If you want to make a small fortune in auto racing, start with a huge fortune. That old saying is more relevant than ever. The finances behind high-stakes, competitive motorsports are ruthless—even more so than in any other mainstream sport.
The variables behind how teams, drivers, and sanctioning bodies like IndyCar, NASCAR, and F1 make their money aren't only wildly complex, but they can also change frequently, depending on evolving business needs, market conditions, and any number of other factors. Plus, the principals are deeply secretive, with most members of the racing fraternity unwilling to discuss contracts, salaries, or sponsorship deals.
Racing is a performance business. Only the best, the fastest, and the smartest can survive for long. The historical, decades-long losses sustained by, say, the Cleveland Browns, would never fly in motorsports. Whether open-wheel or stock cars, the basic rules of capitalism are applied with neither mercy nor sentiment: a team with top-10 overhead can't finish outside the top 10 and expect prime sponsors and drivers to stick around. The flashy decals will stop arriving and the talent will jump ship. And once that happens, it's game over.
In order to pay the bills, racing teams and their respective drivers need multiple sources of revenue, and these will vary depending on popularity, rank, and driver marketability. These streams of revenue begin with sponsors, and include drivers (more on this later), purse monies, services rendered, such engine building and supporting customer teams (this applies mainly to Formula 1), and lastly, merchandise revenue.
For example, organizations like Team Penske and Chip Ganassi Racing are much more marketable than Hendrick Motorsports, which, despite being perennial a NASCAR frontrunner, doesn't have the same marketability as Roger and Chip, who both have teams in multiple series. Another team that's highly successful in this area is Andretti Autosport, whose sponsors can be found on its IndyCar, Rallycross, Indy Lights, and Formula E racers.
The business of racing is unique in another major way: most of the big-money deals are based on tight-knit connections, and performed behind the scenes. After the Great Recession of 2008, sponsorship dollars became extra hard to grab, and made the recipients of this sparse cash all the more secretive.
After talking to a dozen sources on this subject matter—many of whom preferred to remain anonymous—only one thing was evident: nothing is what it seems, and everything (and everyone) in motorsports has a price.
1. Formula 1
The oldest and most prestigious championship in the world has a neatly organized revenue system, but its inner workings are a rat's nest of politics and 50-year-old handshake deals that flirt with cronyism. The "Formula One Group" as a business enterprise is currently owned by Liberty Media, and is listed on the NASDAQ as FWONK.
The following is a breakdown of how Formula 1 as a sanctioning body makes its money, how F1 teams make their money, and lastly, how F1 drivers earn a living.
How does Formula 1 make its money?
F1's biggest revenue stream comes from the sale of television rights, which in the United States alone was worth $4 million a season in 2017. Globally, television contracts added a staggering $587 million to Liberty Media's 2017 balance sheet. Unlike most sports or racing series, Formula 1 handles all TV logistics at all of the venues and provide what's called a "global feed" to hundreds of TV networks—each of whom pay a hefty price of admission. These networks add their own commentary and onscreen graphics, which is why the on-air team at ESPN can sometimes seem a little, well, lost.
F1's second-biggest revenue stream is made up what is called "race-sanctioning fees." Every F1 venue in the world—from a classic like Monaco to a newbie like Baku—has to pay a massive fee to F1 to be added to the calendar. Per Bernie Ecclestone, the former F1 supremo, all contracts have built-in confidentiality clauses that keep promoters from publicizing the fees and terms. However, SEC filings show that F1 made $654 million in sanctioning fees for the 2016 season, which featured 21 races. This means that the average fee F1 charges is roughly $31 million. It's public knowledge that Monaco pays considerably less than that—most likely because, arguably, F1 needs Monaco more than Monaco needs F1.
F1's third-biggest revenue stream is a combination of ticket sales and other paid partnerships with companies or products. On top of the already hefty sanction fee, venues must pony up a percentage of the ticket sales to the racing organization, although this is typically accounted for in the initial contract. Newer venues with higher fees typically pay less in admissions revenue, and established tracks with lower-than-average fees pay more from admissions.
