its three Formula One races (the highest class car race), has a potential to attract people interested in and involved in car racing activities from all over the world. The rise of car racing could enhance the presence of the motorsport industry and car racing fans in Tokyo where a lot of economic, business, and political decisions are made. On the contrary, Japan could be challenged by the decay of local social settings historically rooted in motorsports, i.e., street corner and specialty shops in car racing parts and tuning.

4. Financial Aspects of Formula One

Formula One (F1) has seen significant growth in both its revenue streams and cost structure over the past five years. In terms of revenue sources, the sport is not only heavily funded by sponsors but also by the owners of the sport. Diversifying customer bases and product lines are effective financial strategies, especially in the sports industry. Sponsorship income comprises TV sponsorship, team sponsorship, liveries, and others. The estimated values of the teams’ sponsorships are the highest, totaling $4233 million, while the F1 series’ and race sponsorships are lower, totaling $2225 million and $200 million, respectively. Such a structure shows that F1 as a series has improved its commercial ability in the past years.

Like many sports businesses, F1 makes money for the sale of its TV broadcast rights. Car manufacturers’ strategy to increase their investment in F1 to strengthen their brands has dramatically increased the sport’s race viewing rates in regions such as Asia. GP viewing rates in 2004 were the highest in Europe, totaling 69 million. In 2009, however, Asia took over Europe, with the viewing rates dramatically increasing from 75 million in 2004 to 363 million. Meanwhile, North America’s rate increased to 36 million. Such a strategy not only increased F1’s revenue from transmissions rights but also affected the viewing rates of teams. Teams’ visibility would also increase in regions where manufacturers invest heavily. For instance, Japanese automakers want to promote their brand to people in Europe, and F1 broadcasting would reach this target market. Thus, big manufacturers such as Toyota and Honda would increase their sponsorship investments, contributing to the increase of team revenue by other than retransmission TV rights.

Cost structure affects a company’s profitability and competitiveness to a great extent. A revenue structure with only a few majority clients is risky. Expense structure with heavy fixed costs would require that the revenue stream must be sufficient so that the expenses are recouped. In the case of F1, the cost structure is multi-faceted, including race cost, team participation cost, and engine manufacturing and supply cost. Race costs are borne by the funds from the teams. Team participation cost includes the transportation of cars and crews and the cost of hospitality and hotels for the members. In 1996, this cost was around $1 million. These essential inputs transform raw materials into a car on the racing stage. Such preparation involves testing tires and engines from Paris, manufactured by a group of 20 people driving 8 cars. A dramatic increase in the initial input is needed since F1 car development requires more infrastructure than that of other sports.

The engine manufacturing and supply cost are incurred because teams have to rent engines from a single manufacturer, Honda or Ferrari. Engine rental fees are not uniformly applied, as Ferrari charges lower fees to McLaren than to the remaining 7 teams. To balance team performance, there is an upper limit on engine quality allowed in a car. Teams buy 1998 engines late in 1997, with the engine evolution from there on limited to safety-relevant issues. This again demonstrates the cost structure of non-economically sustainable activities. To make this recommendation credible, reliable estimates were calculated of F1’s cash and revenue flows. Even if significant further investments are written off, an interesting scenario emerged considering the suspension of stage 1 effectively paying for all investments.

4.1. Revenue Streams

Formula One, the pinnacle of motorsport, has long been a cash cow for its stakeholders. In 2021, F1's annual revenue reached US$2.6 billion with a margin of 35% (CNA, 2022). However, the covid-19 pandemic hit F1 hard by delaying the season and reducing income from hosting and promoting races. Luckily, the heavily debated Drive to Survive (DTS) Netflix series impelled a surprising turnaround for the heritage motor race championed by FOM, FOWC, and FIA since its inception in 1950. Insights into the cuts on revenues and expenses are provided along with different regulations in income streams crucial to F1's survival and the legacy of this financial tumult for global motorsports. (Garcia Tejada, 2023)