How do Formula 1 teams make their money?
F1 teams are lean, mean, cash-making machines, regardless of whether they're at the top or the bottom of the points standings. Sure, the smaller guys may have a harder road to travel, but that doesn't mean they're broke. A "small" team like Sauber outspends a top IndyCar team many times over, and the cash they bring in from wealthy aspiring racers or heavily sponsored future stars is measured in the tens of millions of Euros.
For F1 teams, revenue begins with one word: sponsorships. Without sponsors paying big bucks to apply their decals to the race cars, teams wouldn't have enough money to show up at the tracks. On average, sponsorship contracts are negotiated for a minimum of two years and a maximum of five, although most hover around the three-year mark. This allows teams to focus on getting the job done with relative peace of mind that the funds will be there next season—or next week. However, an organization like Ferrari can command five- and ten-year contracts from companies like UPS, Ray-Ban, and its most important sponsor of all, Phillip Morris International, whose Marlboro brand pays over $150 million dollars per year to be squeezed into the team's formal name: Scuderia Ferrari Marlboro.
The second revenue stream is the most important for the smaller F1 teams, who don't bring in as much cash from sponsors as the big boys: Formula One Group (FOG) money. At the end of every year, the FOG ends up with a billionaire's sum from the year's business dealings. This lockbox is then doled out to the teams according to the terms of the last Concorde Agreement, a document signed by every F1 team in 2013. As of 2017, each team is awarded $36 million for simply living to see another day. However, new teams won't receive this bonus until their third consecutive season. Teams also receive bonuses for winning the constructors' championship, and for other competitive measures. Ferrari is the only team to receive an "LST" bonus, which stands for Long Standing Team, of $68 million for being with F1 since the get-go.
The third revenue stream for F1 teams comes from the drivers themselves. How? Aspiring racers need one of two things to get behind the wheel of an F1 car: cash or cash-rich sponsors. Talent is a distant third, maybe fourth (cough Pastor cough Maldonado). Young racers from wealthy families can offer millions of dollars to support the team for the duration of the season, while others can use their sponsorship money to basically do the same. In the end, paid or sponsored drivers represent serious income for racing teams.
Other considerable streams of cash for F1 teams come in the form of services rendered and licensing. Let's use Ferrari as an example: The Italian team not only applies its logo to teddy bears, carbon fiber cigar humidors, and a wide variety of souvenirs, but it also sells engines and technical support to other teams, such as Sauber and HaasF1. Mercedes-AMG Petronas, Sahara Force India, and Williams F1 are engaged in similar, profitable partnerships.
How do F1 drivers earn their income?
Unlike drivers in other racing series, F1 drivers have very simple income models. All drivers earn a salary from the team, even those who pay to drive, and they're also allowed to pursue personal endorsements with other companies, although a percentage of these earnings must be shared with the team. F1 drivers do not receive purse money from racing venues or from Formula 1 itself.
The Alonsos, Vettels, and Hamiltons of the world also enjoy hefty bonuses from their teams for scoring race wins, pole positions, fastest laps, and winning world championships. And although these bonuses and salaries are kept under wraps, it's rumored that Lewis Hamilton's salary is over $41 million per year, and sources with ties to Sebastian Vettel claim that the German's bonus for delivering the fastest lap of the race was approximately $25,000 during his time at Red Bull and $500,000 for winning a Grand Prix.
2. IndyCar
IndyCar is owned by Hulman & Company, which also owns the Indianapolis Motor Speedway, IMS Productions, and the Indiana-based baking-goods brand Clabber Girl. The Hulman empire is led by its President and CEO Mark Miles, who also bears the title of IndyCar CEO.
To a certain extent, America's premier open-wheel racing series functions like Formula 1, but the fact that IndyCar has part-time drivers and even part-time teams makes things a bit more complicated. In addition, the crown jewel of the IndyCar championship is the Indianapolis 500, which has its own cash and points payout, plus its own driver and sponsorship contracts. It's basically a championship within a championship that in many ways eclipses the series itself.
The biggest differentiator between IndyCar and Formula 1 is that drivers and teams collect purse money directly from IndyCar. This is great for the teams' bottom lines, but it also makes for confusing driver contracts that award sliding percentages of purse money to the drivers based on race performance.
How does IndyCar make its money?
Much like Formula 1, IndyCar charges a sanctioning fee to racing venues for hosting races. These, like many other details about the inner workings of the series, are secret, but the recent Laguna Seca deal for 2019 revealed that this amount was between $1 and $1.5 million per year for three years. It's unknown whether the Laguna Seca deal includes a percentage of ticket sales and other on-track revenues.
Another two major streams of cash for the series are hefty TV rights contracts and headlining sponsors. The former was just reestablished at the beginning of the year when IndyCar announced a new three-year broadcasting contract with NBC starting in 2019, while the latter is already in the early stages of negotiations with a new (unknown) partner to replace Verizon, whose contract expires at the end of this season. According to Sports Business Journal, the Verizon deal is worth approximately $10 million per year. Official sources with knowledge of the NBC TV deal's worth declined to comment.
How do IndyCar teams make their money?
You guessed it: Sponsors. However, the first few pennies a racing team earns every year comes from something called the "Leaders Circle" program, which is IndyCar's way of rewarding teams for their full-time participation in the sport. This amount has fluctuated over the years, but as of 2018, it stands at approximately $900,000 for every car (that's car, not team) that's entered for all of the season's races and attends all of the mandatory test sessions. This sum is paid in a per-race basis throughout the season.
Directly from the IndyCar rulebook: "The program whereby INDYCAR provides benefits to Leaders Circle participants in exchange for their participation in all of the Races. Leaders Circle participants must enter into an agreement with INDYCAR, remain in good standing and be uniquely identified by a tax identification number, car number, and driver. Leaders Circle designations may not be transferred, and/or otherwise assigned without prior written permission by INDYCAR. INDYCAR may limit the number of Leaders Circle participants as it deems appropriate."
The Leaders Circle amount can vary from year to year at IndyCar's discretion. The Leaders Circle Program "stimulus" was an estimated $1.25 million in 2015, but it dipped to $900,000 for the 2016 and 2017 racing seasons. A request to learn about the inner workings of the Leaders Circle Program's purse and how it's distributed in 2018 was declined by IndyCar.
When it comes to sponsors, there are teams who have them all like Andretti Autosport and Team Penske, and there are others who hardly have any, like newbies Harding and Juncos. Also, there are top teams like Chip Ganassi Racing who used to have it all (back in the Target days), but their current state reflects how hard it can be to sign multi-year, multi-million-dollar sponsorships nowadays. Their current deal with PNC Bank appears to be bringing decent cash, but sources close to the team claim that everyone at CGR, including Scott Dixon, earns less money today than they did five and 10 years ago.
Paid drivers are another important source of income for some IndyCar teams. In fact, in the case of Dale Coyne Racing and others on that level, it's the only source of income. Extensive conversations with the likes of former professional racing driver Alex Lloyd and half a dozen other active drivers have proven that some teams simply don't care to mine sponsorship opportunities on their own.
"Teams don't really actively look for sponsors because they've grown so used drivers coming in with a ton of personal money or a ton of sponsors," said a former IndyCar racer who now races at a different open-wheel series.
Teams also benefit from other odd and somewhat obscure monies. Such is the case of the new universal aero kit that's mandatory for the 2018 racing season, which costs upwards of $90,000 per kit. In January of this year, the State of Indiana Economic Development Commission agreed to buy two aero kits per car for each 2018 Leaders Circle entrant. This wasn't only a great deal for the kit's manufacturer, Dallara, but also to the teams who saved about $180,000 per car. If you're Andretti Autosport, that's roughly $720,000 in savings.