The term income streams refers to sources of income accompanying the operational falls in revenues and expenses. In F1, there are six different regulations in income streams. First off, F1’s earnings from track promoters, suppliers, and Pan-Asian companies are tied to the number and timing of races held. In very simple terms, the contractual window with venues is more profitable the busier the seasons, which encourages hosting parties like the Australian GP to reinstate the event year after year. Countries with large political appetite also provide second-tier hosting fees to treat hold-outs like the Miami GP. Such arrangements comprise a substantial 48% of F1’s revenue. During the pandemic, holding races in traffic-free zones like the Circuit de Barcelona-Catalunya made sense to save costs but meant a quarterly revenue slump of US$58 million. With a total of 19 races however, revenue was kept to 88% compared to a typical pre-covid race calendar. Fourteen was at stake as track promoters submitted their annual earnings reports, whose margins were seasonally re-adjusted. Subsequently, this effort meant a reduction of revenue up to 68% for Halos like Yas Marina or Melbourne that hosted one race a year, while circuits like Silverstone dividends remained unaffected with 19 races per season (x25 since 1974) (Foster, 2022). Argentina’s loss of the 2020 race simply capped its venue fee at 2019 levels, which is F1’s secret, but the essential point is that the venues are price-sensitive to begin with.

4.2. Cost Structure

The advent of cost caps in Formula One has had significant implications for the cost structure of the teams competing in the World Championship. The rationale behind introducing spending limits in one of the world's most expensive sports was to make it more sustainable and avoid high-spending teams dominating the competition. The general view is that the introduction of cost caps has had significant implications for the expense structure of the teams competing in the World Championship. However, it remains unclear how cost caps influence the relative importance of team expense categories. The substantial investments required to develop and restore complex racing machines in F1 races imply that spending limits may have implications for the cost structure, and scoping out corresponding implications of spending limits is therefore crucial for answering the RQs concerning the financial implications of F1's evolution. (Van Reeth, 2022)

The analysis of the cost structure of the team expense categories of all competing teams (20 teams in total) is performed. The yearly expense data is standardized by conducting the ratio of each expense category to total team expenses in corresponding years. An event study approach is thus applied, which allows investigating the longitudinal relative development of the team expense categories. The performance is followed for five years, two years before and two years after the change, with the announcement of cost caps marking year zero. Accordingly, expense development is observed from 2018 to 2022. The costs are thus clustered in four categories taken from the Formula One Financial Report: "sporting costs", "manufacturing costs", "capital costs", "engineering, administration, and other costs". The latter two categories are summarized by "overheads". To observe whether treatment groups have a different composition of costs, team expense categories are compared in pre-treatment years, 2018 and 2019. Building on the hypotheses developed beforehand, the results indicate that the cost structure of teams (SP and privateer teams) relatively converge by the introduction of cost caps. The results also reveal that cost caps have had a smoothing effect across all teams concerning the expense development in the most crucial area of motorsport, engineering expenses.

5. Conclusion and Future Outlook

The financial evolution of Formula One is a complex and multifaceted statement that affects various aspects of global motorsport racing, both positively and negatively. By analyzing the financial evolution of Formula One and its implications on global motorsport racing, a deeper understanding of how this highly popular and well-covered sport has come to arrive at its current state is provided. The analysis also demonstrates how one of the greatest and most popular motor racing series would collapse were it not for the 2011 engine regulations that were intended to disrupt the superiority of the then-dominant Red Bull Racing outfit and its Renault V8 engines. As a consequence, a balance was obtained that offers the possibility of competitiveness, afforded by the emphasis on operability and less cumbersome engine technologies and solutions.

Despite this, many of the challenges that have arisen do not solely concern the Finances of Formula One but rather concern issues of conduct, fairness, and equality among all involved parties. Meaning that, although Formula One has addressed and covered many of the technical issues that had arisen, a variety of business practices and agreements that were common to the acceptance of the Concord Agreement signed in 2018 remain far from good practice. Rarely ever have tensions been seen in the public of a sporting series, and there are some that are beyond doubt fair and do not justify the criticism they receive. In the essence of liberty, Formula One is mostly responsible for an always foremost concern: The focus on adding new teams. The sudden rise of another racing series worldwide is a threat not so much to Formula One's existence but to the very structuring of the series in racial heritage and public conduct.

Looking towards the future, the unprecedented situation the entire globe is facing due to the outspread of the COVID-19 pandemic inevitably poses questions about the viability and implications of the F1 business model on a medium- to long-term basis. As a direct consequence of lockdown measures taken by different countries all around the world, a sizable part of the current f1 calendar has been rendered inoperable. Although experts predict that an eventual economic recovery of utmost sincerity will occur within 10 years, any sort of revival and recovery could prove to be too late for some. The significant effort taught to publicize this failure and collapse demonstrates a deeper understanding of its impact and implications both on Formula One and on global motorsport racing.

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