How do IndyCar drivers make their money?
"What money?" would be what approximately 30 percent of the grid would say when asked that question. Reporting reveals that top drivers on top teams can make a decent living (although they're still severely underpaid compared to other athletes), that some drivers earn an "ok" six-figure salary thanks to sponsors, and that about 30 percent of the field doesn't make a dime—they're simply hoping for a breakthrough. Most shockingly, there are still others who have gone into debt in order to buy a seat, hoping that any prize money or sponsorship money they earn during the year will repay the loan.
This is a glimpse into the top open-wheel racing series in the United States.
Sponsorship and team salaries aside (if any), this is what drivers could receive from IndyCar each race should they finish in the top 12.
- $30,000 first place
- $20,000 second
- $15,000 third
- $11,000 fourth
- $10,000 fifth
- $9,000 sixth
- $8,000 seventh
- $6,000 eighth
- $5,000 ninth
- $4,000 10th
- $3,000 11th
- $2,000 12th
Think that's not so bad? Think again. Not only are these anemic numbers considerably smaller than what Champ Car and CART drivers used to make in the 1990s, but what most people don't know is that drivers' contracts state that anywhere from 50 to 70 percent of the prize money goes to the team—without exception. These clauses typically feature sliding percentages, in which a driver who finishes 15th and below might keep 30 percent of the prize money, 10th to 15th place keeps 35 percent, the top nine 40 percent, top five 45 percent, and a winning driver gets to keep half of the prize money.
So let's build a hypothetical season for a hypothetical driver with that specific prize money breakdown. If said driver were to win half of the races in the 2018 season (not counting the Indy 500)—and that would be quite the feat—he would only net $120,000 in prize money at the end of the year. Because drivers are considered self-employed and these monies would be earned in several states and under different tax laws, it's safe to assume that our driver would have a tax burden of around 35 percent, which means that if no other income is earned that year, our hypothetical all-star driver would've risked his life at 230 miles per hour for an entire year in exchange for roughly $85,800, after taxes. However, our made-up driver would earn even less if he opted for the minimum life and health insurance plans offered to high-risk athletes.
"Drivers all have to be self-insured," an active IndyCar driver told me. "Nothing is offered from the series. Justin Wilson didn’t have life insurance when he was killed."
This is why drivers with decent reputations must spend their entire racing season selling car, suit, and helmet advertising space. If they don't win half the season's races, and they don't race for a team who pays them a decent salary, and they don't have hefty sponsors—they couldn't afford to rent a decent apartment in suburban Indiana.
"At the Las Vegas race when [Dan] Wheldon got killed, that was my last IndyCar race, that year I was probably earning the same or less than one of the team mechanics, but I was paying the additional costs of being a driver," said Alex Lloyd, four-time Indy 500 contestant with Chip Ganassi, Rahal Letterman, Sam Schmidt and Dale Coyne. "And I did buy some insurance that year, so I could at least cover myself against hospital bills or anything like that.
"But when you're in that situation, it's tough. I remember my wife trying to find us a bloody cheap sandwich to eat for lunch at the race, but we couldn't find a $5 Subway footlong anywhere and we couldn't pay $20 for a meal at the track or anywhere nearby," he added. "I kept on saying 'Screw it, we'll keep looking.' That year I was racing IndyCar, and I had finished fourth at the Indy 500 the year before, yet here I am trying to make ends meet with a family and things like that, earning nowhere near enough to survive."
The Indy 500
The most famous race in the world borrows IndyCar's somewhat complicated economics system and takes it to a new level. Teams still make money from sponsors, paid drivers, and their share of the prize money, but the drivers have to navigate a somewhat laughable maze of contracts and clauses.
There are two ways to race at the Indy 500; one involves being a full-time IndyCar driver, and another one involves paying a big chunk of cash for a seat—typically around $500,000 to $1,000,000. Drivers come up with the money in several ways, such as personal wealth, sponsors, or personal loans from individual backers.
At the time of handing over the cash to the team, a driver (or his agent) sit down with a team representative to draft a contract. This contract highlights how much the driver will receive in salary, if any, and what percentage they will keep from the prize money after the Leaders Circle money is deducted. Once this contract is hashed out, the driver can officially turn some laps. Once the race is over, the driver is handed an enormous check with an enormous amount of money and is forced to go on stage to give an acceptance speech; leading everyone to believe that all of that money is theirs to keep. Per several drivers and other sources close to this matter, this is what actually happens:
Check amount - Leaders Circle money - negotiated percentage = driver's take-home pay.
Let's bring our hypothetical racer into this again, and assume that he was handed a $500,000 check after the Indy 500 and he negotiated a 40 percent share of the prize money. After deducting the $200,000 that IndyCar awards the team as part of the Leaders Circle Program, the driver then gets 40 percent of the $300,000 that remain. In theory, unless other sponsorships are involved, our made-up driver will take home approximately $120,000 before taxes and insurance premiums.
3. NASCAR
The National Association for Stock Car Auto Racing, NASCAR, is a privately owned enterprise that was founded in 1948 by the France family. Besides being a household brand in North America with its two largest championships, the Monster Energy NASCAR Cup Series and the NASCAR Xfinity Series, it's also a sanctioning body to dozens of racing series that host thousands of races across the continent. Other ventures include NASCAR Mexico, NASCAR Europe, and even NASCAR Online through the iRacing platform.
NASCAR has grown to become a megapower in the American motorsports landscape, and until recently, it held the most expensive TV contracts, had the most on-air time of any non-ball sport, and commanded billions of dollars per year in licensing fees. However, a changing economic landscape and demographic profile that increasingly prefers to follow sports online rather than TV, or doesn't care for stock car racing at all, haven't been kind to the series. As a result, the series has slowly but surely lost some of the marketable appeal that attracted top-notch sponsors.
How does NASCAR make its money?
The sanctioning body has similar ways of making an income as Formula 1 and IndyCar. At the very top, there is a massive revenue stream from TV rights that are sold to networks, most recently to NBC. In 2013, the TV giant agreed to pay NASCAR $4.4 billion dollars for the exclusive rights to show only the second half of its two major cups; so the final 20 Monster Energy Cup (back then Sprint Cup) and the final 19 Xfinity races (back then Nationwide) each season starting in 2015 and until 2025. Fox agreed to pay $2.4 billion for televising the first half of season, bringing NASCAR's total TV revenue to $6.6 billion over the course of a decade. That's $660 million per year.
Then, like with the other two series, there are race sanctioning fees which according to SEC filings made by International Speedway Corp., the promoting and financial branch of NASCAR, can range from a few thousand at a regional level up to $14 million for the blockbuster Monster Energy Cup races. Lastly, there are the headlining and other secondary sponsors that pump much-needed cash into the stock car racing circus' bank accounts. This includes the estimated $60 million, three-year contract from Monster Energy, that much like IndyCar's Verizon deal, will be going away soon, and other monies earned from companies claiming to be the beer, deodorant, tool, or official oil of NASCAR.
How do NASCAR teams make their money?
NASCAR teams work on nearly identical business models as Formula 1 and IndyCar, but in terms of profit sharing with the sanctioning body, they more closely resemble F1. Teams receive a percentage of the TV rights and all the licensing earnings that NASCAR makes throughout the course of the year. The share of the TV money, which as of the 2015 NBC contract was rated at 25 percent to the teams, will be dispersed through the purse money and other bonuses.
Because NASCAR is made up of more than one series, the money has to be allocated accordingly, but according to financial filings, 93.75 percent of the TV money was allotted to the Monster Energy Cup, 5.75 percent to Xfinity, and 0.5 percent to the Camping World trucks. Similar to other forms of motorsports, NASCAR teams are also open to taking drivers' money and juicy sponsorship contracts in exchange for drives, further securing more funding for the team.
Some of the bigger teams with large engineering and data-analysis operations sell their services to smaller teams who can't or choose not to staff an army of engineers and data coaches. According to Sporting News, these fees can range from a cool $100,000 per race for engine and electronics support to $250,000 for supplying additional manpower or equipment to other teams.
How do NASCAR drivers make their money?
Stock car drivers have lots of cash to look forward to—quite a bit more than in IndyCar, but usually less than most Formula 1 drivers. And although these outrageous incomes may be dwindling, NASCAR drivers are hands down some of the best compensated in all of motorsport.
The money arrives into the pockets of the awkward-looking, boot-cut racing suits in different ways. First, there is the salary, which can range from $50,000 at the entry level to over $4 million per year. Then there are drivers' sponsors and personal endorsements, which again, depending on the driver's popularity and can vary from nothing to another cool million or two. Lastly—and this is the area where everything is up for grabs and drivers can either make or break—is the prize money.
Unlike IndyCar, NASCAR has extremely healthy purses that are dispersed to all participants whether they win or they finish last. At the end of the day, everyone gets a piece of the pie. However, much like their open-wheel counterparts, NASCAR drivers also have to negotiate their share of the prize money because some of it must be shared with the team. The series' top drivers get to keep about half of the prize money, with the average being between 35 to 40 percent according to sources, and some drivers also have sliding percentage clauses built into their contracts. NASCAR drivers also have to provide their own health and life insurance in order to protect themselves from costly hospital bills or possible death.
According to Forbes, Dale Earnhardt Jr. earned $28.1 million from June 2011 to June 2012, which quite literally surpasses what any driver in America earns and goes right up there with some of F1's highest paid drivers. But, it's interesting to analyze the way he earned his money. Junior earned $4.1 million in salary money, $15 million in personal endorsements (highest in the series), and $13.2 million in winnings. NASCAR champion Brad Keselowski earned $12.1 million in purse money alone in 2012, but after his negotiated share he got to keep roughly $5.73 million, meaning his contract awarded him almost 50 percent of the purse money.
Despite the downward slide in TV ratings and ticket sales, these exorbitant salaries are still generated in 2018. Right before retiring, Earnhardt Jr. once again made headlines for taking home $22 million in 2017, Jimmy Johnson made $19.2 million, and Kyle Busch made $14.7 million, according to Forbes.
What Lies Ahead
Formula 1, IndyCar, and NASCAR are all going through a period of uncertainty, where despite some good signs and some bad signs, changing technologies, fluctuating consumer behaviors, and rising costs of doing business are forcing them to constantly reevaluate and even change their outdated business models. That is if they want to be around for another decade, of course.
When it comes to the racing teams, this is the entity that perhaps has the most to lose. Teams have to hire staff, buy facilities, finance a payroll, and risk real cash with the hopes that good drivers come in and race for them, wealthy drivers come in and pay them, or that a combination of the two comes in and wins races and helps them attract sponsors. However, teams are somewhat protected by revenue share models that although can't keep them fully afloat, helps keep some of the lights on.
Lastly, it's unclear what the future holds for racing drivers. While the top dogs of the world will continue to make fortunes behind the wheel, others will keep risking their lives for little to no money. However, my biggest concern isn't the underperformers, but the talented young men and women who keep being turned away because they don't have the financial backing to get a seat. Motor racing has always been a dog-eat-dog sport, but it's time for folks at the helm of the FIA, Hulman & Company, and NASCAR, realize that there is a need to reevaluate the way teams spend their money, and how a specific fund for promoting talent and not checkbooks should be implemented in order to keep the sport alive.
Because in the end, what's the point of having a grid full of cars plastered with hefty sponsors if the drivers aren't any damn good?
